WEBVTT - The PFAS Problem, Regulatory and Other Issues 0:00:12.240 --> 0:00:16.000 Hello, and welcome to the Votes and Verdicts podcast, hosted 0:00:16.040 --> 0:00:19.560 by the litigation and policy team at Bloomberg Intelligence, the 0:00:19.600 --> 0:00:24.520 investment research platform of Bloomberg LP. This podcast series examines 0:00:24.560 --> 0:00:28.280 the intersection of business policy and law. I'm Elliott Stein, 0:00:28.320 --> 0:00:31.840 an analyst with Bloomberg Intelligence covering financials litigation. 0:00:31.840 --> 0:00:33.879 And my name is Nathan Dean, and I'm an analyst 0:00:33.920 --> 0:00:35.760 with BI covering financials policy. 0:00:36.920 --> 0:00:39.840 So we're delighted today to be joined by Jason Gottlieb, 0:00:39.960 --> 0:00:43.480 partner and chair of the White Collar and Regulatory Enforcement 0:00:43.520 --> 0:00:47.199 Group as well as Chair of the Digital Assets. 0:00:46.680 --> 0:00:50.240 Group at the law firm Morrison Cohen here in New York. 0:00:50.800 --> 0:00:52.960 Jason he is one of the pre eminent lawyers in 0:00:53.000 --> 0:00:55.720 the digital assets space, and he was named to the 0:00:55.800 --> 0:01:01.800 National Law Journal's inaugural list of Cryptocurrency, blockchain, and Fintech Trailblazers. 0:01:02.080 --> 0:01:04.800 He's been widely published and quoted in the media for 0:01:04.840 --> 0:01:08.480 his cryptocurrency and blocking expertise, and he's one of my 0:01:08.520 --> 0:01:10.880 favorite Twitter accounts to follow when it comes to crypto 0:01:11.040 --> 0:01:13.720 and law, since it takes I find to be always 0:01:13.760 --> 0:01:14.759 smart and measured. 0:01:15.040 --> 0:01:16.840 So we're really excited to have Jayson. 0:01:16.600 --> 0:01:19.160 Here today since there's in my mind, really no one's 0:01:19.200 --> 0:01:21.920 better to discuss some of the legal and regulatory issues 0:01:21.959 --> 0:01:24.560 around crypto, and I think it's a really good time 0:01:24.600 --> 0:01:27.440 to discuss the future of crypto law and policy, since 0:01:28.040 --> 0:01:32.360 just last week SEC care Gary Gentifler testified before the 0:01:32.400 --> 0:01:35.280 House Financial Services Committee, and we also had a stable 0:01:35.319 --> 0:01:38.640 point here in before the same committee, and we are 0:01:38.800 --> 0:01:40.919 in the midst of what appears to be a pretty 0:01:40.959 --> 0:01:45.480 aggressive regulatory enforcement crackdown on crypto in the US. 0:01:45.800 --> 0:01:48.640 So with all that, Jayson, welcome to the Votes and 0:01:48.760 --> 0:01:49.640 Verdict podcast. 0:01:50.320 --> 0:01:52.640 Thanks so much, Ali, it's great to be here, and 0:01:53.400 --> 0:01:55.320 welcome to Nathan as well. 0:01:55.360 --> 0:01:58.760 Thanks all right, So Jason, before we jump into some 0:01:58.800 --> 0:02:02.880 of the substantive discussion about crypto law and policy, you know, 0:02:02.920 --> 0:02:05.000 we'd like to ask our guests a little bit about 0:02:05.000 --> 0:02:07.920 their background. So maybe before we get into, you know, 0:02:07.960 --> 0:02:09.679 the real content, maybe you can tell us a little 0:02:09.720 --> 0:02:12.839 bit about your legal career, your current practice, and perhaps. 0:02:12.600 --> 0:02:15.080 Most importantly, how you got into crypto law. 0:02:15.919 --> 0:02:20.000 Yeah. Absolutely, I've been a long time nerd, right going 0:02:20.040 --> 0:02:22.760 back to you know, blowing all my bar Mitzvah money 0:02:22.800 --> 0:02:25.680 to buy an Apple two see computer to try to 0:02:25.760 --> 0:02:30.519 learn to code. So technology has always been a part 0:02:30.560 --> 0:02:34.080 of my life. Before law school, I worked at a 0:02:34.200 --> 0:02:37.720 computer and internet company in Tokyo. Before coming back to 0:02:37.760 --> 0:02:41.560 New York for law school. I started at the law 0:02:41.560 --> 0:02:45.160 firm Cleary Gotlieb and was trained there and had a 0:02:45.240 --> 0:02:49.840 really terrific time. I wanted to branch out through a 0:02:49.919 --> 0:02:54.239 sort of smaller, more entrepreneurial firm where I could build 0:02:54.320 --> 0:02:58.040 up a technological practice, and really that's what I've been 0:02:58.040 --> 0:03:01.160 able to do here at Morrison Cohen, building up a 0:03:01.200 --> 0:03:06.160 practice that started as a general fintech litigation and enforcement practice, 0:03:07.000 --> 0:03:09.520 but in the last few years we've moved very heavily 0:03:09.639 --> 0:03:14.720 into digital assets, which includes cryptocurrencies, but all aspects of 0:03:14.880 --> 0:03:19.880 a Web three environment. It's been fascinating to me ever since, 0:03:20.040 --> 0:03:23.160 sort of early on I read the Satoshi white paper, 0:03:23.480 --> 0:03:27.919 and my first thought was not about the privacy implications 0:03:28.000 --> 0:03:32.760 or the cryptography implications. My first thought was, oh, man, 0:03:33.080 --> 0:03:35.400 regulators are going to hate this. And it took him 0:03:35.440 --> 0:03:38.720 a while to catch on, but when they did, they 0:03:38.800 --> 0:03:41.520 certainly did hate it. So we're dealing with the aftermath 0:03:41.560 --> 0:03:44.520 of all of that as well. 0:03:44.760 --> 0:03:46.720 What was it in particular that made you think that 0:03:46.800 --> 0:03:48.000 regulators are going to hate it. 0:03:49.240 --> 0:03:54.760 The fundamental insight in that white paper and of cryptocurrency 0:03:54.800 --> 0:04:01.720 in general, is disintermediation, the ability to conduct financial transactions 0:04:01.760 --> 0:04:06.440 in a secure way without having to have them go 0:04:06.600 --> 0:04:10.600 through banks or other financial intermediaries. The regulators are going 0:04:10.640 --> 0:04:15.560 to hate that because regulators rely on intermediaries. Right, Regulators 0:04:15.960 --> 0:04:19.240 both set the rules for the markets, but they're also 0:04:19.360 --> 0:04:21.880 the enforcers. They're the cops who make sure that nobody's 0:04:21.960 --> 0:04:25.400 doing anything bad, whether it's money laundering or securities fraud 0:04:25.520 --> 0:04:28.800 or commodities markets manipulation. That they need to watch the 0:04:28.920 --> 0:04:34.000 entire markets, But cryptoregulators are not Michelle Yal. They can't 0:04:34.000 --> 0:04:37.000 be everything everywhere, all at once, so they need to 0:04:37.080 --> 0:04:41.719 rely on intermediaries to watch the markets for them, and 0:04:41.760 --> 0:04:45.520 they essentially deputize the big banks, the broker dealers, the 0:04:45.560 --> 0:04:52.080 transfer agents, everyone who plays an institutional role to follow 0:04:52.160 --> 0:04:57.359 rules designed to prevent wrongdoing. Cryptocurrency sweeps all that away. 0:04:57.360 --> 0:04:59.560 It says, we don't need any of the intermediaries. We 0:04:59.600 --> 0:05:02.200 can do all all of this ourselves. And if you're 0:05:02.240 --> 0:05:07.799 taking away the regulator's ability to monitor the markets, they're 0:05:07.839 --> 0:05:11.279 going to resist that. They're going to insist on having 0:05:11.320 --> 0:05:17.039 these intermediaries for a legitimate consumer protection and even national 0:05:17.080 --> 0:05:18.040 security issues. 0:05:19.160 --> 0:05:21.640 Yeah, that's that's actually really interesting, and I think it 0:05:21.720 --> 0:05:26.480 tees up my next question, which is, you know, I'm 0:05:26.480 --> 0:05:29.000 gonna talk a little bit about SEC chair Gary Gensler. 0:05:29.120 --> 0:05:33.719 He's obviously taken an aggressive stance and saying that basically 0:05:33.760 --> 0:05:36.599 every digital asset other than bitcoin is a security and 0:05:36.640 --> 0:05:39.960 needs to be registered as such. And what you were 0:05:40.000 --> 0:05:43.520 just talking about, I think also ties into one of 0:05:43.560 --> 0:05:46.000 the reasons we reached out to you because you had 0:05:46.000 --> 0:05:49.479 a really interesting thread on Twitter. It was like twenty 0:05:49.480 --> 0:05:52.480 five tweets, so I won't read the whole thing, but 0:05:53.000 --> 0:05:55.119 you know, let me read the first tweet of that thread, 0:05:55.160 --> 0:05:58.960 because I think it sets things up. You wrote, quote 0:05:59.040 --> 0:06:03.159 people asking why the SEC fraash Gensler are taking a 0:06:03.240 --> 0:06:06.600 ridiculous position on crypto, I e. Come in and register, 0:06:06.800 --> 0:06:09.440 but ha ha, you can't, actually because crypto doesn't fit 0:06:09.560 --> 0:06:14.680 our REGs. Is it dumb evil just protecting incumbents. No, 0:06:14.920 --> 0:06:16.960 it's that they don't see the paradigm shift. 0:06:17.160 --> 0:06:17.880 End quote. 0:06:18.360 --> 0:06:21.720 And I think that disintermediation is probably the paradigm shift 0:06:21.760 --> 0:06:22.760 that you're talking about. 0:06:23.000 --> 0:06:25.160 But my question really is you. 0:06:25.120 --> 0:06:29.640 Know what happened to Gary Gensler, Because prior to coming 0:06:29.680 --> 0:06:31.520 to the SEC he was a. 0:06:31.400 --> 0:06:34.640 Professor at MIT, he taught an intro class. 0:06:34.240 --> 0:06:37.720 On blockchain, and I think there was a sense of 0:06:37.760 --> 0:06:40.479 optimism in the industry that he understood the benefits of 0:06:40.520 --> 0:06:44.039 crypto and that he would be favorable to the industry. 0:06:44.640 --> 0:06:46.840 But you know, it's in the exact opposite. 0:06:46.880 --> 0:06:50.120 He's essentially become enemy number one of the crypto industry, 0:06:50.120 --> 0:06:52.040 and I'm curious to get your thoughts on what happened. 0:06:53.839 --> 0:06:58.520 I think that what's happened is he's, as I said, 0:06:58.839 --> 0:07:02.680 missing what you would call this this fundamental paradigm shift. 0:07:02.720 --> 0:07:07.159 And it's not just the disintermediation, because that's really more 0:07:07.279 --> 0:07:11.560 on the exchange front, but on the security front, where 0:07:11.720 --> 0:07:14.960 a Chair Genstler has taken a position where virtually every 0:07:15.360 --> 0:07:20.440 cry cryptocurrency is a security. I think he's missing what 0:07:20.800 --> 0:07:26.800 makes cryptocurrencies fundamentally different from securities, and it is really 0:07:27.040 --> 0:07:31.040 a fundamental paradigm shift. Now, I had had some hopes 0:07:31.440 --> 0:07:34.280 that when Chair Genzler came in he would do very 0:07:34.320 --> 0:07:35.840 much the same thing that he did when he was 0:07:35.880 --> 0:07:38.600 at this CFTC. He went on a rule making binch. 0:07:39.160 --> 0:07:41.240 And you know, many people in the industry didn't like 0:07:41.280 --> 0:07:44.920 the rules he was making, and you could differ whether 0:07:45.000 --> 0:07:47.880 they were you know, the best rules, great rules, okay rules, 0:07:47.880 --> 0:07:50.560 and not so good rules. But they were rules and 0:07:50.600 --> 0:07:52.960 they could be followed and all you had to do 0:07:53.040 --> 0:07:55.840 is follow the rules and you could have a good, 0:07:55.880 --> 0:08:02.360 successful business. He did that with fearless abandon at the CFTC. 0:08:03.080 --> 0:08:06.520 Some of those rules got some pushback in court. Some survived, 0:08:06.720 --> 0:08:11.240 many survived, some didn't. But he was really against the 0:08:11.320 --> 0:08:13.520 rule maker, and I had had some hope when he 0:08:13.560 --> 0:08:15.840 came into the SEC, then he would be against the 0:08:15.920 --> 0:08:19.360 rule maker again to take an area where the rules 0:08:19.440 --> 0:08:23.440 weren't very clear and to put some sort of order 0:08:23.480 --> 0:08:25.800 in it. And nobody in the industry was going to 0:08:25.840 --> 0:08:28.000 be thrilled with every single rule. And there are a 0:08:28.040 --> 0:08:30.000 lot of people in the industry who don't want any rules, 0:08:30.000 --> 0:08:32.760 and that that's just not realistic. But I had thought 0:08:32.840 --> 0:08:36.439 he would come in and create a set of rules 0:08:37.000 --> 0:08:44.000 that would balance technological innovation and consumer protection, both of 0:08:44.040 --> 0:08:47.680 these are goals of the SEC. But instead all we've 0:08:47.679 --> 0:08:52.040 gotten is crypto No, you can't do that, And that's 0:08:52.240 --> 0:08:58.800 really quite unfair both to this industry but also to consumers, 0:08:58.840 --> 0:09:03.040 both consumers who want to be using these technologies, but 0:09:03.120 --> 0:09:06.280 also to consumers who are looking to the SEC for 0:09:06.559 --> 0:09:10.640 customer protections. I think what happens if you take this 0:09:10.800 --> 0:09:14.800 hard line saying that crypto just has to obey the rules, 0:09:15.160 --> 0:09:18.240 but you don't have rules that are capable of being obeyed, 0:09:18.760 --> 0:09:21.160 then what happens is you start to lose the domestic 0:09:21.360 --> 0:09:25.600 cryptocurrency industry. It all goes abroad. Now, some people may say, well, good, 0:09:25.960 --> 0:09:27.840 if we thought they were all lawbreakers and we don't 0:09:27.840 --> 0:09:30.480 want them here anyway, good riddance to them. But the 0:09:30.559 --> 0:09:33.480 problem is we live in an interconnected economy. It is 0:09:33.520 --> 0:09:37.800 a global internet system, so Americans can just as easily 0:09:38.320 --> 0:09:43.240 find their way to international exchanges and other kinds of 0:09:43.320 --> 0:09:48.800 ways to trade by hold use cryptocurrencies, and if we're 0:09:48.800 --> 0:09:52.320 not going to allow them here and provide for robust 0:09:52.400 --> 0:09:56.560 consumer protections, then people will go get them elsewhere and 0:09:56.600 --> 0:09:59.880 they may have robust consumer protections. Right if you're using 0:09:59.880 --> 0:10:03.240 a platform that is registered in Europe, or in Singapore, 0:10:03.400 --> 0:10:06.480 or in Caymans or BBI, you will have the benefit 0:10:06.800 --> 0:10:12.160 of those countries' regulatory regimes, but there's no guarantee that 0:10:12.160 --> 0:10:14.439 that's going to be the same as our regulatory regime, 0:10:14.640 --> 0:10:18.880 and there's no guarantee you'll be using a system that 0:10:19.200 --> 0:10:22.240 was designed for those regimes, or designed for any regime 0:10:22.280 --> 0:10:25.080 at all. And the result is more and more of 0:10:25.120 --> 0:10:30.200 the economy either goes underground, becomes anonymous, which is not 0:10:30.320 --> 0:10:33.360 good for consumer protection because there's nothing you could do 0:10:33.400 --> 0:10:36.440 if something goes wrong, or it goes offshore where the 0:10:36.440 --> 0:10:39.679 protections may be robust but they may not be. They 0:10:39.720 --> 0:10:42.640 may be in countries where we are friendly and can 0:10:43.080 --> 0:10:46.319 cooperate with law enforcement, but they may not be. So 0:10:46.360 --> 0:10:50.319 all of this is, on a net position, extremely bad 0:10:50.480 --> 0:10:56.000 for American consumers and it's extremely bad for American financial innovation. 0:10:57.160 --> 0:10:59.200 So I'm going to take the conversation a little bit 0:10:59.200 --> 0:11:01.040 in the policy front, and then you bring up an 0:11:01.040 --> 0:11:03.680 excellent point with the international piece, because we saw several 0:11:03.720 --> 0:11:07.720 members testify at the House Financial Services Committee last week 0:11:07.760 --> 0:11:12.040 on stable coins and they're expressing that exact viewpoint. Now, 0:11:12.400 --> 0:11:15.240 in your opinion, is there a jurisdiction that you think 0:11:15.280 --> 0:11:18.120 will win versus others, Because you know, we've seen MICA, 0:11:18.360 --> 0:11:21.240 we've seen the HM Treasury people have been talking about Dubai. 0:11:21.520 --> 0:11:22.960 Is there anything off the top of your head that 0:11:22.960 --> 0:11:25.599 you're thinking is where the industry is going to be 0:11:25.640 --> 0:11:28.120 going well. 0:11:28.320 --> 0:11:31.640 Financial regulations around the globe, it's always a bit of 0:11:31.960 --> 0:11:37.000 a push and pull game. Countries and regions are always 0:11:37.040 --> 0:11:42.319 trying to attract a strong innovation by creating friendly rules. 0:11:42.800 --> 0:11:45.840 But also, you know, nobody wants to be a pushover. 0:11:45.880 --> 0:11:48.520 Nobody wants to be known as the jurisdiction where all 0:11:48.640 --> 0:11:52.520 the scoundrels come and hide out. So we've seen a 0:11:52.559 --> 0:11:58.320 lot of very good regulations and regulatory frameworks springing up 0:11:58.440 --> 0:12:02.200 in Europe with the Amiga for work in the United Kingdom. 0:12:02.320 --> 0:12:05.920 In Singapore, Dubai has its own way of doing things. 0:12:06.240 --> 0:12:10.640 Switzerland even before Mika and as I said Caman m 0:12:10.679 --> 0:12:13.640 bv I both have a Virtual Asset Service Provider Act. 0:12:14.600 --> 0:12:19.239 There's also an element of international coordination, right Everyone recognizes 0:12:19.320 --> 0:12:23.120 that a race to the bottom, whatever the bottom might mean, 0:12:23.520 --> 0:12:26.880 might not be very helpful. So you have coordination with 0:12:26.920 --> 0:12:31.520 the Financial Action Task Force countries to combat money laundering, 0:12:32.160 --> 0:12:37.239 which is a global problem. So there's an interrelation between 0:12:37.480 --> 0:12:41.480 the areas both trying to compete for business but also 0:12:41.679 --> 0:12:47.800 cooperating to form a strong global protection system. The United 0:12:47.840 --> 0:12:52.320 States doesn't really seem to be interested in joining this 0:12:52.440 --> 0:12:57.920 international conversation. Again, we're taking a very negative approach which 0:12:58.000 --> 0:13:00.800 is going to be replaced by some of these other regimes. 0:13:01.200 --> 0:13:03.280 So if people come to me now and say, you know, 0:13:03.320 --> 0:13:06.079 I want to start a crypto platform that does X, 0:13:06.200 --> 0:13:09.560 y Z, some of those conversations are fine, yeah, sure 0:13:09.559 --> 0:13:12.359 you can do that here, But many of them, increasingly 0:13:12.720 --> 0:13:15.480 we either say no, just absolutely not, there is no 0:13:15.600 --> 0:13:18.240 path to do it here, or we have to say 0:13:18.280 --> 0:13:21.440 there is a path, but you need to get a license, 0:13:21.480 --> 0:13:24.199 and they're not granting licenses for that right now, which 0:13:24.360 --> 0:13:26.520 effectively is the same thing. There is no path. 0:13:28.000 --> 0:13:30.480 So let's go back to the States then, you know, 0:13:30.600 --> 0:13:33.920 and just a reference that twenty five tweet thread that 0:13:33.960 --> 0:13:37.199 you did. In your twenty first tweet, you stated, the 0:13:37.240 --> 0:13:40.400 quickest way to change the game is legislation. We need 0:13:40.440 --> 0:13:43.200 Congress to pass new and favorable laws. So if you 0:13:43.280 --> 0:13:45.079 control Congress, I'm going to give you the power to 0:13:45.120 --> 0:13:47.600 control both the House and the Senate and so forth 0:13:47.679 --> 0:13:47.959 like that. 0:13:48.080 --> 0:13:51.120 What would you like to see pass Well, definitely, it 0:13:51.120 --> 0:13:54.760 would be a terrible idea to give me that much power, 0:13:54.800 --> 0:13:57.160 because if I controlled Congress, probably the first thing I 0:13:57.200 --> 0:14:01.200 would do is make illegal the Firemen sam theme song. 0:14:01.320 --> 0:14:04.280 But that's probably more of a personal issue than anything else. 0:14:04.400 --> 0:14:11.680 I think, yeah, parents everywhere rally to that cause. But 0:14:12.040 --> 0:14:15.480 in terms of the crypto world, I think that what 0:14:15.559 --> 0:14:19.560 I would want to see is a framework, something like 0:14:20.160 --> 0:14:24.800 MICA or something like the Vast Acts. And you know 0:14:24.840 --> 0:14:27.800 I won't. I won't sit here and detail the statute 0:14:27.800 --> 0:14:30.560 that I would pass, because if you thought my tweet 0:14:30.600 --> 0:14:32.840 threads were long, you should see the legislation that I 0:14:32.880 --> 0:14:36.320 would write. It would put everyone to sleep by somewhere 0:14:36.320 --> 0:14:38.120 around page four hundred and seventy six. 0:14:38.640 --> 0:14:40.960 That doesn't sound much different than legislation. 0:14:42.000 --> 0:14:47.720 That's exactly right. But as a general principle, what I 0:14:47.720 --> 0:14:54.000 would have is essentially a regulatory regime where people could experiment. 0:14:54.040 --> 0:14:57.800 If you wanted to issue a token, you could do so. 0:14:58.520 --> 0:15:02.200 You just had to register with a very short paper 0:15:02.240 --> 0:15:05.520 that says who you are, what your plan is, what 0:15:05.600 --> 0:15:10.600 your so called tokenomics are, and what you plan to 0:15:10.640 --> 0:15:15.120 do technologically. Because I think providing that sort of disclosure 0:15:15.320 --> 0:15:19.520 in a public doxed sense is going to get rid 0:15:19.560 --> 0:15:23.840 of ninety five percent of the problems that we're looking 0:15:23.840 --> 0:15:26.560 to avoid in this space. What are we worried about. 0:15:26.600 --> 0:15:31.800 We're worried about people without the technological capacity to build 0:15:31.920 --> 0:15:37.240 something that has consumer protections. We're worried about people rugging 0:15:37.480 --> 0:15:39.560 and taking the money and running. But if you have 0:15:39.680 --> 0:15:43.640 people who aren't anonymous, and everyone can see what kind 0:15:43.680 --> 0:15:47.120 of technological expertise they have, or what kind of security 0:15:47.120 --> 0:15:51.120 audits they're going to undergo, what's their plan, I think 0:15:51.120 --> 0:15:54.600 you'll eliminate virtually all of the fraudsters because very few 0:15:54.600 --> 0:15:56.880 people are going to line up and register if they're 0:15:56.920 --> 0:16:02.200 planning on absconding with the money. But also enact what 0:16:02.280 --> 0:16:05.600 we have a giant reserve of in the United States, 0:16:05.920 --> 0:16:09.800 which is trigger happy plaintiffs lawyers. So if you file 0:16:09.880 --> 0:16:14.320 your five page easy registration statement and you end up 0:16:14.640 --> 0:16:17.440 doing something completely different, or you end up rugging and 0:16:17.480 --> 0:16:20.640 taking all of the money, then the private lawyers will 0:16:20.680 --> 0:16:23.480 have some recourse as well. So I think that the 0:16:23.520 --> 0:16:26.360 SEC and Congress could solve ninety five percent of the 0:16:26.360 --> 0:16:30.080 problems we have in this space by making a much 0:16:30.440 --> 0:16:34.120 lighter touch regulatory framework. Now, is there. 0:16:35.960 --> 0:16:37.080 Just can I just ask a question? 0:16:38.040 --> 0:16:40.280 But it would be the SEC as the main regulator 0:16:40.960 --> 0:16:44.240 in this hypothetical legislation. 0:16:44.880 --> 0:16:48.120 I don't think that it matters much for something like this, 0:16:48.280 --> 0:16:52.520 whether it's the SEC, the CFTC, or some new regulator. 0:16:52.600 --> 0:16:56.760 Right if Congress is defining the laws and it wants 0:16:56.840 --> 0:17:00.440 to essentially define an offering like that as a security 0:17:00.520 --> 0:17:05.520 and provide that that kind of regime, it makes it 0:17:05.680 --> 0:17:10.680 less important whether it's the SEC, which is regulating investment 0:17:10.800 --> 0:17:17.120 contracts and securities, or the CFTC regulating the tokens as commodities, 0:17:17.640 --> 0:17:21.240 or some new agency, as long as we sort of 0:17:21.320 --> 0:17:24.600 pick someone and go with it, because right now we've 0:17:24.640 --> 0:17:26.760 got one of the problems that we have in the 0:17:26.760 --> 0:17:30.879 industry is that all these tokens are you know, I 0:17:30.920 --> 0:17:34.560 call them Schrodinger's tokens. Right, It's a token in a box, 0:17:34.720 --> 0:17:37.879 and what it is you have absolutely no idea until 0:17:37.920 --> 0:17:39.679 you open up the box and take it out and 0:17:39.680 --> 0:17:41.879 look at it. Is it a security, is it a commodity? 0:17:42.000 --> 0:17:45.960 Is it money? And you don't actually know until a 0:17:46.040 --> 0:17:47.919 regulator takes out and looks at it, and then it 0:17:48.000 --> 0:17:53.280 magically becomes whatever it is that that regulator regulates. So 0:17:53.440 --> 0:17:54.840 you know, at the end of the day, As long 0:17:54.880 --> 0:17:59.600 as we have one regulator who is reviewing these statements, 0:18:00.000 --> 0:18:03.360 we don't actually have to upset the entire regulatory framework 0:18:03.520 --> 0:18:06.960 very much for this. It's a fairly low touch way 0:18:07.200 --> 0:18:11.200 of providing a path for crypto companies to operate and survive. 0:18:12.000 --> 0:18:14.040 So do you think Congress will actually do anything this 0:18:14.119 --> 0:18:17.000 year or even you know, there was some momentum I 0:18:17.000 --> 0:18:20.680 think in stable coins until you know, ranking member the 0:18:20.720 --> 0:18:23.159 House Financial Services Committee makes me more ar sort of 0:18:23.280 --> 0:18:25.919 gave some tough language on that. Can we see Congress 0:18:25.920 --> 0:18:27.400 do anything or are we just going to be talking 0:18:27.400 --> 0:18:30.280 about regulations for the next two years or sorry, regulators 0:18:30.280 --> 0:18:31.200 for the next two years. 0:18:31.760 --> 0:18:35.600 I think it's possible for Congress to pass something on 0:18:35.680 --> 0:18:38.600 stable coins because I think that there is some broad 0:18:38.640 --> 0:18:43.360 agreement on some basic principles. And you know, I see 0:18:43.400 --> 0:18:48.199 that crypto may be edging more towards a partisan political issue, 0:18:48.240 --> 0:18:52.240 which is unfortunate, But I think that it is not 0:18:52.359 --> 0:18:55.600 quite there yet. I think that there are some prominent 0:18:56.240 --> 0:18:59.159 folks on both sides of the aisle who would like 0:18:59.280 --> 0:19:04.439 to see a sensible set of financial regulations come into play. 0:19:05.520 --> 0:19:08.920 Stable coins may be a sort of lowest common denominator 0:19:09.240 --> 0:19:11.000 bill you know, I think we can get. 0:19:11.320 --> 0:19:13.040 There on that. 0:19:13.800 --> 0:19:17.919 The DCCPA and the RFIA that were being considered in 0:19:18.000 --> 0:19:23.280 the last Congress seemed to be getting some momentum. But then, unfortunately, 0:19:23.800 --> 0:19:26.879 after FTX collapsed, I think a lot of people wanted 0:19:26.920 --> 0:19:30.000 to distance themselves from the notion of crypto at all, 0:19:30.720 --> 0:19:33.879 even though the collapse of FTX, you know, frankly, to 0:19:33.960 --> 0:19:39.280 me sounded exactly like MF Global or refco and nothing, 0:19:39.600 --> 0:19:42.199 having nothing whatsoever to do with the fact that it 0:19:42.240 --> 0:19:42.760 was crypto. 0:19:44.680 --> 0:19:46.960 So I want to ask you a question that's sort 0:19:46.960 --> 0:19:48.480 of been on my mind for a while and has 0:19:48.480 --> 0:19:50.720 to do with, you know, whether something is a security 0:19:50.840 --> 0:19:54.040 versus a commodity. And you know, I mean that's obviously 0:19:54.040 --> 0:19:57.960 one of the bigger questions in the current regulatory framework. 0:19:58.840 --> 0:20:01.399 And you know, last week, and I could say that 0:20:01.640 --> 0:20:04.560 we're recording this on April twenty fourth, but. 0:20:04.720 --> 0:20:09.520 Last week, Congressman McHenry opened his question in for Genswer 0:20:09.600 --> 0:20:12.960 with you know, a question that hit right on that issue, 0:20:13.600 --> 0:20:16.040 and he asked Gensler whether ether is a. 0:20:15.960 --> 0:20:19.879 Commodity or security? And I thought it was a really effective. 0:20:19.520 --> 0:20:23.480 Opening question, and Gensler, I think, really struggled to answer it. 0:20:23.920 --> 0:20:26.640 But my question for you is whether it's possible for 0:20:26.800 --> 0:20:30.919 a digital asset to be both a commodity and a security, 0:20:32.040 --> 0:20:34.520 which we saw in the New York Attorney General's enforcement 0:20:34.520 --> 0:20:37.720 action against Qcorn, where the ag alleges, you know, in 0:20:38.160 --> 0:20:41.560 various places and that complaint that ether in some is 0:20:41.560 --> 0:20:44.080 a commodity but also a security in different parts of 0:20:44.080 --> 0:20:46.880 that complaint, and the complaint cites. 0:20:46.680 --> 0:20:49.119 To New York law one old case I believe. 0:20:48.920 --> 0:20:52.960 For that position. But you know, my question for you 0:20:53.119 --> 0:20:57.120 is whether there's anything allowing or preventing a similar approach 0:20:57.800 --> 0:21:01.800 under federal law. And maybe what I'm going is, you know, 0:21:01.920 --> 0:21:06.359 it's an investment contract is more of a transactional test. 0:21:07.000 --> 0:21:10.919 Why couldn't you have an asset that's a commodity in 0:21:10.960 --> 0:21:14.240 one instance, but then transactions involving that asset would be 0:21:14.280 --> 0:21:15.880 considered securities. 0:21:16.720 --> 0:21:19.040 Well, I think that that lot of approaches the right 0:21:19.040 --> 0:21:22.200 way to approach it. And we can look at the 0:21:22.640 --> 0:21:26.800 origins of the definition of an investment contract in the 0:21:26.880 --> 0:21:32.280 HOWI case to for an illustration of this. Right in 0:21:32.680 --> 0:21:35.720 how we we were talking about interests in an orange grove, 0:21:36.440 --> 0:21:40.080 and the oranges themselves were not the securities. It was 0:21:40.160 --> 0:21:45.320 the interest in the profits that they would generate that 0:21:45.480 --> 0:21:49.159 was the subject of the investment contract. So similarly, I 0:21:49.160 --> 0:21:52.280 mean fast forward, and you can have a gold or 0:21:52.280 --> 0:21:58.560 any other kind of traditional commodity repackaged and sold as securities. 0:21:58.560 --> 0:22:01.760 If I sold interests in my gold fund, it may 0:22:01.760 --> 0:22:05.399 well be considered an investment contract or a security, but 0:22:05.440 --> 0:22:09.000 the gold itself would not be. And here, I think 0:22:09.320 --> 0:22:14.520 is where we were discussing the paradigm shift before, and 0:22:14.560 --> 0:22:18.000 this is I think the fundamental point that the sec 0:22:18.240 --> 0:22:24.680 is still grappling with securities. In the old world, securities 0:22:24.720 --> 0:22:27.640 can printed on share certificates, right, It's say you own, 0:22:27.760 --> 0:22:31.800 you know, one share of IBM, and that piece of 0:22:31.880 --> 0:22:38.840 paper embodied certain rights that you had for voting, for dividends, 0:22:39.000 --> 0:22:42.919 for ownership, et cetera. But the piece of paper was 0:22:42.960 --> 0:22:45.920 just a piece of paper, like you didn't really need that. 0:22:46.240 --> 0:22:49.480 And when we digitize securities and everything resides in digital 0:22:49.560 --> 0:22:55.000 form at DTCC, we can sort of realize how unnecessary 0:22:55.119 --> 0:22:57.919 that piece of paper is. So we're used to thinking 0:22:57.960 --> 0:23:01.919 of it as the security is just disembodied nature of 0:23:02.320 --> 0:23:07.639 the rights of the investment contract. But with cryptocurrency we 0:23:07.760 --> 0:23:11.679 have something that is fundamentally different. It is software, it 0:23:11.760 --> 0:23:15.440 is code, and that code, like the piece of paper, 0:23:16.160 --> 0:23:24.639 can convey certain rights, but those rights are divisible from 0:23:24.920 --> 0:23:28.560 the medium in which it is delivered. So the SEC's 0:23:28.680 --> 0:23:36.320 notion that the crypto token embodies those rights is completely wrong. 0:23:36.560 --> 0:23:40.000 And my good friend Lewis Cohen has written about this 0:23:40.119 --> 0:23:43.960 at great length and a fantastic article that he and 0:23:44.000 --> 0:23:47.600 his colleagues put out. The SEC's embodiment theory just doesn't 0:23:47.600 --> 0:23:50.879 make sense and it isn't supported by the courts. What 0:23:51.000 --> 0:23:54.240 you have now is something where you can peel the 0:23:54.359 --> 0:23:57.080 rights away from that share certificate, that piece of paper. 0:23:57.359 --> 0:24:01.840 But the piece of paper, being software, is as infinitely 0:24:02.040 --> 0:24:06.439 flexible and composable as your imagination can allow. It's just 0:24:06.680 --> 0:24:11.960 software and the division of the commodity and the medium 0:24:12.000 --> 0:24:15.639 that embodies it is the paradigm shift that I believe 0:24:15.680 --> 0:24:18.960 that the SEC is missing. You know, every ten or 0:24:18.960 --> 0:24:21.240 twenty years, as I said in that tweet thread, someone 0:24:21.240 --> 0:24:23.600 comes along and says, my thing's not a security. It's 0:24:23.760 --> 0:24:27.439 interested in orange growth. It's oranges. Those aren't securities, or 0:24:27.520 --> 0:24:30.239 it's you know, beavers or whiskey or chinchillas. They come 0:24:30.280 --> 0:24:33.680 around and saying this time is different, and the SEC 0:24:33.840 --> 0:24:35.879 and to be fair, courts generally look at it and 0:24:35.960 --> 0:24:38.160