Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast.
Speaker 1: I'm Joe Wisn't Thal and I'm Tracy Alloway. Tracy, you know,
Speaker 1: one of the big There is a lot of ambiguity
Speaker 1: and confusion right now, I would say about the state
Speaker 1: of crypto regulation just a little bit, just a tiny bit,
Speaker 1: like I mean, and it's understandable why because it's I guess,
Speaker 1: a new type of asset class. They're not all the same.
Speaker 1: It doesn't seem to quite fit into commodity buckets. Most
Speaker 1: of them don't fit quite into say equity buckets there.
Speaker 1: They call them cryptocurrencies in many cases, but they're not
Speaker 1: really currencies. So you can sort of see why the
Speaker 1: existing regulatory structure isn't quite up to the task, right.
Speaker 1: And often the technology or the things being made are
Speaker 1: changing all the time. So for instance, we used to
Speaker 1: have you know, I c o s Now we have
Speaker 1: tokens and things like that. But I think what you're
Speaker 1: getting at is there has been this long running criticism
Speaker 1: of the way crypto regulation is being done, which is
Speaker 1: it's often just better to launch something and kind of
Speaker 1: ask for permission later, right, like, just launch it, see
Speaker 1: what happens. But if you're a big crypto organization, you know,
Speaker 1: a crypto company with a team of lawyers, and you
Speaker 1: actually go and ask the securities regulators about what you're doing,
Speaker 1: often they just say no, outright, that's the trope, that's right.
Speaker 1: So I've talked to lawyers and this is what they say.
Speaker 1: They say, Look, if we try to be on the
Speaker 1: right side of the law, if we say go to
Speaker 1: the sec and this we want to do, then they
Speaker 1: spend years trying to lawyers. Meanwhile, someone just launches a
Speaker 1: token without doing any of that in the rebillionaire the
Speaker 1: next day. That's going to be kind of frustrating, right,
Speaker 1: It's not a great incentive structure if that's what's happening. Right, So,
Speaker 1: you know, there's this problem. The regulatory agencies don't seem
Speaker 1: to quite have their hands around it, and because of
Speaker 1: how politics seems to be in d C. I don't
Speaker 1: think anyone is really holding their breath for like some
Speaker 1: really clear law to get past, like say the Telecom
Speaker 1: Act in the nineties in which the Internet was coming
Speaker 1: and they passed the law about certain things like maybe
Speaker 1: that will happen, But I don't think it's like obvious
Speaker 1: that like Congress is going to come to the rescue
Speaker 1: with a clear solution here. But also now that crypto
Speaker 1: is so big, it seems kind well, it seems inevitable
Speaker 1: that more people are going to be looking at this
Speaker 1: and discussing whether or not it needs to change. Should
Speaker 1: you have this sort of ad hoc regulatory regime or
Speaker 1: something else? All right, Well, we are have a great
Speaker 1: guest today to talk about that, and a someone in
Speaker 1: d C who has taken a real interest in crypto
Speaker 1: who you're going to be speaking with, Senator pet too,
Speaker 1: me of Pennsylvania and one of the more active elected
Speaker 1: officials with an interest in crypto regulations. So, Senator, thank
Speaker 1: you so much for joining us. Well, thanks very much
Speaker 1: for having me. Senator. Who's to blame for this sort
Speaker 1: of this confusion? I'm not sure you Maybe you disagree
Speaker 1: with our characterization, but who's to blame for this confused
Speaker 1: usian about crypto regulation, the lack of clarity and all
Speaker 1: of the sort of perverse incentive that that creates. Well,
Speaker 1: I think I agree with your discussion with Tracy about
Speaker 1: the inherent difficulty of trying to shoehorn these crypto tokens
Speaker 1: from these various projects into existing law. Uh. You know,
Speaker 1: much of our securities law is based on ninety three
Speaker 1: and ninety four legislation literally and court cases that followed
Speaker 1: that often in the forties and fifties. Can you imagine
Speaker 1: being more far removed from crypto? Right? I mean, so
Speaker 1: it doesn't fit well. There are attributes of these protocols
Speaker 1: and the corresponding tokens that are completely unlike any actual
Speaker 1: security something that we all universally would agree as a security.
Speaker 1: There are ways in which most crypto projects are fundamentally different. So,
Speaker 1: so we have this new technology that came along, and
Speaker 1: you know, I guess you could blame Congress for not
Speaker 1: moving quickly to establish the legislative guidelines that would then
Speaker 1: make it clear exactly what buckets these assets should be in,
Speaker 1: including the possibility that it's an altogether new bucket, and
Speaker 1: what the various regulators authorities ought to be. And in
Speaker 1: the absence of Congress speaking, then you will have what
Speaker 1: we are witnessing, which is regulators kind of trying to
Speaker 1: grab authority here, whether or not they ought to. And
Speaker 1: that's no way to create an environment for a really
Speaker 1: important new technology to thrive. So that's why I'm so
Speaker 1: determined to get something done in the legislative realm so
Speaker 1: that we can provide some certainty and hopefully a rational
Speaker 1: set of guard rails that will allow this innovation to continue. So,
Speaker 1: just on that point, if I could ask a sort
Speaker 1: of big picture question, you have taken an interest in crypto,
Speaker 1: and you've been advocating better crypto regulation, and I'm just curious, like,
Speaker 1: what is the benefit of crypto in your mind, because
Speaker 1: often when I think about crypto's relationship with the government,
Speaker 1: it's almost set up, or at least initially, it was
Speaker 1: set up to be adversarial. Right, this was about censorship
Speaker 1: resistant money and technology things that let you send funds
Speaker 1: or do transactions without much oversight. So it seems to
Speaker 1: me like governments maybe should approach it with some caution,
Speaker 1: but clearly you see some value from the technology itself.
Speaker 1: Can you just explain, like what your position is. Well,
Speaker 1: first of all, I do think that we have a
Speaker 1: privacy right to move value in the form of a
Speaker 1: currency or some other asset without the government watching everything
Speaker 1: we do. There's a reason why I think Congress would
Speaker 1: overwhelmingly insist that we not abolish cash, right, I mean,
Speaker 1: in China, I think they have, or they're they're close to.
Speaker 1: As a practical matter, abolishing cash, it's very very convenient
Speaker 1: for the government to be able to monitor everyone's every transaction,
Speaker 1: to force everything into a digital space that in China
Speaker 1: the government has eyes on. So that's one I do
Speaker 1: think there's a legitimate interest in privacy. There's more practical
Speaker 1: matters because I think a lot of people there'st think
Speaker 1: of the volume of transactions that go on credit cards,
Speaker 1: and obviously that information is not uniquely held by the consumer,
Speaker 1: it's held by financial institutions. But I think the ease
Speaker 1: of transactions, the ability to move money on a peer
Speaker 1: to peer basis and leave out intermediaries that inevitably charge
Speaker 1: a fee for the execution. In particular, that fee extremely
Speaker 1: expensive when you move money internationally. I also think that
Speaker 1: there's going to be very exciting innovations that we probably
Speaker 1: can't imagine yet. You know, when when the Internet was
Speaker 1: first being developed, I don't think too many people envisioned
Speaker 1: Amazon and Uber and Netflix and you know, the things
Speaker 1: that have totally transformed consumption and not not just consumption
Speaker 1: of information, but even consumption of goods and services. Well,
Speaker 1: I think that could happen here as well. I think
Speaker 1: programmable money, for instance, is a very exciting technology. The
Speaker 1: ability to have embedded in a unit of value, a
Speaker 1: form of money, a transaction, a movement of that value
Speaker 1: based on some exogenous but verifiable event. That's really interesting.
Speaker 1: And I could imagine lots of applications validating ownership, um,
Speaker 1: you know, in an immutable way. That's something that blockchain allows.
Speaker 1: So so I think there's all kinds of application that
Speaker 1: are likely to emerge, and we should not presume that
Speaker 1: that can't happen or and we certainly shouldn't do anything
Speaker 1: to preclude it. So you've been very critical of SEC
Speaker 1: Chief Gensler, you know, and there's a lot of reasons
Speaker 1: I think people are critical. There's been there are a
Speaker 1: number of like you know, Central Seed, Sei Fi things
Speaker 1: that went bust. People weren't protected them, like people think
Speaker 1: about stuff like Celsius. And then, as you pointed out,
Speaker 1: this idea of sort of like regulation by enforcement, where
Speaker 1: no one knows the rules and then suddenly there's a
Speaker 1: lawsuit against them. What do you think that right now,
Speaker 1: with the existing laws of the land, that SEC Chairman
Speaker 1: Gensler has the ability to regulate crypto in a more
Speaker 1: meaningful manner, or does he really need you, and by you,
Speaker 1: I mean Congress to grant the SEC better and clear authority.
Speaker 1: That's a great question, and I think the answer is
Speaker 1: there are probably some crypto projects, some protocols and associated
Speaker 1: tokens that really are securities and therefore should could and
Speaker 1: should be regulated by the SEC. But I think many
Speaker 1: many are not. And that's my fundamental difference with Chairman Gensler.
Speaker 1: He maintains that virtually all cryptocurrencies are securities. He will
Speaker 1: acknowledge that bitcoin is not. I don't think you could
Speaker 1: get him, well, I suggest you try. I have not
Speaker 1: been able to get him to identify a single other
Speaker 1: token that is not a security um and I think
Speaker 1: his argument is tenuous. And part of the problem is
Speaker 1: I think there has not been sufficient clarity as to
Speaker 1: what does institute a crypto security and what does not.
Speaker 1: By the way, you could use crypto tokens in a
Speaker 1: transaction that definitely falls under the jurisdiction of the SEC. Right,
Speaker 1: so Celsius and Voyager when they're taking crypto deposits, paying
Speaker 1: an interest rate on it, using those deposits to then
Speaker 1: lend to I suppose hedge funds and other institutions that
Speaker 1: that definitely I think falls under the SECS brief And frankly,
Speaker 1: I think there's questions about why after an enforcement action
Speaker 1: against block Fire earlier in the year, nothing happened to
Speaker 1: Celsius and Voyager until they blew up. But but that's
Speaker 1: a little bit different from the question of why is
Speaker 1: it that every crypto project other than bitcoin is a security.
Speaker 1: I think legislative guidance that would make it clear what
Speaker 1: is and what is not would be very very helpful
Speaker 1: and and I would say to things if I could,
Speaker 1: that ought to cast serious doubt on German Gunstler's argument.
Speaker 1: One is there are many projects where there is no
Speaker 1: centralized authority, right that that Bitcoin is an obvious case,
Speaker 1: but it's not the only one. And if you have
Speaker 1: a truly decentralized platform, you have you have code, you
Speaker 1: have software, that's what it is, and the fact that
Speaker 1: people are using it doesn't mean that there's a central authority,
Speaker 1: And the idea of a central authority really traditionally an
Speaker 1: issuer is at the heart of what makes something a security.
Speaker 1: The other thing I would point out is that every
Speaker 1: security that I can think of involves a claim on
Speaker 1: an issuer. Right. If it's equity, it's a claim of ownership.
Speaker 1: If it's a bond, it's a claim on the assets. Right,
Speaker 1: there's a specific claim, and there's usually also a specified return.
Speaker 1: Either it's an interest rate, or it's a dividend, or
Speaker 1: it's a promise of some share of income. Well, crypto
Speaker 1: doesn't typically have that. There may be some tokens that do,
Speaker 1: and okay, I'll call them a security, but when there
Speaker 1: is no claim on an issuer, when there is no
Speaker 1: built in return, then I'm not sure it should even
Speaker 1: pass the Howe test. So and at a minimum, I
Speaker 1: think you have to acknowledge that it's very different from
Speaker 1: all the securities that we have acknowledged over the years,
Speaker 1: and so that's why I think really Congress should act
Speaker 1: on this and specify how these projects ought to be regulated. So,
Speaker 1: speaking of things being very different, one charitable interpretation of
Speaker 1: the sec S sort of ad hoc enforcement approach is
Speaker 1: that it has to do with the pace of innovation
Speaker 1: and crypto just being different to anything we've really seen before.
Speaker 1: So maybe it makes sense for the SEC to try
Speaker 1: to maintain flexibility and kind of learn urn and develop
Speaker 1: alongside the industry. I've also heard people talk about, well,
Speaker 1: if they codified everything, made it really really clear what
Speaker 1: the rules actually were, then inevitably there would be crypto
Speaker 1: players who start poking around for loopholes and trying to
Speaker 1: exploit those and that sort of thing. What do you
Speaker 1: say to that interpretation of the SEC and Ginstler's approach. Yeah,
Speaker 1: I don't think that's a strong argument, because it really
Speaker 1: seems to be arguing for ambiguity and hiding the ball
Speaker 1: and ensuring that the both consumers and developers just don't
Speaker 1: have clarity on this. Look at it from the point
Speaker 1: of view of a creative developer who has an idea
Speaker 1: for an application of a smart contract. Maybe, but it's
Speaker 1: got to run on a Layer two protocol, and is
Speaker 1: concern is he really doesn't know. Is there a way
Speaker 1: to design this so that it wouldn't be considered a
Speaker 1: security or do I have to go to bed every
Speaker 1: night wondering whether the SEC has going to come knocking
Speaker 1: on my door in the morning and accuse me of
Speaker 1: dealing with you know, I'm unregistered, therefore illegal security. That
Speaker 1: that's where you end up, That's where we are now,
Speaker 1: and that's where you end up when you don't provide
Speaker 1: the clarity that both consumers and developers deserve. Okay, well
Speaker 1: you're working on legislation. What is it going to say
Speaker 1: or what would you like it to say to resolve
Speaker 1: these ambiguities. Well, the first thing I'm working on is
Speaker 1: actually I think of it, at least conceptually, as preceding
Speaker 1: some of the things we've been discussing, and that would
Speaker 1: be legislation that will provide guardrails for regulating stable coins.
Speaker 1: As as you know, right, stable coins are the currency
Speaker 1: that's used to go in and out of crypto generally.
Speaker 1: It's also in some ways I think the easiest and
Speaker 1: simplest challenge for Congress and for regulators to solve. So
Speaker 1: I've I've introduced legislation or draft of a bill that
Speaker 1: deals with the category of stable coins that I think
Speaker 1: could plausibly be widely used as a method of payment,
Speaker 1: and that that would be asset back stable coins. I
Speaker 1: think algorithmic stable coins are in a different category. But
Speaker 1: what what we define? What I define as payment stable
Speaker 1: coins and are backed by assets, I think a regulatory
Speaker 1: regime makes sense. It would it would require, for instance,
Speaker 1: rules about disclosure, what is the nature of the assets.
Speaker 1: It would require that you'd have to be licensed to
Speaker 1: issue it, and then we go through you know, how
Speaker 1: you could go about obtaining such a license, and if
Speaker 1: you have them, then you'd have to have high quality assets,
Speaker 1: liquid assets backing at cash and cash equivalence. We talked
Speaker 1: about the capitalization that would be necessary for the issuing entity. Anyway,
Speaker 1: the point is we lay out the criteria by which
Speaker 1: this could be regulated, and I think it would make
Speaker 1: a lot of sense to start there. I could imagine
Speaker 1: you could start in other places, but that's that's my
Speaker 1: my first ambition in this space. What's the best approach
Speaker 1: in your opinion to protecting consumers when it comes to
Speaker 1: crypto and tokens? So you know, my approach here is
Speaker 1: the same as it is in most in most areas,
Speaker 1: which is to have a lot of respect for consumers. Right.
Speaker 1: I think sometimes some of my colleagues and some of
Speaker 1: the regulators adopt the really paternalistic approach, and they want
Speaker 1: to protect consumers from themselves, and they want to put
Speaker 1: all kinds of regulations about who can do what and
Speaker 1: under what circumstances. I don't I don't view the world
Speaker 1: that way, the way I think we ought. What I
Speaker 1: think we ought to do is make sure that consumers
Speaker 1: have enough information to make a well informed decision about
Speaker 1: what they want to do. So it's about for me,
Speaker 1: it's mostly about disclosure. With the stable points, for instance,
Speaker 1: the heart of the regime that that I'm advocating is
Speaker 1: full disclosure, audited disclosure, attestation of continuity of the assets
Speaker 1: backing the stable coin. That's the heart of it for me,
Speaker 1: and I would take a similar approach to non stable
Speaker 1: coins other other crypto projects. I just want to press
Speaker 1: further on this because I feel like where people have
Speaker 1: lost a lot of money, yes, people also gain money,
Speaker 1: and I think I take seriously your point about respecting
Speaker 1: the consumer or the investor, But where people have a
Speaker 1: lot of risks are not stable coin as their projects
Speaker 1: that have been you know, eye popping returns and big
Speaker 1: ap wise and defy protocols where you can earn ten
Speaker 1: thousand percent, etcetera. And there is no right now from
Speaker 1: as far as I know, there's nothing remotely like the
Speaker 1: equivalent of say like filing a ten queue for those projects.
Speaker 1: So it's very hard to have like should you know,
Speaker 1: should a defy project that someone launches, some sort of
Speaker 1: lending protocol, have some sort of minimum disclosure that some
Speaker 1: kind of resembles what a stock disclosure looks like. I
Speaker 1: would say, if the if the nature of the arrangement
Speaker 1: that you're describing is one in which there is a
Speaker 1: return that is offered or promise, and yes, then it
Speaker 1: starts to look a lot like a security or at
Speaker 1: least the activity is the is the activity of a screen.
Speaker 1: You know, if if you said, give me a bushel
Speaker 1: of apples and I will give you an apple a day,
Speaker 1: and at the end of a month, I'll give you
Speaker 1: the bushel back, I would say that actually looks all
Speaker 1: out like a security arrangement because of the return that
Speaker 1: you're offering, and it probably actually meets the Howie test.
Speaker 1: But it doesn't make the apple a security, right. The
Speaker 1: apple still just an apple it but the activity is
Speaker 1: something that that is appropriately regulated. So if you have
Speaker 1: a crypto project where someone decides, hey, I'm going to
Speaker 1: offer this return to an investor because I'm going to
Speaker 1: you know, I've got this clever way to cover you know,
Speaker 1: on eye popping interest rate it describe it, then yeah,
Speaker 1: that probably requires regulation and certainly disclosure. What's your take
Speaker 1: on the treasury sanctioning of a piece of software, and
Speaker 1: of course talking about Tornado cash. Is it legitimate for
Speaker 1: the Treasury to sanction a literal piece of software? And
Speaker 1: if not, how should we think about I mean, you
Speaker 1: mentioned the importance of privacy and the importance of cash,
Speaker 1: but there are issues you can only you know, it's
Speaker 1: hard to transfer a high volume of cash, and that's
Speaker 1: sort of the protection against money laundering, which is that
Speaker 1: you could theoretically do it, but it becomes cumbersome. Do
Speaker 1: you think there is legitimate for the Treasury, as part
Speaker 1: of either anti terrorism or anti money laundering or going
Speaker 1: after North Korea to sanction a piece of software? And
Speaker 1: is that a worthwhile pursuit in some manner? So there's
Speaker 1: a lot to try to impact there, and part of it,
Speaker 1: you know, in all candor, is this is this is
Speaker 1: new and I am still really trying to make sure
Speaker 1: I understand the implication of this. My first reactions, I
Speaker 1: get very concerned about sanctioning code. That does worry me.
Speaker 1: That concerns me. I think there's significant First Amendment issues.
Speaker 1: I think that is problematic. Having said that, I do
Speaker 1: acknowledge that there is an illicit activity that we want
Speaker 1: to be able to identify, and if we can't prevent it,
Speaker 1: at least go after the bad guys when they engage
Speaker 1: in it. What I would suggest is the wrong way
Speaker 1: to do that is to take this archaic system that
Speaker 1: we now impose on banks and other financial institutions and
Speaker 1: apply it now to this whole new technology you know
Speaker 1: I'm referring to, like the the reporting rules. Every transaction
Speaker 1: over ten thousand dollars has to be reported. So what
Speaker 1: we know for sure is that some percent of these
Speaker 1: reports are are false positives. Right, there's nothing wrong with
Speaker 1: these transactions, but we haven't even raised the dollar threshold
Speaker 1: since the nine seventies, not even to reflect inflation, and
Speaker 1: so we just have this massive reporting requirement. It's quite
Speaker 1: onerous to comply with, and it swamps the Treasury with
Speaker 1: all kinds of this information. What I think we ought
Speaker 1: to do, and I'm not an expert in this area,
Speaker 1: but I've spoken at some length with people who are is,
Speaker 1: use artificial intelligence on an open source blockchain and use
Speaker 1: that technology to discern suspicious transactions. Don't just assume that
Speaker 1: everything is suspicious because it's more than ten tho dollars.
Speaker 1: Don't just import this, you know, completely really in many
Speaker 1: ways obsolete technology and impose it on crypto, but use
Speaker 1: the tools that we have now, and and there are
Speaker 1: private companies that do this already. Right then, we've had
Speaker 1: these great stories of recovering stolen crypto, even because this
Speaker 1: is totally traceable. Now with Tornado, I understand part of
Speaker 1: the purpose is to make it much more difficult to
Speaker 1: trace that. So it does raise some additional challenges, but
Speaker 1: I'm not convinced that the right answer is to apply
Speaker 1: the current bank reging monitor. So just when it comes
Speaker 1: to Congress and crypto, there's been a lot of discussion
Speaker 1: about the possibility of Congress actually, you know, maybe passing
Speaker 1: something to decide who actually regulates crypto. Is that the CFTC,
Speaker 1: is that the SEC? Is it something totally different? What's
Speaker 1: the likelihood of Congress actually legislating on this or the
Speaker 1: legislation getting passed. And then secondly, does political appetite to
Speaker 1: interact and um legislate crypto? Does it change depending on
Speaker 1: what's going on with the industry. I mean, we're in
Speaker 1: a crypto winter right now. A lot of people have
Speaker 1: lost quite a bit of money. Does it feel like
Speaker 1: there's more political appetite right now to do something about
Speaker 1: the industry than before. I think the answer is yes,
Speaker 1: at least in some respects. So for instance, I believe
Speaker 1: that when Terra and Luna collapsed, it seems to have
Speaker 1: elevated the issue of stable coin regulation with the White
Speaker 1: House and with the Administration in general, and with some
Speaker 1: of my colleagues. So that real world event, and even
Speaker 1: though it's an algorithmic stable coin, and I think the
Speaker 1: most likely regulation on stable coin will actually be for
Speaker 1: payment stable coins, the fact that there was a sort
Speaker 1: of sensational bad event did move this up the list
Speaker 1: of priorities, put it on people's radar who didn't have
Speaker 1: it on their radar. So I do think what happens
Speaker 1: in the crypto world does beer on Congress's inclination. I
Speaker 1: still think there's a chance to get stable coin legislation
Speaker 1: done this year. I think the administration would like to
Speaker 1: get something done. There are Republicans pretty overwhelmingly would like
Speaker 1: to get something done. Some Democrats would as well. On
Speaker 1: the broader outside of stable coins, the question of ordinary
Speaker 1: if I can say, you know ordinary crypto project, right,
Speaker 1: what does that mean, but but non stable coin, let's
Speaker 1: say that's that's tougher. I think it's more difficult. You
Speaker 1: do have a bipartisan bill. You have actually two bipartisan bills, right,
Speaker 1: they're they're they're different, the Lummis Jilla Brand Bill and
Speaker 1: the Stavana Bozeman Bill. So you're starting to see some
Speaker 1: engagement by members and members on relevant committees of jurisdiction.
Speaker 1: So my I'm still going to hold out hope we
Speaker 1: get a stable coin build done this year, and next
Speaker 1: year Congress might do considerably more. You know, I understand that,
Speaker 1: you know, stable coins are the low hanging fruit because
Speaker 1: they're pretty straightforward, particularly the asset back lines, where really
Speaker 1: the requirement is if you're going to have a dollar
Speaker 1: stable coin, have a dollar equivalent in a bank account,
Speaker 1: and let an auditor verify that it's that one to one.
Speaker 1: But obviously the you know you mentioned the terror Luna
Speaker 1: collapse knows an algorithmic stable coin, it would not be
Speaker 1: covered under that. When you get into this more defy areas,
Speaker 1: and I get I want to push on this a
Speaker 1: little bit further. You think of some sort of like
Speaker 1: defy exchange like unit swap, which is a piece of software.
Speaker 1: But to most people looking at it, it looks like
Speaker 1: a stock market, and it looks like an unregulated stock market.
Speaker 1: At that it looks like there's a bunch of different
Speaker 1: stop like things that you can buy, and you can
Speaker 1: go there and you buy them an any amount like
Speaker 1: you would at like you know, if you're using robin
Speaker 1: Hood or Schwab except their crypto. Does that is that acceptable?
Speaker 1: Is that? Do we need some sort of rules on defy?
Speaker 1: Like can this go on this sort of active trading
Speaker 1: in various protocols and way in which nobody really has
Speaker 1: any sort of disclosure requirements at all? Is it tenable?
Speaker 1: Not politically right? I think that there will be political
Speaker 1: pressure to do something, and I could probably support some
Speaker 1: kind of disclosure requirement, but you know, again, I'd go
Speaker 1: back to the fact that I think we ought to
Speaker 1: respect the judgment of consumers, and you know, I think
Speaker 1: with some minimum disclosure, a consumer can decide do you
Speaker 1: want to trade on unregulated, automated, decentralized crypto exchange or
Speaker 1: do you want to go a coin base? You don't,
Speaker 1: You don't have to, you know, it's not like you've
Speaker 1: only got one choice. You've got multiple choices. I think
Speaker 1: that's an acceptable place to lend. Now, I probably personally
Speaker 1: would favor a lighter regulatory touch than most of my colleagues.
Speaker 1: Who knows where that ends up, but I think I
Speaker 1: think consumers can generally make good decisions for themselves. So
Speaker 1: just on this point, there's another aspect of Gensler's sec
Speaker 1: that you're critical of, and that is the proposal for
Speaker 1: more climate disclosures. How does that square with you know,
Speaker 1: your broader message on crypto, which is, give consumers more information,
Speaker 1: get better disclosures, and then let them make their own decision.
Speaker 1: Why isn't that the same case for companies and e
Speaker 1: s G mandates and things like that. Well, well, it's
Speaker 1: very very different. First of all, we're starting from a
Speaker 1: point with crypto where there is zero regulation, right, There
Speaker 1: is no requirement, there is no regime, there is no disclosure,
Speaker 1: there is nothing, And so we're having a conversation about, well,
Speaker 1: is there anything at all that we ought to provide?
Speaker 1: And I'm suggesting, yeah, there probably is some. You can't
Speaker 1: even begin to make that suggestion about or securities, right,
Speaker 1: I mean, my god, we go way overboard in terms
Speaker 1: of all the disclosures that are required useless information that
Speaker 1: nobody reads, that does not helpfully informed investors. And what
Speaker 1: Gary Ginsler is doing now with this proposed climate rule
Speaker 1: is to add this massive new category, many multiples of
Speaker 1: more expensive than all the rest that's ever been applied
Speaker 1: before in terms of the cost of compliance, and it's
Speaker 1: not even financially material to the issuere right, So where
Speaker 1: they're proposing that somebody, by virtue of the fact that
Speaker 1: you issue stock or bonds on an exchange, that you
Speaker 1: have to disclose not just the amount of c O
Speaker 1: two that your business operation releases, but you've got to
Speaker 1: figure out how much CO two is released by the
Speaker 1: source of the energy that you purchase. And then, in
Speaker 1: in the what I think is the height of absurdity,
Speaker 1: you're supposed to figure out all the CEO two released
Speaker 1: by all of your suppliers and all of your customers.
Speaker 1: This is ridiculous. It's not even possible to comply with,
Speaker 1: I don't think, and it's not meaningful, and there's no authority,
Speaker 1: by the way, for the SEC to do this. You know,
Speaker 1: the the authority for the SEC is to require the
Speaker 1: disclosure of material information, and I think that's always been
Speaker 1: understood to be financially material, and here we have this
Speaker 1: really speculative guesses about c O two emissions by your customers. Uh,
Speaker 1: this is way way beyond anything that Congress is authorized,
Speaker 1: in my view. Senator pad to me, thank you so
Speaker 1: much for coming on odd lock to really appreciate you
Speaker 1: taking some of your time to chat with us. Hey,
Speaker 1: thanks very much for having me. Senator paid to me,
Speaker 1: is really plugged into crypto? Yeah, I'm kind of wondering, like,
Speaker 1: is he like hanging out like field farming or something.
Speaker 1: Is he like in the No, he's like like for
Speaker 1: for an elected official. He clearly obviously, Look, you know,
Speaker 1: it's sort of he has this sort of regulatory, light touchstance,
Speaker 1: which I think is not particularly surprising given his political ideology.
Speaker 1: But he uh, you know, you hear from some people
Speaker 1: in d C and this is this big thing that's
Speaker 1: coming and they don't seem to be particularly plugged in
Speaker 1: or no the arguments or anything. But that's clearly not
Speaker 1: the case with him. No. You know what I can't
Speaker 1: believe after listening to that conversation is that we've never
Speaker 1: done an episode on the Howie Test. How have we
Speaker 1: really not? No? I think It's come up at various times,
Speaker 1: especially in very early crypto interviews, maybe with Matt Levin
Speaker 1: at one point or another, but we've never done an
Speaker 1: episode specifically on that, but we probably should. To the
Speaker 1: senator's point, it is kind of crazy that we're trying
Speaker 1: to relate, you know, tokens and defy to a Supreme
Speaker 1: Court precedent that was set in the nineteen thirties. It's
Speaker 1: really tricky. And you know, to his point, like, disclosure
Speaker 1: is a good seems like a disclosure seems uncontroversial, right,
Speaker 1: disclosure is good, and maybe there's a level of disclosure
Speaker 1: that's appropriate for a crypto. I still don't even know
Speaker 1: like how it would work in practice, because look, you
Speaker 1: could just have someone in Estonia, like you just it's
Speaker 1: just to create a piece of code that interact with
Speaker 1: another piece of code and it lives maybe on the
Speaker 1: ethereum blockchain, as you know, an e r C twenty token.
Speaker 1: How do you enforce that and how do you are
Speaker 1: you going to enforce like defy exchanges that operate in
Speaker 1: the US to block I think, like, I think this
Speaker 1: is going to be very tricky because even an uncontroversial
Speaker 1: idea like some sort of disclosure I do. I don't
Speaker 1: even see how you go about and forcing that against
Speaker 1: like you know, it's like you know Pickle Farm, well
Speaker 1: the but no, sorry, I gotta credit Frank Chaparo over
Speaker 1: at the block always like hiss, like he's like, how
Speaker 1: are you going to regulate pickle? So I think that
Speaker 1: got stuck in my head. Okay, all right, But the
Speaker 1: big issue that I see is that actually a lot
Speaker 1: of crypto projects already have excellent disclosures and are quite transparent,
Speaker 1: and you can go and look at the source code
Speaker 1: and try to understand it, and yet that doesn't stop
Speaker 1: anyone from doing stupid things like Tara Luna right, like,
Speaker 1: you knew how that worked. It's an algorithmic stable coin.
Speaker 1: You could see what was supposed to happen, and people
Speaker 1: talked about the nightmare scenario of what would happen in
Speaker 1: a panic, and then exactly that occurred. The whole thing collapsed.
Speaker 1: It's not like we didn't have disclosures. So I guess
Speaker 1: my question is like, how do you, yeah, does it
Speaker 1: actually change that much now? And you're absolutely right, like
Speaker 1: you can you could. I've seen people make this argument
Speaker 1: that actually it's all extremely transparent. It's all right there
Speaker 1: on the chain. It's a it's a public blockchain, and
Speaker 1: you can look at like you know, the get hub
Speaker 1: uploads and read the code. The problem is, like there's
Speaker 1: this huge gap right between the people who are like
Speaker 1: buying tokens from money versus the people that can actually
Speaker 1: look at code and understand the token omics of the code.
Speaker 1: I don't know. I think even uncontroversial ideas like the
Speaker 1: stable coin regulation, it does not strike me is that hard.
Speaker 1: But even there it seems tricky because you could have
Speaker 1: again someone outside the US launching something that's called a
Speaker 1: stable coin that's algorithmic, and suddenly like where do you go?
Speaker 1: So I think there's this like little bit of low
Speaker 1: hanging fruit, would like say the U S. D C's
Speaker 1: of the world, where you can sort of very transparently
Speaker 1: audit do you have a dollar or do you have
Speaker 1: a dollar's worth of what the SEC considers catch equivalence? Okay,
Speaker 1: you're good. But I think beyond that, like regulation is
Speaker 1: just going to prove to be very tricky. And I'll
Speaker 1: say one other thing, you know, is he pointed out
Speaker 1: that look a lot of these aren't like companies in
Speaker 1: the sort of traditional sense. Maybe they don't they're not
Speaker 1: Howie or whatever. They don't pass, but like they're not companies,
Speaker 1: but they do have teams and many of them are
Speaker 1: on Twitter and not anonymous, and they kind of look
Speaker 1: like companies. Okay, Despite all these questions, I think one
Speaker 1: thing is clear, which is it does feel like we
Speaker 1: are kind of coming to a crunch point on some
Speaker 1: of these issues. Like there is enough momentum right now
Speaker 1: in d C and elsewhere to actually start thinking about this.
Speaker 1: The industry is big enough to start thinking about how
Speaker 1: are we actually going to regulate it? Are we okay
Speaker 1: with the status quo? Or do we want to do
Speaker 1: something different. I have a feeling we're going to be
Speaker 1: talking about this a lot more, and it was great
Speaker 1: to hear from him, and yes, a lot more coming
Speaker 1: on this. Okay, shall we leave it that. Let's leave
Speaker 1: it there. This has been another episode of the All
Speaker 1: Thoughts Podcast. I'm Tracy Alloway. You can follow me on
Speaker 1: Twitter at Tracy Alloway and I'm Joe Wisn't Though. You
Speaker 1: can follow me on Twitter at the Stalwart. Follow our
Speaker 1: guests on Twitter. Senator pat to Me, He's at send
Speaker 1: to Me. Follow our producer Carmen Rodriguez at Carmen Arman.
Speaker 1: Follow our substitute producer for this episode, our colleague Dashel
Speaker 1: Bennett who filled in. He's at Dashbot and want to
Speaker 1: give a big thanks to our Bloomberg booker colleague in
Speaker 1: d C. Matt Shirley. He's on Twitter at Matt or Shirley.
Speaker 1: And check out all of our podcasts at Bloomberg unto
Speaker 1: the handle at podcasts. Thanks for listening.