Is the CFTC's Kalshi Rescue a Dangerous Precedent? - DEX in the City

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I think it's a hammer when you need a scaffold. And it's the same way I felt about Ma, but with AI, uh, I'm not really sure what problem it's actually going to solve because I do think just like with privacy and like forcing people to provide too much information, you're going to actually push more companies out of the EU. And we certainly need some I I'm everyone knows like I believe we need some form of regulation when it comes to the misuse of AI whether it's for child exploitation material or deep fakes. But this type of like overregulation is not

what I think is going to stop bad actors from using these tools or finding ways to circumvent and use it anyway. Hi all, welcome to Dex in the City, where the wallets are cold and the takes are hot. Before we get going, remember we're all lawyers, but we're not your lawyers. Nothing you hear on Dex in the City is legal or financial advice, and it doesn't create an attorney client privilege. For the fine print, just check out Unchained Crypto.com. Before we get going, we're going to turn it over to hear from our wonderful sponsors. This episode is brought to you by 1-in Aqua, the shared liquidity layer from 1 in. Back multiple liquidity positions with one wallet balance and

keep your tokens in your wallet until a swap fills. See how it works at 1in.com/aqua. Guys, we have a really special episode today because both V and KK are out, but we have two familiar faces on screen, Jane and Jacob. I'm sure you all know both of them. Jane has been on the pod before. Needs no introduction. Jacob also really needs no introduction as he hosts the Law of Code podcast. Everyone should listen to that as well. It was part of the inspiration for starting this one. So, thanks guys for joining.

>> Thanks for having us. >> Yeah, thanks so much. Of course, we had so much going on this past week. So, even though my two co-hosts are off gallivanting on vacation or something, I thought it was worth just touching base on a few of them. And essentially, what we're going to focus on this week is that regulators and government officials are finally making themselves heard, right, through loud proclamations or just loud silence. That is pretty, you know, telling as well. And, you know, we have this special panel here to talk about what's happening. We're going to talk a bit about the CFTC invoking the emergency authority again uh to shield cashi as we talked about before SEC cancelling a meeting and then we're

going to throw in some AI and cyber security conversations as well and uh try and you know keep us all interested and sort of debating a lot of these issues. So a lot of what we're going to talk about today involves regulators and there's two we want to touch on the first um segment here. So, Jacob, gonna turn it over to you. The CFTC has been doing a lot with a little for many years and no exception over the past few months. Can you talk a little bit about what it's doing in prediction markets this week, although I feel like we have uh you know, some story on prediction markets every week and then how the SEC's actions in the last week might fit into that.

>> Yeah. So, the the CF and thanks Jesse again for having me. I'm glad all my begging paid off. You guys finally let me let me on. uh the so the CFTC invokes section 8A9 which is its emergency authority to direct a registered exchange in this case Kali to take steps to what they call maintain orderly trading and ordering Khi to keep operating under the CA core principles regardless of state litigation and this is sort of an inevitable step that the CFTC took after Kali sort of made it clear to them that they needed this.

It's been going on back and forth in New York since about October 2025 where we've seen the uh state attorney general get involved, Leticia James with the latest sort of punch thrown from the state side. But this has been a back and forth where on one hand states are saying as as all your listeners know, states are saying these are bets whereas Khi and other federally regulated exchanges are saying no these might look like bets but they're actually exchanges. They're operated differently and we are regulated. So, it's it's an inevitable step on this long line of cases where where Kelshi's tried to get the courts to stop themselves. When that fails, then they turn to the CFTC. And it's an open question whether or not that's actually going to work. So, I think it's inevitable we'll see this in the Supreme Court before long. Now, if

you want, I can open that up and we can chat about that or I can jump to the SEC stuff. No, let's let's talk about that a little bit more because I want you to want to come back on, but and I want to respect my guests at all points, but I don't know if I fully agree with your take because they I don't know if it was inevitable like this was an emergency action authority that they invoked. And you know, I did like a little history research before and it seems like this has been invoked six times throughout history. two in the last like month or so by the CFTC for Koshi, every other time was for like a big market event to prot prevent what was seen as

catastrophe. So while that you can argue the merits of the state versus federal, what I sort of have a problem with here is one, where are the states rights people coming out and saying like what is this federal agency doing? especially when you know it's a small agency and it's taking a big punch here and two in my mind like if we use emergency orders or actions in this way and yeah it might be a sympathetic case now but that's how it's going to get normalized like how would we feel if this had happened a few years ago with a very different SEC or CFTC >> great great points Jesse and I I will

push back because if you take that same principle and you apply it in the opposite opposite way and you say, "Okay, well, if states can suddenly infringe on these federally regulated companies in that are in the swap space that are in futures markets and they can determine what those what swaps are allowed to be traded and this is authority that was granted to the CFTC. Remember the CFTC has the ability to prohibit sports contracts. Now the states can suddenly take like recapture what had already been given to f federal regulators. Then there's also this sort of slippery slope argument about what happens to the users who now have open positions on these markets and they

could be for hedging purposes. They could be for a lot of purposes but these these people are citizens of the exact states that are going after these prediction markets in the name of consumer protection even though there are already regulated gambling platforms. Where I get into where I went into problems is if we think about these from first principles, the goal is to make Americans safer, allow American businesses to th to thrive. And I don't think necessarily these orders do anything except keep this moat that some and keep this state system of regulating gambling platforms.

>> So, not to be like too nerdy, but I'm nerdy and very open about it. Um, I I do think there's a question of to Jacob to your point of like what the CFTC is authorized or supposed to do from a like from a congressional right perspective and I think that's why we are seeing I mean Jesse like to your point about catastrophes I think this is an industry or a space that's really growing right and yes we're talking about an emergency related to Kauashi. But I think this is a broader question and a broader stance that the CFTC is trying to to carve out for themselves to say, "Look, we have

the authority and we're taking a very aggressive stance here because there is on the other side a lot of states and a lot of state attorney generals that have said we're sort of banding together because we think we have the authority." And ultimately I think this is why it's going to go to the Supreme Court because the question is does the CFTC have the authority that they are saying they have from a congressional perspective and then what is like we're coming to a point where there's so many other in businesses that are starting to come into the prediction market space that it is more than just one company or two

companies in the us. I also think that I'm not super surprised that this is the CFTC that's taking these actions because we are seeing sort of more um independence and the authority from the federal government saying we we get to speak to these issues. We want to be here for the innovation. We want these businesses here. We want them to generate revenue here. Um, so I feel like it's um I'm not that surprised to see them take this action, especially in New York where we have really aggressive regulators. But also one thing that came

up like even after the emergency action is like New York City Council is looking into prediction markets and the impact. So, like that's just like we have to unpeel so much of this onion that's still coming where we like I've never heard the city council being like I'm going to look at this industry now too. Well, Jane, you should be the moderator because you're so reasoned in your response and I I totally appreciate that and I just want to say like I am a prediction markets convert in many ways. Like we work with a lot of them. I wasn't sure about them. I'm gonna promote one of our companies which came out in the news last week. Castle Labs.

They had a huge story in Matt Lavine as you know I love and you know Bloomberg CNBC about goat hering hedging. Essentially uh a person in Cal like an actual person that runs a goat hering business. They needed to hedge the fact that like this tax break for goat hering would not potentially extend indefinitely. And so they worked with a prediction market and cashi in order to be able to provide that security for a goat herder which is actually a really big important industry particularly in California. So there is value to protecting prediction markets.

I am on that side and there is value to federal governments asserting when states are going too far. Right. But the to say that it is a clear legal determination that the CFTC has full authority over sports, gambling, prediction markets, whatever you want to call them, because each market needs to be assessed differently. And states as of right now have authority over sports, gambling, the state commissions, right?

So there is a legal debate here and that should go to the Supreme Court, right? Like that's the whole point of our judicial system. So the merits of the argument here are not what is at issue to me. And I think how prediction markets have sort of exploded into space shows that it's something that a lot of people want to one get involved in as consumers and two regulators want to think about how to how to overview and assess, right? My bigger question is like if an agency, a smaller agency, but one that has been doing great work, but still a smaller agency is able to say, you know, I don't really agree with the state's legal arguments. I'm going to

get involved here in not one legal case, but a number of them and assert that this is an emergency that we're taking. I just like in my mind our constitution is built on the concept of there are federal government rights and there are state rights and there's also a separation of powers between our branches and what I worry about is I sort of hate this phrase because it's overused but like the slippery slope of this all like any agency could then decide like for me pro-choice rights like if enough states are dealing with that issue and saying like the pill should be allowed out across state borders, right? And then the DOJ or some sort of, you know, health agency in the

federal government says this is an emergency and overtakes judicial rulings or judicial court actions on that issue or any other issue, gun rights, if that's what's important to you. to me like this like the choosing of what is an emergency based on what that agency thinks is important at that time gives me a little bit of concern because the whole concept here I mean all of crypto fought for you know Chevron to be overturned not all of it but a big chunk of it right because agencies shouldn't have so much authority if they're not elected right that was a lot of the argument and now we're saying let's give the agencies emergency action authority.

Like to me, that's like a crazy switch of our brain that I don't know if people are fully examining because we like the topic now. >> Yeah. The word emergency is one of those words that along with terrorism and and so many others that over the years continues to get whittleled down because it's used in ways and and I'm I'm with you in terms of the value of states rights. I think it's important that if one state wants to allow some form of regulated gambling and another state doesn't and you don't want to live in a state where there is gambling, you can move to another state. And the more things move federally, I think the worse off it is for the freedoms for Americans to move. At the same time though, when it comes to cases like this, if you don't intervene in any of the cases, if

you sorry, if you intervene in one case, you have to intervene in them all because they're all very, very similar cases when it comes to going after these CFTC regulated exchanges, whether you're in Minnesota, whether you're in New York, like no matter how you're going after them, the CFTC has that responsibility, I would almost argue, to get involved because what they're doing is regulating a particular industry. they have jurisdiction over and and whether or not they actually do is a question, but one that they believe they have jurisdiction over. And so they need to make sure that their registered entities operate in the best interest from the CFTC's perspective of the customers, of the users, and and that to me is what they're doing. The question to me always becomes back to to who is

being harmed here. Is it actually residents of New York or is it the tribes, the the gaming commissions, the people who currently have some form of power? And that's where I think the details matter because every person I spoke to, I did a three-hour podcast on prediction markets. And everyone I spoke to, whether they were pro or anti-prediction markets, and there were quite a few people I spoke to who were anti-prediction markets, every one of them said both should be able to exist. and they thought that prediction markets might be more for institutions in the future whereas gambling houses could be more for people who want things like rewards and I think they're they are fundamentally different products even though the button looks the same you're betting on outcome but how it works on the back end really is what separates

different types of exchanges just like in the equities markets uh are separated from derivatives and other markets as well >> I think Jacob also you hit on a really important piece where I think most state AGS right And most states their purview is consumer protection, right? And protecting the users in their state. Um, and theoretically so are regulators like the CFTC or the SEC. And I think until we're precise in what we're talking about and what's being offered on the prediction markets, because Jesse, what you described as as that example with like the goat hering, like you would think that would be very much under the

CFTC purview, right? And it's a very specific thing that has a very tangible understanding to most regulators in a way where I think and the CFTC has tried to put out some rules and guidance where there is a difference between a game right like a sports game and the trading that may happen um whether it's the World Cup or something else versus a very tangible thing that someone is doing that may be very relevant and important for people in the states to have and be available.

It's so interesting that sports prediction markets, sports gambling, the distinction obviously is under a similar bucket. Like that has become such a big debate for lawyers that I've never been involved in sports gambling or sports prediction markets, but I think about it all the time. And there's so many other use cases for these prediction markets, one of the ones I talked about obviously, that are making a difference and can make a difference. And I am really excited for the time when we can focus on those. But as a proud Virginia, I will put states rights arguments forward all day, every day. Um, okay.

Before we move on to a break, Jacob, why don't you tell us a little bit about the SEC side of last week's news, too? >> Yeah. So, that that's a interesting dynamic where we were supposed to get some form of proposed rulemaking. It was going to I've seen reports that it was going to be 400 pages. there was going to be pretty comprehensive updates or at least guidance or or some sort of proposed rules for people to see from the SEC. So that would allow us in the absence of the Clarity Act passing to have some form of market structure, we'll call it, type of rules for the crypto industry. And we didn't get that.

It was canceled. It was very vague. There was a scheduling conflict that was cited, which is probably not really the case. I've seen some reports that it had to do with the Clarity Act sort of stalling and and people in the White House not wanting the Clarity Act to get forgotten and wanting to emphasize the importance of getting that which which is definitely very important. Seen other reports that it could be uh members of the traditional securities industry not wanting such a pass or or let's say some rules for tokenization of securities. So there's a lot of rumors going out. I won't speculate on which ones are true, but we we were supposed to get some sort of rules. we didn't end up getting them and that's going to continue uh we're going to continue to wait for them which is a story as old as time in the crypto

industry as you know Jane and Jesse >> yeah you know I was shocked by that announcement because I had actually been planning on being you know listening in and giving as much information to our companies to as many people as I could be useful for about what was happening because Twitter loves its rumors like there has been conversation about this coming out for so long and it finally felt tangible. And it is sort of interesting that like there's this clarity overlay that the odds of that and I won't make you guys talk about clarity. We end up talking about it every single week, but like the odds of that are plummeting by the moment. I haven't fully given up hope. I think a

lot of people haven't fully given up hope. But it was sort of a thought generally that maybe this was cancelled because there was this defeist attitude of like if this gets passed it's going to get in the way of clarity. Um I don't know more clarity whether it's through a clarity named law or some additional guidance would be great but uh I don't know it all seems to be rumors right now. Yeah, and I will take the position having worked with so many I mean being in house as you both know and and then having worked with so many projects that I think this is a unique moment and a unique time to get more specific guidance to companies especially as this

administration wants to bring more innovation and keep innovation in the US um that it I'm hopeful that something will come of it but as we know like clarity may or may not pass. I I agree with you, Jesse, that I think it's I'm not optimistic. Um, but I have been proven wrong before. Um, but I do think it's important for regulators who are going to be long-term overseeing these markets into, you know, five, 10 years from now that people know what they're building. And so anything that is more specific can help like everyone who's building and institutional players who are entering

more and more into this space. I feel like almost every day we have some announcement from an institutional company or financial institution obviously with genius having already passing and more guidance and rulemaking coming. But I think the more information is out there for people the better. even if it's not codified in law um if clarity does not end up coming through and getting passed. >> Awesome. Well, we have a few more things to talk about, but first let's throw it back to our once again very generous sponsors.

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Remember that providing liquidity carries risk and fees aren't guaranteed. >> Welcome back. You guys know I can't get through an episode without talking about AI. So that's where we're going now before I throw it over to Jane. So essentially, as you all may have heard or may not because we're not covering it enough here or generally in the US, as of August, the EU AI act requires AI companies to do a bunch of different things. But one of the things it requires is these companies to mark the content as AI generated essentially and Enthropic announced this week or last week I guess it's Tuesday that it's doing this for Claude worldwide and I want to get your takes on this

especially in light of CFTC's meeting later this week back to CFTC for another reason um to analyze and assess agentic work on you know in markets and how that all sort of flows together. So with Claude, they're putting in this new watermark and watermark can mean a lot of different things. So it's worth digging into the technical side just like slightly. Although it's you don't need to really understand it, but the words coming out of the clawed models that you're using are actually changing.

Not what they say, but how they're chosen. That sounds complicated, but essentially right now every time the model picks between two equally good words sort of to anticipate what the next word should be, the choice is now based on a secret key instead of the coin flip concept, which is, you know, a foundational concept of how Claude was using LLM before, which means that Anthropic or the companies that it's working it with can later prove that statistically Claude wrote something.

Once again, very technical, not super important, but it's not like there's hidden characters in there or labels. You It's just essentially there's this invisible mark and if you have the co the decoder, you can see if Claude has used it and Anthropic says that it's doing this because of the EU AI act. Like that's very very clear. And they couldn't split the product by region. So, everyone in the world, just like we've seen before, gets the EU rule. Uh, Brussels is making this decision and we all Chicago is getting it as well. And I want to like sort of explain both sides of the argument because the watermark exists for good reason. We're all losing

the ability, we talk about it on this pod in many other places. is I know Jacob, you have as well, losing the ability to tell what came from a machine and what came from a human just by looking at it. And this is only going to get harder. Crypto has its own version of this. Jane, you worked on a lot of these cases because our scams can involve text. There's a fake founder post. There's fake support agent in your DM. The investment scam script that we all hear unfortunately about over and over again um comes a lot from this. Honestly, this morning I got a message on Telegram asking me if I wanted to marry this woman and she sent me her um selfie and then also asked for money. It wasn't a great very good scam, but it

was an attempt. So, this is now generated at volume and provenance through watermarks is a real tool, but it's obviously going to be over-inclusive because I'm sure you guys use LLMs in different ways and you may just have it look at your email and edit one word and that watermark could appear there. There's a lot of other tools happening. Substack just sort of incorporated one as well that has been a big debate in the AI side of the world. But it's something that we've been sort of waiting for which is like some sort of regulation to help AI, right? Part of the problem is not only is it overinclusive is that there's already decoders on GitHub for it. Unclear if

they're fully going to work, plus you have to have the model buy into it. And so are the bad actors really going to use this? How do we really think about what the purpose of this is? And it's not super surprising because isn't this like how EU regulates everything, right? Like it's why do we have cookies on our websites that we have to like click yes or no on? I don't know. Jacob, tell me what that looks like in Canada for you because right now it's like I decide whether to accept them or not based on vibes, but you know, I I'm sure there's a better way to handle them. No, they look the same.

It's a disaster. I mean, it's another this is another example of the EU importing its rules to everywhere in the world. And I'm surprised that we haven't seen more American companies push back against this as a jurisdictional overreach by the EU. In in the UK, they tried to implement not not a similar regime, but is a regime with similar jurisdictional goals. And 4chan, Preston Burns, a great lawyer, he pushed back on that and they've pushed back on that. And I think we will start to see companies push back on this because on one hand it's it is I mean there's an argument that it's a form of compelled speech where now anthropic is changing is forced to change its output and I'm if I'm using anthrop if I'm using claude to help me draft emails now my speech is

being changed without my knowledge. I have no idea what it's saying, but if I'm using it to help me draft an email, it's changing that and sending that message to a counterparty without me understanding what is actually being said, without me understanding how to change it. If I change a couple words, will that be sufficient? Will it be in my own voice? And I think it goes back to this EU's paternalistic way of regulating that everyone needs some sort of protection. And it goes beyond just the these prompt inject these injections too, right? that if you use it to if you use AI to generate an image, if you use AI to tweak an image, you have to disclose that in the image as well too. And so the EU continues to push into cyerspace, which to me only ends in in one of two ways. It's going

to be American companies say no, enough's enough, like come to court in the US and challenge us and then we'll see if you actually have jurisdiction here. or there'll be a firewall and I think this is more likely unfortunately where there's a firewall around the EU to just protect American companies from the liability that they'll have in Europe. >> Yeah, I agree. >> I think that first amendment I'd love to jump have you jump in a sec. Like I think that first amendment argument is a really interesting one. It it rhymes with what happened here with the sort of rules coming out of the US federal government that said you need to essentially not provide this to non-foreign nationals, right? Uh the LLM and the you know the model and anthropic sort of had to turn it off everywhere,

right? There's no way to sort of geoblock in the way that we talk about it in different ways unless you want to fully KYC onto these platforms and figure it out there. Um, you know, I give EU credit for doing something, but it's like once again, like you can talk about it with MA too. It's like they wrote this huge package that took years and years to implement and the technology has now changed and like just saying no to it isn't right. Like I one of the things that EU did great was like, you know, the little plug for your iPhone now has to match other things, right? So that was something I'm glad went throughout the entire world. But you're exactly right. Like why does Brussels get to decide that my like

output gets watermarked even though I think there are issues with images that are generated by AI that aren't marked. Like there has to be a better way to do this. >> I think it's a hammer when you need a scaffold. And it's the same way I felt about Mika. But with AI, um, I'm not really sure what problem it's actually going to solve because I do think just like with privacy and o over like forcing people to provide too much information, you're going to actually push more companies out of the EU. And we certainly need some I I'm everyone

knows like I believe we need some form of regulation when it comes to the misuse of AI whether it's for child exploitation material or deep fakes. But this type of like overregulation is not what I think is going to stop bad actors from using these tools or finding ways to circumvent and use it anyway. So instead, you're just pushing more people out. And I think there is a larger debate certainly to be had. We don't have to do this on on the pod today about what what does thoughtful regulation mean as you have products that are I mean the use cases are

tremendous right across sectors both for everyday users for how many people are using it on their phones on their computers what what they're accessing. I mean, the cyber scams, we'll talk about that later. Like, they're only growing in number, but I don't think this is the law that's going to prevent someone who's in forced labor in a cyber scam from texting you on Telegram or coming up with because frankly, my grandparents or my parents aren't going to be looking for the watermark to see was this generated by Jane, their daughter or granddaughter, or somebody else who's just trying to scam them.

If we want to continue with the cynicism, it's also quite ironic. I think I'm using ironic correctly, although Atlantis Morset probably destroyed that for me. Like, LLMs have been created and become useful by eating up all of our content, including artist content, written content, books. Some of the Amazon stories about like buying books and burning them after they eat them. I'm I I know they're not eating them, but you know what I mean. Um, and now they're like making a tiny change and then outputting our contact and saying, "Actually, this is AI generated." Like, it's sort of BS when you think about it.

>> Well, and I think too what what is a hallmark of EU regulation is not thinking about what's going to happen after it's invoked. You know, there should be a sandbox for regulation where they force certain people to test out these regulations and see what do people do. I mean, look at the cookies example. I think what the EU thought was, we'll implement this rule. You internet companies will stop putting cookies. They'll stop tracking their users, and now all of a sudden, we'll have a good internet again. What ended up happening was it just made it way worse for customers, for users of the internet.

And if you were one of those companies that was like, you know what, I don't want to create a bad experience for my users. I'm not going to track cookies. Now, you're at a huge disadvantage from everyone else. So, you're actually punishing the good guys. And this is another example of that where if you're someone who in the first place wanted to disclose your AI use and you were going to disclose it anyways, then you would have done that. And if you weren't, now you're just going to run it through another step once it gets out of cloud and your product's probably going to be worse or at least you're going to have to go through another point of friction. So this isn't solving anything to any of the EU regulators listening and hopefully they are. This isn't solving anything. This is just another example

of a well-intentioned idea that's going to have, if anything, the opposite effect and punish the people who would have done the right thing in the first place. >> Well, I want to end this AI segment on an optimistic tone perhaps. So hopefully the CFTC will do a better job this week and it looks like they're on the path to do so. So something big is happening this week which is slightly under the radar and we'll cover it more in the next few episodes but essentially the CFTC is being the first US regulator sort of sit down and examine in a more public sense like how to regulate AI in markets. They're having its first meeting of the innovation advisory committee this week um on Thursday. So,

it's going to cover crypto. It's going to cover prediction markets like we talked before and it's also going to talk about AI markets and their AI in markets and how autonomous systems should operate there. There are so many open questions on that front. I've talked about a lot of them including men's rhea liability accountability, but hopefully we get a little bit of clarity back to that word there on how people should be building these systems because right now it's a bit of yolo. I think it'll be great, Jesse, to see how how they think about how companies should be incorporating them as they're building because we have a lot of companies now, both institutional and startups that are building their own proprietary

tools internally to better understand also from just an innovation and a revenue generation is if they own it and they've created it and how does that imp like implicate the market more generally? Yeah. Interesting. Okay, you've heard enough from me. Jane, let's turn it over to you. So, just to give a little intro into what you're going to talk about. So, at the end of last week or so, the US president signed a memorandum letting vetted private companies run offensive cyber operations against foreign criminal groups under DOJ and DHS supervision.

Is this a great idea? Is this terrifying? Why are more people not talking about this? Why did it happen in this way? Is this sort of a normal procedural way for this to happen? Talk to us. >> Yeah. Um well, excited to talk about it. I think as I warned Jesse, I have a little bit of a spicy take, so hopefully I I'll I'll still get invited back. Um I did I want to take us back just for a second to give some background. Um so the president did on I think August 12th that he um issued a memorandum related to like expanding capabilities in combating transnational um transnational organized crime focused specifically on cyber. But rare it

really goes back to is an executive order that the president um and the White House had put out in March of this year that was really focused on combating cyber crime, fraud, some of the predatory cyber scams that we talked about earlier, focused to protect American citizens. And you know, as someone who used to be in the government and you know, I worked on a lot of human trafficking cases where I really thought it was very very important to have private and public sector collaboration. The way that I look at this memo that basically establishes this program that's going to be overseen by the Department of Justice and the Department

of Homeland Security. and it like and I'll go a little bit into more details about the the requirements for the companies that are going to participate in this program and how that's going to be overseen. To me, this is a um a formalization of that relationship between certain companies in the private sector that are going to have to, you know, fit into these criteria that hopefully will come into implementation in this next 60 days. as required under this memorandum under this national coordination center that was established by this administration in 2025.

But to me, I think a lot of the conversations um at least um that I've seen were sort of this uh you know, the private sector and these private companies are going to be able to do whatever they want uh in order to combat cyber surveillance and connect you know combat cyber uh operations that are targeting US citizens. And I sort of don't think that I I I don't think that that's how it's going to work. Also, because the memo very clearly states that the companies that are going to be participating have to be sort of overseen by the government and they're going to be agents of the

government. They have to comply with all of the laws, regulations. there's language about complying with international laws, getting permission from DOJ or DHS um once they've entered into these agreements. And so, you know, for me, I think it's very important. I think the memo is very um thoughtful in the sense that it wants to include both large and small companies, right? because some may be more nimble, some may have this specific expertise that we need in combating these cyber um potential attacks. But the other side of this is, you know, these private companies are going to have to

understand that they, you know, if there are cases that are brought, right, if there's an investigation, they're now an agent of the government. And so what are their requirements in terms of information that they're sharing with the government, information that they might have to share across the companies that are participating in this um in this program. And so I think it's um it's a good step because I do think it's important. I've always been a proponent of making sure that we have the private sector engaged. And look, we've said in the crypto space for a very long time, right, with a lot of these exploits that you're sort of the first line of defense

is the company and thinking about your cyber security um risks and how do you're mitigating the risk and how you can share that information. But I don't think this is um this memo or this program is focused on sort of vigilante justice of you can do whatever you want as long as you're preventing a cyber attack um in the US. So I think we'll still have to wait and see how it's implemented and who's participating right and who applies and how this program um kind of moves forward. What I think is also interesting that I have not seen a lot of discussion is in the memorandum. It talks a lot about the classified annex to the memo and because

there will be intelligence agencies that are likely also going to participate in this program and information sharing and just so you know a lot about this from your previous work like that is a whole other um sort of important uh sector that we'd have to address about including what information is shared from the intelligence community with private sector companies. is and those requirements and what those private companies are going to have to do to make sure that that information stays um classified or secure in their systems.

Yeah, I agree that the concept of getting private companies involved is probably a good one. The devil's going to be in the details obviously and I know you and I have been working on similar initiatives before Jane and many others have put it forward and there was a lot about this to like it's also like reminds me a lot of the privateeering part of our history which didn't shut down for any reason but that they couldn't control the privateeers out on the water. So I I guess I'm slightly skeptical, although I want to be optimistic here, but that the government will have the capabilities to properly

oversee this program because otherwise it's just people out there hacking and it's not like they overturn the CFAA like there's still computer fraud like a law and criminal statute, right? So making sure that people understand the bounds of that, that people understand what people are doing under the hood and that there's enough technical experts in the government to help oversee it. That is like where I would like to make sure that this stays accountable and doesn't just sort of fall to the wayside. And also that like there's an equal assessment. I really did enjoy as well that it's you know large companies, small companies. Hopefully they assess all the companies properly.

>> Yeah. and they're and it looks like they are at least thinking about that because part of the 60-day period is to have processes and procedures and then every year they're going to have to assess whether or not the companies are adhering to the processes and procedures. Um, but I also think sort of to realistically the private sector does often move faster than the government and I think people's expectations should be measured because if you have to have approvals, whether it's from Homeland Security Council, which is referenced in the memo, or you have to have collaboration

between Homeland Security and the Justice Department, whether that also includes FB I whether that includes the intelligence community this may add time to response of to any cyber intrusion or but you know um if you're motivated to move quickly and you have the right procedures and guard rails then hopefully this will be um a positive step forward and I think that like Jesse your point about the talent and the knowledge in the government I think there can be a lot of learnings on both sides with information sharing that hopefully will be positive. Um because realistically the cyber scams and the

hacks it it really is a problem and it's becoming much more sophisticated for a lot of the reasons we already talked about even with just the rise and use of AI. Jane, I think you nailed it in that this is such a good example of that public private cooperation that that we need just because of the speed question. And when Drift was hacked, there was I think it was like $280 million and and much of it was in USDC and people were clamoring for Circle to freeze it. And Circle takes on a big risk when they do something like that without a court order, without a mandate from the government because now you're opening yourself up to private actions, to potential government actions. So giving having some way that we're tying in the

private sector, incentivizing I would even say the private sector to in some cases go out a go out on a limb to protect people in digital in cyerspace is a huge positive. Now as you both know you you both have tremendous experience in this space. The nuances of how it actually gets implemented is going to be what matters. But I think directionally giving out some cyber letters of mark so that we can have people who go out on especially on blockchains but just in the digital space really and can help combat some of the crime. I mean we've seen the benefits that the aerospace industry has had since SpaceX and so many others in terms of just efficiency, talent and so much more. I think this is a huge huge step in the right direction assuming obviously we get all the

details right. >> Awesome. Well, thank you guys so much for coming on. We'll definitely have you back to talk a little bit more about all of this or just to hang out with me. >> That's it. >> That was almost three hours in. >> Yeah, Jacob's ready. He was ready to go. >> Do that to anybody. >> Thank you. That That was a lot of fun. Hey, hey hey.