Gary Swings at Crypto, While BLUR Soars | Roundup

Transcript

foreign [Applause] [Music] welcome back to another episode of Empire uh super excited to be joined by Kristen Smith the CEO of the blockchain association and uh Rebecca redig both folks who've been on Empire before Rebecca uh was on when um Rebecca you're I think Chief legal at Ave now big congrats Chief policy officer polygon so super exciting yeah thanks happy to be here awesome well I know this week is a total [ __ ] show for probably lack of a better word for for both of you so I really appreciate you both jumping on um I think I want to start just with this idea of like operation choke point that Nick laid out I mean to me like I'm much more removed than you two are but like it kind of feels like Regulators

are in total like hurry up and do something mode right now like SEC took down kraken's U.S staking Biz SCC kind of sounds like considering doing the sweeping staking ban Finance suspended dollar transfers uh folks they're going after like paxos and busd and like doj potentially investigating silver gay like all of that was announced in one week then there's the stuff going on this week it just feels like all this is happening at once and I just want to get maybe Rebecca would love to pick on you for this first one of just like what like what's going on yeah what's going on like why now give us the lay of the land right now um I think there are a few things that happen you know the end of 2022 was um pretty existential for crypto in general I think the collapse of FTX

um took a minute to shake out and so we are seeing both some of that shaking out right now and because Regulators uh sort of especially on the enforcement side have the ability to act a little bit more quickly than policy makers they are taking some of that action and showing that they are being aggressive on crypto particularly in the centralized sector which is where FTX was um and I do think that the distinction is really important and I will probably get into the Kraken suit in a little bit but like there's a distinction The Regulators are making between sort of centralized actors in The cryptos based on what decentralized more crypto native um applications look like and I think the other other piece of it is some of this was coming down the pike for a long time we've been hearing Rumblings in the

space on the legal and Regulatory and policy side about staking as a service for a really long time I just think FTX sort of cleared the path to move forward really quickly and there aren't voices now that say like don't do that don't shut it down at least in the U.S I think the interesting thing is there are developments including on the staking side in other countries um that like revolutes started staking as a service this week uh or LA or the end of last week in the UK um and things are working very differently but we don't you know crypto as a general matter doesn't have a lot of outside supporters right now that says like don't do this I think everybody there's a general consensus that cracking down and bringing legitimacy through either regulatory

action or legislation is more important than ever in crypto yeah Kristen it feels like writing okay so like a year ago or several months ago the conversation was all about D5 deregulate the protocol deregulate the app now the conversation is all around all about stable coins what's going on in DC right now like why are stable coins such a big Focus right now yeah well I think think it's it's it's it is there's a lot of focus on stable coins but it's more than stable coins right I mean I've I've been calling it a crypto carpet bombing all week it's like they seem to be going after you know every little single idea that anyone's ever had to to go after crypto it just certainly feels like there's some Grand conspiracy um I sort of agree with Rebecca I think a lot of this is a factor of all right there's

kind of this we need to like make sure we're active in the aftermath of FTX because they were sort of caught flat-footed but it's also you know we're like two years in right like Gary Gensler came in two years ago it took him a while to put his people in place it takes everyone a while to do investigations and think through things and so I think it's kind of a Confluence of these two events that has led to what seems like a rapid fire um every day or a couple times a day in some cases there's like some some major new announcement but I think what's really interesting is if you look at paxos and what's going on with busd um they're definitely highlighting the bosd product of paxos not the other paxos products and um Circle similarly like has been public

on Twitter that they have not received a Wells notice so in the case of of what's going on in Praxis and BSD it appears we don't know but it appears as if that may be more of a finance thing than a stable coin thing um that being said I think of all of the policy issues out there whether it be you know D5 or spot Market or staking or any of these other issues stable coins are stable coin policy is the issue that has been explored more than any other issue and this goes back to 2019 when Libra announced and for the first time policymakers really dug into what it meant to have a stable coin and what that might mean and so you know I think from a legislative perspective like

that's the issue that in theory should be ready to go first because there have been hearings on it in the house and the Senate many different times there's a president's working group study that issue is is ready to go but I think if you pull back and look at all of the different items that are happening you know you can look at them one by one and you know in isolation like they're mostly manageable right in most cases their strategy there there's a an action or a reaction that the industry can take in order to push back um and it's just collectively when they all come at the same time that it feels a little bit overwhelming and um and a little bit intimidating and as if there

is sort of this attack on crypto and and I do think you know we need to acknowledge there are people within government that are you know very skeptical of crypto Assets in general and want to limit the ability of crypto to grow but on the flip side if you look particularly in Congress um but sometimes within the agencies themselves there are those um in government that see the potential that want the US to be competitive and as Rebecca was saying earlier you know if you look at what the UK and Europe are doing the us is going to have no choice but to catch up at some point it's just kind of right now you know they're looking a little foolish uh you know having been so close with FTX and you know Sam was

in Washington all the time but this is I think a little bit of an overreaction trying to make up for the fact that they missed the biggest fraud since Bernie Madoff so so I think it's natural that the Indus this industry tends to overreact and and interpret everything kind of either really positively or really negatively what is it relates to regulation but to me I like I I read the should we if we focus on the Kraken issue of staking like there's a very interesting response from coinbase and if you if you actually listen to it I listen to gensler's kind of speed teacher kind of press release and video and it seems like the issue and the common denominator and correct me here I love your opinion is this idea of custody versus non like custodial versus

non-custodial commingling like Kraken was not very transparent in how they were staking and they were like the way that they paid it out made it seem like it wasn't based on what the protocol was emitting based on inflation it was more So at their discretion and so which is in contrast with how coinbase is doing it which is very segregated you know you can inspect it it's it's very siled it's custody you know I mean and so that is also very related to FTX and kind of what happened there and so I don't know I feel and so is the busd stuff too like finance and the lack of transparency so I mean I'm oversimplifying a lot of things here but to me it feels like it

they're reacting because they have an egg on their face with the FTX stuff and then they're really going after it seems to me like every kind of service provider that is custarding assets and not being very straightforward or transparent in the way that they're managing that service and the kind of disclaimers disclosures that they should be doing for their customers but they're not is that overly simplifying it is there more to it I'm kind of curious to get your opinion I don't I don't think it's actually a huge oversimplification but I don't think I agree with the they're not making sufficient disclosures point of this I mean paxos is regulated by the New York Department of Financial Services as is busd there's a binance element to it and maybe a lack of transparency there but paxos is one

of the most highly regulated empties in the crypto space and has taken painstaking steps to be a good actor in terms of Regulatory Compliance for a long time and when you are a trust company which is a type of bank or akin to a bank under New York law um you get regular audits from State regulators and examinations and you have really really stringent requirements both on the financial side including in types in terms of the types of Reserve you have and your cyber protections it's a very very extensive regime in New York under the license um and as far as Kraken goes I mean there are Money Services business if you read the complaint it actually does talk

extensively about what kraken's disclosures were but they just say well they weren't there weren't enough disclosures and they didn't comply with what the SEC would require in a you know investment contract like situation I do think your simplification on the they're going for custodial and centralized actors is right because when you do look at the cracking complaint there are like two very noticeable paragraphs paragraph 39 and I think it's 41 or 42 where they say this doesn't look like how you do it if you were do if you were staking by yourself um and I think that that that coinbase probably keyed off of the distinction and the cracking complaint um and said look we are just providing Technical Services and when you think

about what constitutes um efforts of others under the Howie test it's entrepreneurial or managerial services and so I think that's the distinction that at least the cracking complaint is trying to make right like you were doing managerial services for other other people and Technical Services would not necessarily not I mean they don't say this obviously in the complaint but I think that's the distinction they're trying to make have either of you met with Gary ensler or like senior Folks at the SEC yeah oh Kristen okay Kristen's not not in her head look I guess let me ask you this question because like yes I've watched these Gary Gensler videos and like they honestly seem like marketing videos like they're like

a request for that budget sweeping design I'm like who's you've got like a team of like video animators like putting this video together it's bizarre so anyways like I remember the J J clight when Jay Clayton was running things and like you know people weren't stoked but at least companies could go into his office and have a production product productive conversation and at least there were like attempts at Frameworks I would say put in place um it wasn't amazing but you know and then I remember like people were all excited about Gary Gensler coming into uh into office and now I I just feel like he really has it out for Crypt I mean not I feel he really has it out for crypto and I just I was watching that video being like man like this is a guy on a mission like he really has it out

for crypto and from what I've heard from companies who have gone and met with him like you don't go meet with him anymore like you could with Jay Clayton because you will like you will get a Wells notice or you will yeah like it is and there's something that comes as a result of it yeah no I am again I'm not I'm not a lawyer but I I don't recommend um putting yourself on the radar so like like why is that like why is he it sounds like you've I don't know what your conversation was like with him but like why is why does why is he gunning for crypto right now I just don't really get it I'm very politically by viable for his supporters right Senator Warren is one of his biggest supporters there are other left-leaning or liberal Senators who are very powerful who he's courting

um them with he's also not only focused on crypto we all think about it but he is actually taking a super expansive view for lots of different other types of companies he's really been focused on ESG and things like that that you wouldn't necessarily think fall within the sec's jurisdiction and so yes it feels very bad to us it also feels very bad to other Industries but it's for things that are very politically viable yes she falls very in that left bucket as well so yeah and got it yeah like Elizabeth Warren um you know she's historically been very anti-big Tech and anti you know big bank right and so you would think she would

naturally want to support this um crypto because we're trying to challenge that right as an industry and as a community and I think the reality is though um if you're Elizabeth Warren and remember she has her people are all throughout the financial Regulators like she really has kind of a a monopoly over how to go about financial services regulation and if you're her and your people are you know scattered throughout federal agencies you know you sort of like the control you have right I mean the banks um and other institutions will do the bidding right they have a really good control on that right now and so even though they

don't you know they claim to not like these big institutions they also have these big institutions exactly where they want them and so when you have something like crypto that comes in that wants to upend all of that that is threatening to sort of the power and control that they have over these institutions and so I think you know again I don't know this but this is the only logical um you know explanation I've heard as to why because you know they they um you know you know she claims to hate Goliath but then she also seems to hate David and the reality is she's got Goliath on a leash and she kind of likes it that way um so you know we need to we talk about the can we talk about the implications

of all the kind of recent actions you know Kraken settle um but did not admit guilt yeah um and so they paid out 30 million I've been hearing Rumblings about a huge settlement fine Finance in the up to a billion dollars I don't know how much of that is going to but you know hearing Rumblings it seems like that you know is this just a very easy way to finance the budget of the SEC these are huge fines but what what I want to what I want to focus on is what are the actual implications as it relates to policy we haven't on one side we're hearing all these enforcement actions well notices fines penalties but on the other we don't have guidance and

policy so what is actually the path forward that you guys see over the next six 12 months because we've been all asking for clarity but I think in the absence of clarity is kind of this Vector that they can just enforce and and get these penalties and kind of you know break in fees it's a great business model yeah Rebecca probably has additional thoughts but I think you know something like Kraken right that doesn't answer questions of policy it answers questions of policy for a very specific set of facts and circumstances but not for other types of models that are out there in the industry and even then it doesn't actually answer those questions there was just a settlement and there is

like no actual hard determination if that's really a security or not because Kraken didn't you know sort of admit or or deny that that um you know they they were involved with Securities and so um it I think it ends up leading leaving more questions than answers out there and we're going to see this with any enforcement action or settlement that comes down it gives us a little bit of guidance but not a whole lot of guidance on how to proceed and I think you know what we really need is legislation um I don't think legislation is happening in the next six months to one year um it would be great if it did but um that is going to be a much longer process it just takes a really long time

for something comprehensive to come together but I don't know Rebecca may have some additional thoughts and ideas no I'll just put the like very lawyer gloss uh over what Kristen said because what she said Is Right like an SEC enforcement settlement is not presidential it gives us no Clarity I suppose if you are mirroring Krakens um staking program 110 to the T you can assume that the SEC would you know look to find you in the exact same way but you don't know and you don't know when they would do it or anything like that I spent much of my career as a litigator and Regulatory enforcement lawyer the only thing only two things that give you regulatory or policy certainty art as Kristen said

legislation somebody who's written the laws and then a court and a high court by the way interpreting what those laws are so you know we have a few District Court interpretations of how we as it applies to digital assets those are not presidential they don't necessarily give us um a clear interpretation that we can rely on from the law sure if you're in that district and you're again your facts match perfectly maybe but at the end of the day the Supreme Court is the one who gives you the final interpretation of the law and the laws as they are written through Congress and our legislative branch are what give you real Clarity and as Kristen said you know I don't think I do think that there are policy makers and their staffers who

are working furiously to try to bring Clarity um to the situation because they there are people who understand what the promise is here and as Christian alluded to we were talking before this about how other jurisdictions do understand the benefits and the promise um and are actually writing laws and putting them into place now um where there will be a lot of clarity about requirements for centralized crypto actors and how to think about more crypto native things and regulation there um but I mean enforcement actions and I think back to when I was outside Council and looking at various enforcement acts various enforcement actions coming down

and reading them and thinking here's what I take away from this to this day all I have about those enforcement actions even from 2018 to 2019 is what I take away from it nothing else um you know and other good lawyers in the space of which there are many you know we may talk about them but that's not the law and no court has sort of stamped it and said yes this is the law so you know I think we still have a ways to go in the U.S for clarity what can the industry do both of you are perhaps one of the most involved folks on the regulatory front doing great effort meeting with policy makers and other constituents um what can folks do in the industry um to push forward and what are some of the areas that you guys need the most

help with PR I think we are just to go to Kristen's watching or whoever said they were watching Gary gunsler's video maybe it was you Jason like the the pr War we are losing so badly right because what happens is you know chair gun store does a settlement he goes on Squawk Box the next Second and all normies or average people are hearing is crypto bad crypto equals criminals and so I think the most important things are we need to change that narrative we need to do it collectively and I sort of right before I took this job I said like 2023 needs to be the year of the use case like come at me with some really good stuff like not you know this app is going to give you eight thousand percent apy cool I

love D5 more than anybody I have been doing it for years and years and years as Sandy knows like but like give me some other good use cases too and people are building those right there are a lot there's a lot of great web3 Social Web free gaming um there's some a really good sustainability apps but like bring the really good narratives and I think the other thing we need is there are Great American or U.S companies who are building and have great Innovation arms um a lot of them are building on polygon not to chill but um I think they need to come forward and talk about why blockchain will be good for their business too yeah this is a great segue because you obviously just jumped to polygon we talk about polygon extensively in this podcast as being one of the most yeah

active on the BD front um and just you know really converting a lot of organizations um so maybe share with us a little bit I mean obviously and as it relates to kind of stable coins um there are questions whether PayPal is going to kind of pause their stablecoin program I mean they have like over 200 people I think working on this initiative working with paxos is my understanding um what does that mean for someone like like PayPal um and for the other organizations listening what would you tell them at this moment you know in this moment in time so you're in you're going Squawk Box uh so so what would you be telling them right now Christian was that Kristen you ran squat box yesterday

right yeah [Laughter] um so I I mean I really tell people the companies like PayPal and others need to really give good examples of why this is a game changer for their business um and one of the things I frequently do or you know in the last couple weeks where I've now been at polygon is we are pulling together and there are teams here that have spent a long time pulling together great use cases we're calling them we're making sure we're going to highlight them as we go out and really work in DC to educate legislative staffers members of Congress um but the other piece of it is you know look remittances has been a great use case for a long time and to think about

the transaction fees and how low they are especially on l2s and the speed of which it you know these remittances can move especially internationally that's important so just real so somebody like a PayPal and talking about why this will be better for their business is really really important it is yeah do you Christian uh I don't know if you saw this Hayden Adams tweet but Hayden uh tweeted I think yesterday or earlier this week he said it's embarrassing to watch the US fumble the ball so hard on on crypto the incentive for innovators and businesses is to go abroad it's like if 30 years ago the government saw the internet and said no no no don't do that here and uh Rebecca mentioned like competitiveness not just between companies and stuff but like between

nations and um I just want to get your I want to hear your take on like that Hayden tweet and like do Regulators understand that or they don't view it like that at all yeah no it's interesting so I I haven't seen the Hayden tweet but I I think I know what he is getting at um it's it's different right it if you look at numbers of Congress they take a much broader view right they care much more about U.S competitiveness and trying to keep jobs here and keep the Innovation here when you look at the individual Regulators they're much more sort of focused on their mission and I think there's a difference between the internet 30 years ago and crypto today um there's a lot of misconceptions

around crypto and like what it is like I think of crypto as being these networks these decentralized platforms that you can build Services upon and being a really sort of open empowering thing but if you're a regulator uh that's focused on money laundering you're worried about you know being able to trace transactions questions or if you're a regulator that's focused on like your gunsler on Securities laws you want to make sure that there's you know consumer protection like the problem we have today is crypto ends up popping into all of these different Financial Regulators in sort of unique ways and they're not looking at this for at the bigger picture they're looking at it at a very

like sort of narrow level um I I also think that there are some at the FED that really do worry that that they're losing control of US dollar dominance and there's a whole slew of policies that that even sort of follow with that and you know I like to think like hey if we get more usdc out there then that's what's going to keep the dollar strong but you know they're looking at it differently like they're used to having a lot of kind of control a lot of you know have their their you know hands wrapped around our you know monetary system or financial system and and this this threat that and so um so you know and we were talking about

this before so it's not surprising that there's a fight right we are we are this industry is trying to change long established um institutions and do it in a way that we think is going to benefit Humanity at large and you know that's not going to just happen on its own like we really do need to fight for that and um I think that you know the US has is a little bit different than than other countries and that we do have this very fractured Financial Services System we also have this unique situation with the dollar there's going to be a lot more resistance I think here in the US than we might have anticipated otherwise um you know just because it really does you know kind of go to the core of what

a lot of people spend you know their time on in Regulatory Agencies here in the US yeah and just to add to that look I do think U.S policy makers care about what's going on overseas there's a tweet and uh you know a European political article this morning about how a number of Congressional staffers are actually going to Brussels and Paris I think next week um to meet with EU Regulators I think that's really important because Mika which is the markets and crypto assets regulation which has a very comprehensive framework for centralized actors in The crypto space including centralized stablecoin issuers um and as a very clear set of rules it's like a 380 page

um piece of Regulation uh it does exempt defy and nfts for anybody interested but you know they're going to be meet the this U.S delegation and I think there are a lot of people um if the Tweet is right that they said you know someone from Senator Brown's office people are from Senator Guzman's office from um uh Patrick mchenry's office is all are all going um and I think it's really important because um there is this important comparative point which is the EU enacted this one growing out of um DM and Libra they were very nervous um to you know at least anecdotally many EU member countries are aware that they lost the web to race and they don't want to lose as badly to the U.S right there are very few if any

large tech companies in the EU except for maybe Spotify um and then the last piece that's really important that we haven't talked about but on February 1st uh the treasury Department in the UK put out their consultation on crypto assets and it really mirrors Mika very closely so you're gonna have this whole push towards you know regulating centralized actors in a very sort of um uh sort of Market integrity and all the good consumer protection types of things that you'd want to see they're moving in that direction so I think making sure that LA's and other staffers from Congress are going to hear about it I think is really important and shows that they understand that there is something here yeah I want to get your opinion on should we talk about Securities

something being a security not being a security like one of the arguments I've heard about whether something is deemed security is kind of the information requirements it could be pretty expensive like a company going public is very expensive lawyers registration all this stuff um and internal processes to comply um if token issuers like were were like if tokens were team Securities in some manner um how like existential would that be like I guess like if they are wouldn't that allow us to like design just tokens in a way that like how what a how bad would it be and B like what would be the things that

would need to happen from a information disclosure Market Integrity kind of standpoint do you think that I'm trying to play Devil's Advocate in the sense of like do you think that like if things are in a one scenario deemed Securities everything other than Bitcoin eth is that like really all that bad or can there be like a path forward here where all you need to do is submit certain stuff and you know your token contract is submitted like an extra SEC website for token issuers and you know um yeah I'm curious to get your opinion on that or is that like yeah this is a way where you could set up uh you know sort of just disclosure regime that is workable I think there's a couple

challenges in that today if you are let's just say generic blockchain labs and you're issuing your blockchain token the the disclosure requirements of the SEC will tell you about the Financial Health of generic blockchain labs and nothing about the characteristics of the network that the token is operating in and that to me is like the more interesting thing that that that the um you know buyer of that token might be interested in all of that information is publicly available today right like it's I don't think it would be difficult to do it but there needs to be you know and Hester purse brought this up in her Safe Harbor proposal we need to know the right kinds of information and the forms that the SEC have don't have the right

kinds of information so that's one problem there's also this issue that there's kind of this like chicken and egg thing right like if you are a registered security or whatever you would call it at the SEC you can only you know be traded it on an exchange and you know but the exchanges wouldn't want to register unless they have tokens to trade because they wouldn't be able to list anything and so there's sort of this like you have to provide a pathway for all of these pieces to get in place at once so I think there's a way we could better see what's going on the marketplace understand the information um but you know we do also have this problem of you know this generic blockchain Labs might go away right and not be operating and contributing to the Network anymore and then you have to

figure out who files the forms like these are all addressable issues I think the problem we have is there has been no process to figure out how to address these issues right um you know Harry gensler's like there's forms on the website fill them out and come in and register like it just doesn't work that way like you have there's a lot of different issues that need to be worked through and changes that would need to be made um there's probably other issues I miss Rebecca but those are kind of the some of the larger ones that yeah I mean I think there are two pieces to it too which there have been lawyers who have been very vocal all including on Twitter about they've tried to let's not even say even under chair Gensler let's take that concept out of it but who have gone

and taken their clients to corpfin and said we want to register and to Kristen's point there are lots of nuanced issues and they say we just don't know the path and then you know maybe a year that later they get a Wells notice of subpoena and they say well we tried to register and the enforcement says no so you know I think that's some of the difficulty too because there are these pieces to it I think the other piece that gets complicated here and one of the reasons that people are so passionate about crypto is it gives access to retail in a way that you know traditional Securities don't um and we do need serious consumer protection and Market Integrity pieces in place to any legislation as it relates to crypto assets and I think it's possible but as Kristen alluded to

before because we do have so many different Regulators over our financial system like in the EU in the UK they don't have this idea of like the SEC and the cftc and fincen and all these different front pieces all of whom in the US perform really important functions with respect to our financial markets but that I think has really slowed down the ability to put into a comprehensive put a comprehensive set of rules and rides in place here um but I'm I'm hopeful that everybody can do it um um but I do think you know there are nuanced issues that we do have to um parse apart to be able to get it uh to get this to move forward everyone quick break from Empire to tell you about another blockworks Channel that I

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now let's get back to the show [Music] Rebecca I know you have to hop in a couple minutes so we can wrap this up but I have one last question here for you which is um I think the thing that one of the things that pains me the most here is that what when when we don't have a framework for regulation you're basically just killing the free markets and uh you don't let the best companies win and um I'm just curious how you handle this inside of a company so like staking for example like there are probably half the staking companies are like screw it move forward push forward like we're gonna take the Uber approach and just try to like bulldoze the regulatory side of things and then the other half of the staging companies they're probably

getting advised by like their board or their investors like no no like pause don't move forward we gotta wait and see what the Regulators do so kind of like it puts things on an uneven playing field how do you think about this internally leading policy at one of the biggest l1s out there like what how does this impact your strategy well I have to say some of this is new um and I do think that as I alluded to before a lot of what's going on now is really focused on um centralized players and there was this really helpful distinction in the cracking complaint that said you know what's happening in the personal staking or the crypto native side of things is very different than these centralized actors so I think you have to focus on that um I'll put on my you know just general

lawyer hat but not not your lawyer not anybody who's listening lawyer um and not not as polygons lawyer we have our own great Chief legal officer here um so I really just focus on the policy side but um to your point you do have to figure out risk tolerance and then you have a million other factors under that am I in the US if I'm not in the US am I going to let us people touch me like if I am not in the US but I'm letting us persons in what is my risk level do we put a reserve aside because we're worried about the SEC if we're not big enough do we just keep going forward and then what size are we too big there are just so many different nuanced issues and as you said like boards are going to be weighing in outside people have lawyers

with different risk tolerances um but and you're right it does make the playing field really um unequal because the other thing is just to go back to this SEC and this registration idea there's historically we're going all the way back to 2017. there would be companies who will go to the SEC and like when Finn Hub was established and things like that go to finhub and say listen we're looking for guidance we're looking for help on how to set up our business can we do it it's illegal and it would be this multi-year long-winding process which may not which could result in some clarity but may not result in any Clarity and there'd be other companies who have the exact same business model and they would just go straight ahead whether they were organized outside the US or not and then they'd take market share so it does lead

to this odd Arbitrage too when you don't have regulatory Clarity um and it's almost anti-competitive on some level yeah Kristen any last words before we wrap this up yeah yeah um that we can get through this and I think you know we were talking about what what do we need to make this happen and and building and providing these like use cases that have meaningful benefits in people's lives is like the most important thing um but we also have a lot of infrastructure in place I mean we have people like Rebecca who are focusing on policy full-time for polygon like that is so awesome

um we have our team in the blockchain association we have the D5 education fund we have coin Center we we have people who are working and thinking these issues and every time something comes out we have you know um in many cases of strategy in place to to prevent that but if something does happen that's unexpected we can come up with a specialized strategy for pushing back and fighting back because we have procedure arguments we have constitutional arguments we have political tools we have an amazing Grassroots ability within the crypto space like there are different different pieces that we can bring together for each of these individual issues and and the great news is there's just a lot of people that are working on this full-time and that you know it's it's

going to be a little bit uncomfortable and we're going to have bad headlines but you know you're not going to undo this Innovation we're not going to undo the benefits of crypto networks we're not going to undo decentralization but um you know I think we'll we'll ultimately survive it's just gonna take um you know a lot of work and the good news is they're really awesome smart people uh that are working on them and so I you know I I do have a lot of Hope um you know even though it doesn't feel like it every time um do companies like that you're trying to convert um really get deterred by this news cycle or are they very much kind of slow

and say Hey listen like regulation has always been like a looming kind of cloud of this industry it's nothing new but do you think that the recent regulatory actions are more substantial in deterring um for a lot of organizations that are you know exploring nfts and uh you know that kind of stuff um that we've been seeing as of late um I'll just speak from a more General level because I've seen lots of different pieces of the industry and I you know I've only been a polygon in a short time um and I'm not on the business side there but I I do think it might slow down people's interest but like nobody's shutting down their blockchain

Innovation arms do you know what I mean like there is this promise and the fact that as Kristen said um and I do really want to end on a hopeful note because like yeah the news cycle feels bad but like all hope isn't lost and everyone is still building and like it's too big now at this point to shut down so what we have to do is like build a proper regulatory path forward so that we can keep moving forward in a way that's productive and sort of not the sansi competitive and arbitragey type of way that Jason was alluding to um so I don't it may slow people down they may put less money towards it until there's more regulatory Clarity but nobody's shutting down their Innovation side of things as they're looking at blockchain yeah I agree with Rebecca awesome well thank you guys appreciate

it I know this week is crazy for you all and appreciate you both jumping on thank you thanks so much for having us all right man that was a fun uh fun conversation uh really like talking to those especially a time like this curious to hear like we didn't get too deep obviously everyone's time is looking straight I'm just curious what you make of either that conversation or just like the last two weeks in general and all this kind of regulatory Crackdown what do you make of uh of this right now yeah look I reached out to Rebecca because I think she's one of the smartest most engaged um regulatory um people in the space I've never for such a long time she has really good pulse and she just recently moved to polygon and so um she has a great perspective look

I think it's really important as we see these things like people should go back to the episode that we recorded with Rebecca and Jake and they alluded to some regulatory wave coming this was before FTX this tarot just happened so I think uh the most important point as people are reaching out to me over the last you know week or so was the Common Thread here seems to me or one of the more important things is Regulators are think really clamping down on the lack of the the misrepresentations and lack of disclosures and transparency of service providers um really I think in response to Celsius

and FTX and block fi you know and uh Kraken I think was really interesting because it's it's really that I think the way that they paid out the rewards made it seem like it was not how the network um was emitting rewards it was more at their discretion and so I think it's to me I actually that was uh more I interpreted that as a as more positive than negative in the sense that you know yes absolutely we should be regulating service providers the same way that you regulate a bank if people are taking custody of your assets then they should be under the same like of a scrutiny and solvency and transparency as as your banking institution Financial Services

Institution to avoid a Celsius situation or if the X situation so um yeah I mean if anything it also furthers decentralization um a lot of these actions whether intended or not I think may push a lot of people and even folks like coinbase to allow customers and and really just move in a direction where people have more agency over their assets uh and the other point which I think is really important towards the end of uh you know that part of the podcast was um the emphasis that crypto is at this point where it should ship killer products because if we ship killer products and the consumer is wanting crypto wants nfts wants gaming then it's a bit like as you mentioned the Uber

situation like it's such a great product that it cannot be stopped and I think that the same happened with the music industry back in the 90s you know what I mean like with Spotify like Napster obviously came and rattle the industry and Spotify you know really made it where the record labels had really no choice and artists really had no choice like people wanted to consume uh media and music and you know it came at the really interesting Confluence of like you know smartphones and computers and more faster internet and so this is sort of I think the train is very much failed here people cryptos capture the imagination of this generation we need better products and they're coming right I think this is over the next year or

two it's they're coming um and so it's just a matter of um I think right now Regulators are really responding to the FTX situation and making sure that that does not happen again um and so yeah um obviously I've heard Rumblings of binance a huge sedimentiated yeah I don't know if you've heard that too but yeah by and large will I think continue to have these regulatory um uh parts of the podcast maybe on a you know monthly basis where we bring in folks like Rebecca and Jake and others that are really knowledgeable at the and at the Forefront to keep folks informed I would agree with all that except that

it didn't go Napster to Spotify got to give credit where credit is due and Shout Out Apple for the for the iTunes store or the you can buy a song for a dollar so but I agree with all of that um I think my two takeaways from this are uh I'm actually pretty optimistic that I'm I'm like weirdly happy just if we were gonna crack down on anything I'm happy that it's on C5 and not on D5 um and like I'm I've always said that C5 companies will end up getting regulated just like their Bank like a coinbase coinbase will eventually get regulated just like they are a financial institution and um I don't agree with the right like how like strong kyc AML is and stuff like

that but I think it's kind of inevitable that it goes that way and I'm almost happy to see the Focus right now on C5 companies and not on like yeah I'd rather honestly have binance get regulated than have like uniswaps like protocol get regulated so I'm I'm happy to see that I'm also happy uh oh I think that I mean I brought it up on the with Rebecca and Kristen but like I think the thing that frustrates me here is you know you and I both have invested in a decent number of startups people can't move forward uh like whole company strategies and like product plans are just on pause right now because people are totally panicked and that just kills I mean that kills Innovation it kills momentum uh and like crypto or no crypto I mean if block works like

couldn't go it would just suck like if we had a product that we couldn't go build because we're like well the SEC like might come down on us then we look at our competitor competitors kind of just like maybe being a little more willy-nilly uh kind of turning their nose at the regulator in their building well then we'd have a lot of a lot of fomo it just like kills free markets which uh kills Innovation kills momentum and I think that's one of my biggest problems with it yeah you brought at that point in that conversation it's it's I'm missing it too you know I'm gonna throw out a number there um and I think it's been consistent like at least like 15 to 20 of all capital raising crypto is going to paying for some type of advice it doesn't get you anywhere other than

probably paralyze you and slow you down which is lawyer feeds um and Consulting fees to try to navigate this stuff and if we could just like get more clarity and move forward as an industry like think about how much more output we would have because it is consuming the mind of founders especially now and so you know yeah hopefully they Kristen and Rebecca both seem to think that you know you have these enforcement actions that are really flashy they they make the headline but they're not precedent and they're not legislation like Kraken didn't admit the guilt they just paid a fine um so

you know I think it's because of the lack of regulatory Clarity that you're getting these fines and you know I think uh I think maybe in the next election cycle I'm hopeful that a lot of the constituent bases Pro crypto and so politicians and legislators really wake up to this idea that there needs to be clarity um from a competitive standpoint I think there's a lot of folks that are really counting the table here that the us is going to lose its Competitive Edge so either one or two things happened Europe really comes with uh Clarity and the U.S adopts it as it has historically I think with gold ETFs like the UK the FCA like was very much Pro ETFs and the

US did not and was dragging its feet and then they quickly adopted it as as because the UK was kind of the sandbox and so maybe it's how it happens here um so in future episodes uh we'd love to get a better perspective of what's happening in other parts of the of the western world like in specifically in Europe because I think that might offer us some sort of window into what's going to happen over the next six to 12 months yeah all right I want to put the regulatory stuff in in the box right now um and move on to something else that happened this week which is blur but before we do that I'm a little disheartened you didn't comment on our new podcast setup do you see how uh clear and info I'm coming in in 4k right now I don't know if you can

see this right now it's a little actually too clear I'm like looking at a lot of blemishes on my face here and I'm not happy about it but it's it's actually great I'm it's so clear that I'm seeing through the translucent class behind you that you have these cans of coke um so so you know I'm happy that we do we do we just got our uh high quality that is high quality yeah yeah so high quality that I've been even actually seeing through this glass you can see how addicted uh people at block works on a Diet Coke and caffeine that is uh that's your Alpha of the uh cranking out cranking out great news you know so there you go did you see we just gotta we said there's an independent news org um or independent auditor of media

companies it's like not really known outside the media industry but they're called News Guard and they're an independent organization that audits I mean like all the news outlets have Audits and we just got a they basically are trying to figure out what is the trust and transparency of the of a media company we just got a 100 out of 100 perfect score actually wow very stoked on that amazing it's something that only media people care about but big in the the world so no actually I I'm pumped about that I don't think I I actually think that maybe if you could share that because I wasn't aware of this score but I do think that it's come up in most crypto Publications like like coindesk the blog coin Telegraph like ever everyone gets it um and we yeah do they submit it on like but I've never seen it

like if you're if you're like wouldn't you want to advertise this like hey look at the end of the article like hey we gotta yeah I mean yeah they did a whole audit like they look we have to have like you know we do like Financial disclosures we don't write if someone like holds an asset we don't write about it for like three days or like it goes to a different reporter like if you know there's a lot there's a lot of things we do behind the scenes that try to make it so that like we have everyone has full trust in in us um in our reporting so yeah does that include podcasts it does I mean I push you and you and like we have to say if like we're I mean we're about to talk about blur so I'm gonna make you play or I'm an early

investor so I I and it's a good point everyone should be overly transparent in crypto or else it's like why not and like there's another Media company out there that in crypto that like honestly it probably would have been fine if they were that like they took some money from someone and it probably honestly would have ended up being fine if they were just overly transparent but because they weren't kills them so yeah um let's talk let's talk you were a seed investor in blur um and have been kind of following the journey I think my big question there is why does the founder call himself Pac-Man yeah we'll have to have him on the Pod and I think we are having him on yeah

so you will say that question all right later yeah all right so anyways so here's kind of the news of the week so blur if you don't know basically uh nft space got really big open C like Nifty Gateway folks like that there's a kind of new wave of platforms that are getting built for kind of I'd call them the like Advanced nft Trader um they're really built for like the institutional nft markets instead of just like the jpeg collector in mind so blur it's an awesome platform been using it for a while um they just did their uh they just launched their token on Wednesday so they airdropped uh the blur token to I think like 30 35 000 unique wallets bids

came in at like five bucks dipped to like 50 cents settled around 90 cents I don't actually know what it's trading at right now but last time I looked the market cap was around 300 million I'd probably assume it's a little lower now just because airdrops usually end up tanking a little bit but I know a lot of folks are trading at trading at around a dollar right now I was trading a buck okay so that's like what 300 350 market cap probably um uh let's see yeah 3 15. I'm looking at some of these numbers uh to be fair 2.9 fully diluted okay um okay so the volume okay so nft Market volume over the last several days blur 60 open C 30 that's really interesting users over the last seven days uh blur

65k openc 150k so blurs at a little over 33 um relative to open C uh 63 excuse I mean obviously it captures more volume less users but excuse again as you said towards a more sophisticated of higher aov higher transactions yeah yeah I used to use so okay so what do you make of this uh of this airdrop of blurb just curious to get your thoughts in general and I think it's well designed airdrop like you know I think it's been they've done like these um packs that they've launched uh you know as more experiments if you will um I think they did two or three uh but

yeah like you know from uh the whole point of an airdrop is to reward active users that have been using the platform for a while um and Orr and or or as a customer acquisition strategy and you know I think in in this case it's it's fairly effective um you know way to capture continue to capture more mind share um and market share in the space and so um yeah you know I think it'll be really interesting like every other drop program to see the retention how many people actually sold the token how many people actually you know you know because a lot of times that's where it takes you know a couple weeks months to determine hey how successful it was

this airdrop because a lot of airdrop programs you know they're not very well constructed and they give you know they kind of carpet a lot of wallets and they don't really really move the needle on the kpi front but I think in this case yeah you know they they it's meant towards rewarding you know people that are quite active and have been in the nft space particularly you know trading and using the platform and so I think it makes sense I think I I would I'm going to take the other side of that actually I think a lot of the airdrop strategies today are like early marketing strategies from like like if okay like replace the word airdrop with Big Marketing spend and I think what we're seeing with airdrops right now is like

it's imagine a company is doing like huge marketing spend all at once and then just being like not doing it and then I'm not and then I have no more budget for marketing spend and I think what you have right now is like the way that people do it right now uh they just give away a huge like a large chunk up front and that large chunk is oftentimes given to users who farm for the airdrops like we have a lot of people at block Works where like I mean they're they're washing volume on blur in the in in the in the last couple of months like washing a large amount of volume and they ended up getting these fat blurred drops like I mean kudos to them but they're not like real like that's not real you that's not real

volume you know so um yeah look I'm not I don't disagree with you there actually yeah I just think it'll be better I like air drops they're just gonna I think there's a we need to innovate on air jobs to do them like marketing campaigns where it's like give away one tenth of what they just gave away figure it out see how it went do it again in like three months and then do it again like people run to before they did these packs they did these kind of two pilots before that's true and so yeah you're right I mean look some of these airdrops are going to go down as a most expensive customer acquisition a la Super Bowl ads kind of stuff yeah um reminiscent of the 90s and or FTX um but nonetheless some are constructed

in a way where uh you know one there's room for future airdrops and two um you know yeah unlock all at once but these there's to be fair though I guess that's early markets like I remember the you remember 2018 2019 crypto markets like there was that was like 95 of that volume was wash trading um and that's I guess just early early exchanges early markets like right now I'm looking at this hill Dobby Dune dashboards looks like looks like about 43 of nft volume right now is via wash trading so like looks rare is the worst open C doesn't really have lost trading but um mm-hmm I guess like big story here outlook for openc they got they got a they got to pull it together I would say I mean their their market share used

to be what 75 80 down to the probably like 40 to 50 range right now and like they gotta they gotta do something they gotta do something bigger they gotta figure it out or they're just gonna continue losing architare to blur and also to you know more and more you're going to see teams just building a Marketplace like look at what's that vertical specific exchange Shopify will do one Nike will do one uh is like Craig it's like it's like Craigslist and eBay you know they're in they're they're they're one step away from being in that camp of just you know just kind of Fading Into Oblivion um versus I think I think they can pull it out I I one of my predictions for the

year wrong I think they do but yeah one of my predictions for the years that open two would lose a ton of market share but I'm I'm optimistic on that team I uh I think they can pull it out I think they just got way over their skis with a ridiculous what 13 billion dollar valuation um what are they trading at in the secondary right now haven't been offered it but I would think like that at least like a 50 discount to that I would I would assume it's like a 90 discount yeah yeah look I wouldn't I wouldn't buy it I think all Tech is trading at least 54 down right now that was the last number I saw so Equity at 2 billion

nah probably six five well depends but yeah no Billy and I'd start like doing some work pulling out the pencil have you been doing a lot of have you been doing a lot of secondaries right now no but anecdotally today I was talking to someone a lot of secondary activity is picking up which tends to be a leading indicator I think if you look at like 2019 a lot of secondary activity started really pick up um and it's interesting now I'm not saying it's gonna mirror this but I do generally think that a strong secondary and activity there and pickup is indicative of future up markets or down

markets for that matter but just a catalyst and so yeah a lot of a lot of interest in some projects um and I've heard a lot of funds kind of deploying on the secondary side so yeah I think that activity picking up is something that maybe next episode I'll try to gather more concrete data to compare um for instance some projects are now where you could have just you would have seen activity sell at cost now are trading at like a 50 markup 40 markup and there are some projects that are just trading at pretty big premiums yeah uh you know you look at something like blur and I think people

try to get ahead of that and say okay you know the markets there seems to be appetite and bullishness um fever again in the market and so you know arbitrum on the secondary is is getting a lot of like bids and interest and so naturally kind of anticipating kind of an airdrop there yeah sort of a token launch um you know I I'm not as you know I'm a number of certain Arbitron and this is not like anything that I know it's just what I'm hearing from and seeing in these kind of yeah no no I I think it's fair I mean speaking of arbitrary like I feel like uh one thing that's really heating up is like I think I tweeted about the roll-up Wars like getting feisty I think there's a lot of eyes right now in like arbitrum starkware ZK sync and optimism and scroll

not as much right now on scroll because there's like there's I think there's two camps actually there's like the ZK folks who who have like this insane technology but haven't gone to Market as quickly um like I'd put scroll in that bucket like scroll from what I know is like some of the best technology out there but like deep deep deep engineers and uh they haven't gone to Market as quickly as some of the other folks and so um but I think like I think this everyone talks about like L2 summer and stuff like that I think the L3 season is actually coming faster than a lot of people realize um and I think well I think we'll end up seeing some interesting stuff on that front yeah yeah maybe we should do a uh a full kind of panel of L2 Wars uh I'd bring on

screen we did this at uh we did this information list and it was probably the most heated panel of the of the whole conference it was it was polygon arbitrum Avalanche and optimism and they were like people like getting out of their seats so it's spicy yeah fireworks yeah um all right other things I'm paying attention to this week were um flashbots released an article that described this new design for Mev share which was a uh which is like this permissionless and private matchmaking protocol between users and Searchers I haven't dug it dug into it that much but like for my kind of scheme of it it kind

of described described to have the following benefits one is that users wallet wallets and applications uh would receive the Mev their transactions create Searchers would extract the Mev from track transactions they otherwise wouldn't have access to and then Builders would be able to build the blocks with this like additional order flow um I think it's interesting I mean in typical flashbots fashion like Mev share it's designed to like hand power back to the users they get to choose exactly what transaction data to hide what to reveal through this like programmable privacy um I think it's I think it's cool um I think like Mev is going to continue to be at the at the center of a lot of these conversations especially the app chain conversation as people are like do

I want to control the Mev do I want to like how much control do I want to have uh over deciding where the the the Mev value accrues to um and there was this like cryptic kind of Anatoly tweet about how dapps can capture mov on the L1 as well I'll admit I didn't fully understand that one but I just think I think that I think that like all these things kind of converge together right like l2s l3s app chain thesis Mev like it's all it's all starting to come together I think um so just I would I'll we can link in the show notes I think people should read it because I'm not an expert on it right now but uh

it looks to be something interesting yeah yeah definitely um anything else Sushi announced uh Sushi Studios which is like the the first the the first sub Dao within Sushi um Jared the like quote-unquote head chef budgeted this under the Dow I think it's pretty interesting um just like the sub Dow model that kind of maker made pretty big I think is going to continue happening um what else ZK EVMS I feel like everyone's got a ZK VM these days it's like don't you feel like there's a million like everyone's everyone tweets out we have the first ZK evm I feel like there's like a million first ZK EVMS out

there yeah it's a lot of terminology just uh it's getting to that point but uh look there's some really good uh like I'm biased here but there's a really good thread by um this guy that works on scroll that kind of lays out all the different kind of different variations of when ckvm is and all the different like Z gay players um and kind of parsing through kind of like a state of affairs of with different distinctions of CK technology being developed uh by the various projects so fairly objective so I'll we'll link that um in the show notes for people to this is this is a great guy to follow just objectively kind of cranking out really good quad quality content on the ZK world

anything else this week um not really uh I think uh would be really interested to to get uh viewers response to this regulatory idea that we have I think that's going to be important um and no that's it that's really it nice man all right we got to get you a better camera yeah well back to regular programming next where are you'll be in my full setup uh I'm I was not not in my usual Studio but next week I will be uh and just kind of traveling a bit we're traveling the whole year but uh yeah it's it's it's it was front loaded but uh the only other travel that I

really have is permissions or I've already booked that and I'm really excited how was your trip out east uh it was great really really nice nice good it lived up text it it lived out to expectations good I'm glad to hear that yeah awesome yeah yeah all right folks yeah last time I was in Japan was uh but was actually during Defcon oh so oh yeah Osaka yeah Devcon five [Music] yeah uh six no yeah oh we've eat Denver coming you're not going to eat Denver are you unfortunately no but uh high quality uh for anyone going there uh would love to

just kind of report and if if you're out there maybe boots on the ground will bring you in have an episode of cover I'm going I'm going there all the exciting oh oh there we go I'm going yeah yeah if people are going if if you guys are uh listening to us and you're going to eat Denver just hit me up on uh telegram or Twitter or something would love to meet you guys so um yeah I think that's a good place to wrap should we do should we do should we do Empire Pro apps for uh for these conferences I mean we could I got I gotta offered I think it was maybe Waxman or serotonin was like do you want to do a live podcast in East Denver but those are always kind of the [ __ ] show so we're not I'm not gonna do it I also couldn't

couldn't do it without you man so oh well you know thank you uh sorry I couldn't make it out there then yeah um awesome stuff guys well uh really uh really good at pod um and we'll be back uh regular program next week [Music]