Live From DAS: The End of Regulatory Theater | Tushar Jain & Greg Xethalis

Transcript

Blockworks co-founder Michael Ippolito here. Quick break to talk about something we've just launched, Blockworks Investor Relations. As the market shifts toward institutional capital, investors want more transparency, more standardization, and a higher level of professionalism. But, the traditional IR model is slow, manual, and not built for how crypto works. If you're building on chain, your data's already live, your business is already transparent. The challenge is turning that into a clear, credible story for investors. That's exactly what we're solving with Blockworks IR. It's a single platform that brings together real-time analytics, branded investor portals, and hands-on advisory support, so you can communicate what matters. If you're an on-chain business looking to level up your investor strategy, check out Blockworks Investor Relations at

blockworks.com/investor-relations. Hey everyone, quick disclaimer before we get into today's episode. Nothing said on Bell Curve is a recommendation to buy or sell securities or tokens. This podcast is for informational purposes only, and the views expressed by anyone on the show are solely our opinions, not an investment advice. Our guests and I may hold positions in the companies, funds, or projects discussed. All right, everyone. Welcome to a special live uh edition of Bell Curve. I'm joined here by Multicoin's Tushar Jain and Greg Xethelis.

Perfect. Sorry. >> [laughter] >> Hey guys, welcome to the podcast. Absolutely. Good to see you. Uh so, we're going to be talking about clarity here actually in the implication for clarity on uh token providers, but we are here at DAS. So, I'm curious, can you guys just give us like a 30-second like how's the conference been for you guys? Any interesting conversation You guys are both DAS veterans as well. You've been to many of these. In a non-biased way, how's the conference been for you guys? Uh I'll I'll go first. I mean, it's been fantastic. The day one lineup was amazing. You had a lot of people, including Chairman Selig and Chairman Atkins, dropping news. And uh you know, as with every DAS, there's amazing stuff on stage, but even more in the networking uh segment. So,

it's been really fantastic. Awesome. Thanks Greg. I've been impressed because I've been to I think every DAS. Uh and this is the one with the highest energy that I've that I've been at. Uh which is really saying something because market sentiment is often very correlated to the amount of energy that you experience at uh industry events like this. And so, there's a huge disconnect between market sentiment and then the number of people and the excitement that I'm seeing here today. You know, we've never had, you know, our attendance typically tracks the market, right? So, if Bitcoin is down 50%, you can expect uh lower attendance at the conference. This is

the first time that's ever we bucked that trend in 7 years. So, largest DAS we've ever had when Bitcoin's down 50% off the highs. So, I think this like institutional bull market thing is definitely very real. And yeah, I just to um you know, echo something that you said, I think speaking to the regulators has in particular been really um like encouraging to me. Uh and it's given me a lot of energy because, you know, Paul Atkins, Michael Selig, um you know, Jonathan Gould of the OCC, they're really genuinely interested in this space and want to create rules for rules of the road for people.

Let's talk a little bit about clarity. Um and I don't want to spend too much time going through the latest iteration. Um I really want to spend a lot of time focusing on the context and what this means for investors, token projects, etc. But, Mac, could you just give us a quick rundown of uh what the just what the latest version of the bill looks like? So, obviously, House passed clarity last year, last July, and we've been working through the Senate process and roundabouts there. We had a markup in mid-January that was pushed. The AG portion of the bill, which addresses the intermediaries, made it through the Agriculture Committee in late January.

Uh the Senate Banking Bill, I think we will have a markup scheduled in a few weeks. And what's been holding it up is this negotiation over yield language between the banking lobby and the the the crypto interests. Yeah. >> Uh negotiated by the White House. And uh but, you know, there is a very good shot at passing this before everyone breaks for midterms. And if it does pass, there are substantial changes for markets, including market access. All of the people that DAS brings together, the institutions, will have an easier time of engaging. But, there are also some changes for projects building and users participating in the digital asset

ecosystem. So, let's let's break down what those are. And maybe we can talk specifically from the perspective of There's obviously the yield question for stablecoins and banks. You talked about that a lot on a bunch of podcasts today. I would love to get into what this means for token projects because one of the longest-standing challenges and like biggest gray areas is what are these tokens? Are they commodities? Are they securities? Um we've got, you know, obviously, the final version hasn't been passed here, but it looks like what we're going to get is an exemption for token projects that sell under 75 million worth of their token, and they'll have 4 years to decentralize to a point where they're not going to be treated as a security. Um so, you know, if you're a token project today, um

how should you be thinking about this, right? Is Are there going to be additional disclosures that these agencies are going to ask you to do? How should you be thinking about value accrual? What are the biggest implications just right off the bat from the token project perspective? Yeah, I think you know, maybe we touch first on disclosures, and then we'll get into the more interesting stuff with value accrual. But, there will be a now uniform form of disclosure. Yeah. >> Uh that will be worked out in rulemaking by the SEC. And both issuers of tokens or originators of tokens will have some responsibility to do so for a set period of time. That will change as projects become uh more decentralized and no

longer are subject to the managerial efforts of the originator. But, uh importantly also, exchanges will have a responsibility to do disclosures under the AG portion of the bill. And this is I think really needed data. And you want uniformity of disclosure. You want information out there. You want information to be true. And I think we'll see a large explosion of good data being ingested by markets as well as an entree of more mature investors in the markets who care more about that data.

Yeah. Look, I I think about this from the investor perspective, right? And one of the biggest challenges that we've had is underwriting value accrual. Yeah. Right? We We founded Multicoin in 2017. It was just the complete wild, wild west out there. There's no one knew how uh anything would be interpreted. And the whole industry had this whole like uh I'll call it regulatory theater of oh, well, actually, we have separate equity entity that's separate from the token. Uh and then we also have this foundation that's the issuer of the token. And these are supposed to be distinct entities.

Uh but, we can't actually break down for you how the token's going to get value versus how's the equity going to get value? Why are those investors investing in the equity? All of this stuff. And it was just a total, complete waste of time. It was just a farce that everyone had to put on because of the Gary Gensler regime at the SEC. Where I was like, okay, well, if we give too much disclosure, and we share how we're thinking about value accrual, well, now the SEC is going to claim that um people are investing because of what I said. Because I set their expectations, and now it's managerial efforts of others, and therefore it's security. So, actually, like all that enabled was

uh it just made things worse for investors. We could not get the disclosures. We couldn't see the information that we would want to see to properly underwrite these businesses. Because fundamentally, these are businesses. It's a new form of business, but ultimately, it is a business that makes revenue and makes profit Yeah. and returns value back to its owners. Um And so, I think what we're going to see with clarity, and we're already seeing this, you know, I've seen a couple of high-profile examples, Uniswap, Aave recently, where you see people getting rid of this fake separation. Where it's like, hey, do we really need to have a token entity like token as like a

concept when and a foundation and a for-profit entity? What if we just merge it all together, give the market certainty like the token is the only thing, uh and uh just like move forward from there, and not waste our time and energy on a bunch of this uh theater. Yeah, cuz it's more than just a waste of time, right? From the founder perspective, building a company is hard enough. Building a company in an emergent new category like crypto probably harder than even your average startup. But, then doing it in this roundabout way where you're increasing the operational friction of building and scaling a business by a thousandfold by having, you know, your marketing department kind of siloed off in the

foundation, but all of the R&D and product and engineering is in labs, and they're not allowed to speak. And that's more than one hand tied behind your back. I I think people underplay that's part of the reason why these businesses haven't scaled and have struggled in many cases. So, to me, it's more than even just a waste of time. It's actively prohibiting these new types of businesses from operating. And And it is a novel business construct the token project and you know Delaware corporate law as well as every other state's corporate law has a mandate for people to maximize shareholder value. Yeah. That is not the way projects that launch and rely and fully integrate tokens should operate.

The value should accrue to the token itself. Right. >> And I am a bit of a foundation uh you know idealist that a properly constructed foundation where the foundation is guiding a project for the benefit of the network versus a lab co shareholder, but that's not really the present existence of most foundations in crypto and in most instances it's just operational friction and the securities laws themselves have prevented us from getting to the proper end state which is value accrual focus on the token etc. etc. And that's the other big distinction in clarity for these projects both existing and those that have yet to be built is clarity does create an avenue for value capture

to exist at the token level without triggering securities law status. We always focus on the Howey test and investment contracts, but there are you know a bunch of other definitions sub definitions of security including things like interests in a profit making scheme where this clarity in this legislative clarity will provide the mechanism for those to exist without fear of securities law uh status so long as that value is being controlled by a decentralized governance system. So this will promote proper decentralization of systems and it will allow fee switches to be on. It will allow value capture through on chain mechanisms. So the meat

space still a little problematic. The ethereal world on chain that's where the value capture has to exist where preferably very programmatic and hard coded into systems. Uh one one thing I want to add and and like you you talked about the difficulty for founders Yeah. uh and how hard it was under the old regime and just the level of inefficiency. But once again let me bring it to the investor frame. What investors had was a ton of uncertainty. Yeah. Right? uh When I don't know where the value is going to accrue, I have to reduce the valuation I'm willing to pay

for whatever investment because I need to incorporate that uncertainty into my uh bare case outcome. Yeah. Right? Like maybe you build a really successful business and I invest in your token and I get nothing because you are not explicitly allowed to promise that value to token holders. uh it just like lowers the valuations or lowers the willingness of investors to put money into some of these businesses. So like that's one level of uncertainty. And a lesser understood, but I think really important additional level of uncertainty was uh because these uh foundations ended up with like a big portion of the tokens

sitting on their balance sheet there was always uncertainty of like are these tokens going to hit the market >> Yeah. or not? uh How many of these are real? Like right? It's like having a company that has a bunch of authorized, but unissued shares. uh and the uncertainty had to be priced in because one the foundation wasn't able to give really good guidance about it Yeah. because once again if they were giving too much guidance, now it's a security or a risk of being a security. uh and then two there wasn't any governance that the foundation could give token holders on how they were going to go and spend a bunch of those authorized, but unissued tokens. And so I think the ability for foundations to now give guidance about what they're

going to do and then also for token holders to have some governance right to say, "Hey, we don't want to do this airdrop or we don't want to do this this business development deal." uh I think creates more certainty. Yeah. And right now like people look at fully diluted valuations, right? Because they want to look at okay, in the worst case scenario if all of the tokens that are authorized, but unissued hit the market, what is the market cap of this thing? I don't think that's appropriate anymore. I actually think you have to do some level of adjustment to it. You can't just look at what the float is today because I've some new tokens will hit the market. But you need to actually think about it. And I'm hopeful that one thing that we're going to see is foundations giving more guidance on hey,

we expect you know 5% of tokens to hit the market every year or you know, we're expecting to spend on this. um and I think that that will allow the market to value these things higher because investors like clarity and like certainty. How? So there've obviously been so many issues with tokens. If you were to look at the token like average token performance over the last 5 years, it's been really really poor. Um I did a keynote presentation on this actually earlier this week, but the average token actually from a median price perspective is down about 80% even once you exclude the meme coins and things like that.

Like it's really been pretty challenging. So do you think clarity is the catalyst that we need to this. I think there are still social challenges um around this anyway. But once we have clarity, is that all that's needed to fix everything? Um how complete of a solution is that? Are there still holes, you know, even like from an investor standpoint in what clarity's going to provide us? How how strong of a catalyst do you think this is going to be on the value accrual side? uh I I can take a first stab at this. I don't think clarity changes median token performance. That was a whole different problem.

>> Yeah. Which is a lot of things launched and were just hugely overvalued. Yeah. uh You could argue that that overvaluation was a second order effect of lack of disclosures and clarity because uh when investors were not given the information about how is the business doing and how will value accrual work and those types of basic questions then uh that drove more meme type investing behavior because the fundamental investors couldn't get that information.

>> Yeah. And so that's what drove some of that performance. So I think like maybe uh that's something to blame there, but looking forward what I expect is we're going to see more dispersion of returns Yeah. amongst different projects because the successful projects that have built real businesses can return value. And that's the fundamental thing, right? Like I I hear this concept on you know on X or uh in other crypto conversations where people are like well stocks are just a meme anyway, too. And I'm like, "No, they're not." No, they're not. They actually give you a claim on a real business that you know has cash flow.

Like that is why stocks are valuable. Stocks are not valuable just because people buy them. um And so I think that same level of uh just like basic rights in ownership will then change how crypto capital markets think. And that's going to lead to a dispersion of returns on the good businesses do really well. And the ones that don't have real businesses are going to do even worse. You know, cuz on the meme thing, too you know, to the point that you were making before Tushar on the discount rate that you have to apply in the valuations fees, but to to me I would sum that up is there's a trust problem with tokens because you have these examples where maybe the team or protocol is performing well, but because

of some undisclosed weird you know, arrangement with a market maker or something like that the token or or you know, you have examples of acquisitions where a company will come in buy the entire team and IP out behind and you know, of the network and token holders get absolutely nothing. So every time that happens, you just get dinged and it makes me as an investor, too just less willing to underwrite any of this stuff. Even if I like the business or I think the founder you know, has promise. Like well if that can happen what is the appropriate discount rate to apply there? It's just super difficult.

That's tough, but I I 100% agree with Tushar that you know, this is going to be what clarity will be an unlock for real businesses on chain. >> Yeah. Um I would note it's not going to be the passage of the bill. The bill calls for something like 70 different rule makings. And I think when we look at is this text good, the bigger question is what is the quality of the regulators that are going to be implementing the text. And I think you know, the the number one area where President Trump's promises to our industry where it was promises made, promises kept is he's got people like Jonathan Gould, Mike Selig and Paul Atkins in place. They've built out teams that will implement things which are

rational and responsible, but will also take the next 18 months after clarity passes just as we've seen the genius act passed and we're still months and months and months away from the actual first regulated payment stable coin which I still think is a tremendous unlock for bringing capital on chain and enabling these networks even separate and apart from clarity when stable coins are fully a fully functional death star, then that's when we see uh you know, activity in the market really have a significant uptick. Yeah, great. Those are great follow My follow up question is going to be what should we expect on timeline here? Um this is really difficult and not even necessarily just when is clarity going to pass? I know no one's got a crystal

ball and we probably can't answer that, but let's just say you know, I June 2nd. No, I'm kidding. That's the kind of predictions we appreciate here. But, let's Okay, even this hypothetical, let's say it passes on June 2nd. What would the timeline be after? Like, how should investors be thinking about when the positive effects of clarity are going to take place? I mean, I think we're we're seeing some of the positive effects out of the SEC with their rulemaking process. There are certain aspects where they have a little bit more flexibility. The CFTC side is much more constrained without market structure.

So, we really need uh for the intermediaries, but also for the broader market structure, we need market structure for the CFTC side of the house. The SEC can do a lot and are doing a lot. They've released a bunch of new guidance in the course of the past couple of weeks, which is progressive. It's not going to give you as much as you would have with clarity, but Paul Atkins and the crypto task force can do a lot. Um you know, timelines, uh I think everyone watching DC is is has a calendar out and is marking out the days until we lose everyone to the midterms, but there's a lot of incentive to get this right and to get it done before the elections. And then, of course, we will see the catalyst of things starting to

move. Focus moves from Capitol Hill to Union Station uh where the SEC is and CFTC headquarters and rulemaking, but it will be a progressive process that everyone will all of the founders and all the market participants will have to start building towards what will come without knowing with certainty exactly what it will look like. I think uh there's different aspects to think about on timelines. Uh and Greg laid out the actual procedural timeline for the bill passing and then for the rulemaking that actually provides a lot of the structure, right, of how this is all going to work.

But, I also think about market actions. And you one, how do founders react? Yeah. And we're already seeing those reactions, right? Like, we have already seen the high-profile teams at least several of them saying all the value goes to token now. Yeah. And we are able to say that, we feel comfortable saying that. This thing is not yet passed, but we are we still feel comfortable going and making that statement now. Yeah. Um and this is how we're thinking about value accrual. And they're they're already doing Yeah. Uh and now when new projects come for fundraising, absolutely that's a requirement that they represent to investors what their plan is for value accrual and how that's

going to work. Like, that's there's no venture investor out there today who's like not asking that question. >> Yeah. So, that behavior has already changed because the Overton window shifted. Uh and even if this bill uh you know, ends up taking a little bit longer or the rulemaking takes a little bit longer or you know, something changes, I think the effects on founder and investor behavior have already hit. And then, the second thing is uh the market will, in my opinion, price the certainty from the rulemaking even before the rulemaking happens. I don't think we're going to need to wait, you know, 12, 18 months for the SEC and CFTC to actually set up all the rules. I

think one, founders are already taking action Yeah. that they think will be compatible with clarity. And I think the second piece will be the market will take action to price in clarity as soon as it passes even before it's actually formally implemented. And if I can also just a point that Tushar raised which should be double-clicked on is the building part of founders. It's not just how you go out and and what you can say publicly, but what you can actually build. The unlock even from just the last year, year and a half with the the change in administration and the ushering in of an Atkins SEC has changed

the ability of people to build projects that matter and that actually work. And you know, the prior regime, the Gary Gensler era was one that promoted meme coins where you can't actually enable the full functionality of what distributed networks can bring. And that building process will start I think it already has started where people are actually able to build more useful things that have functionality that makes sense and and accrue value and can actually be real businesses. So, I think that change has already started and sitting in a lawyer's seat, uh you know, no one just wants to say no, you can't do that.

With clarity, with the SEC guidance that we've received, the first time you've been able to say yes, you this is what you can do. Yeah. You just can't do this. So, I'd love to also get your perspective as investors here. What are your expectations for founders on this point? Because now, maybe to get into the weeds of the problem here, like there are multiple different choke points and problems for or issues reasons why this hasn't happened in the past. One is no one was forcing them to There is a little bit of an element of you can imagine in on-chain business, it's like, hey, maybe I don't want to disclose some of this stuff, right? It's just extra uh pain in the ass for me and I'm unsure if I'm going to get rewarded for it. Um there's another element running into you know, having had many

conversations with founders about this. It's kind of a two-pronged approach, which is one, I don't really want to do some of this work. It's a pain in the ass to put all this information together and display it for investors and go on road shows and speak to them about the bit That's like, I want to be focusing on the product, right? Like, how do you guys guide and advise and what are the expectations that you have? Uh so, I think you have to think about the stage of the company. >> Yeah. If you're an early-stage company that's dealing with venture investors, it's kind of the same that it's always been, right? Like, you talk to your handful of venture investors and you focus on building the product and you're not doing a bunch of disclosures and road shows or any of that. Right. That is all later stage. That is you've hit

PMF, you've launched, the token is out there, and at this point you have a real business that can support this investor relations function. And you know, I've been impressed with some of the work that Blockworks has been doing Thanks. the investor relations uh function and helping these teams navigate that. Yeah. And I think that there will be service providers that help. I think that uh major projects will have teams that are dedicated to this. And that's a welcome maturing. I don't think that's something you do at the very beginning, though. You don't need to, right? Like, there is a reason why there's uh in at least the current draft of clarity this process where there's a

safe harbor at first and you have some time to get all of these things in place. Uh so, I agree with the founders in the early stage, when you are grinding for product market fit, you should be grinding on product market fit and not thinking about anything else. Yeah. But, once you've hit product market fit and now you are engaging with public capital markets, if you want the capital markets to respect you and to uh take you seriously, you have to engage. You have to show up. You have to uh make sure that you're making an effort there. Don't just take it for granted. And it there's a responsibility on regulators to get it right. Um disclo- gen- generically, it's a it is 100% accurate to say disclosure is table stakes.

Like, you have to be putting out information. And guess what? We're in an industry where everything is source available if not open source. We are one which is where transparency is valued. The distinction is historically, at least the US government has punished people for disclosure. >> Yeah, I agree. Uh you know, say what you will about XRP, they put out disclosure reports about their sales and guess what was his exhibit one in the SEC lawsuits? It was that. We're in a new era where disclosure will be uh will be you know, incentivized and rewarded. And but it's still incumbent upon the regulators to get it right.

Yeah. And it has to be right-sized. It has to address the appropriate topics. And it's not going to look like traditional corporate information for a number of reasons, including which that in traditional securities lands, information is personal to the issuer. In crypto, it ain't. It's out there in the public and these are distributed systems that anyone can participate in. It's going to say take some time to get this right and there will be significant battles in the rulemaking and comment process to get the disclosures right. But, you know, from a founder perspective, it's never easy knowing that you're going to have a time and cost suck of complying with this, but it's table stakes. And it's what we should want as an industry. It's certainly what investors will desire.

It's what the institutional investors will desire. That's what the retail investors will desire. I'm I would love to get you Like, how much do you think the investor behavior has changed here? Because we've got clarity that's coming up. Historically, to your point, token projects haven't been allowed to make these sorts of disclosures. So, obviously they haven't prepared these materials and things like that in in advance. And actually, in a lot of the conversations that I've had, like the behind closed doors with a lot of these token projects or issuers say is like, I could do this, but also pick not as a random example, but Dragonfly's willing to underwrite me without this. So, why do I need to do it? I think that's a been a big part of the reason why this hasn't happened in the past because um like some of the [clears throat] VCs and

liquid funds have been willing to invest without this. Do you think that's changing now? Or I'll jump first, but then let Tushar hammer it home cuz he can do it better than me, but there is a big distinction between primary market investing, particularly pre-launch, Yeah. and you know, secondary market activity in tokens that are that that functional and operational. When Multicoin or other VCs are underwriting a first check into a business, we don't know what typically what this project is going to look like.

And in fact, they're coming to us because we're going to help them think about how to build. And so, when you're talking about what And by the way, venture investments are securities transactions. So, we are operating as sophisticated investors in securities transactions, and there's appropriate safeguards around the information that is provided. But when you're talking about secondary live token markets, it's a very different world. >> Mhm. I think we have a unique perspective on this because uh we have a big liquid hedge fund.

>> Yeah. >> And then we also have a venture practice. >> Yeah. Uh the majority of our AUM is actually in the hedge fund. So, we think about both sides of the market. And Price right, on the venture side, uh we don't need that same level of disclosure that is needed publicly because I can call the founder. Right. And I can talk to them. Yeah. >> And I can push them to do things in a certain way, or I can get their input. And all of that is allowed. Yeah. Right. Like that's a normal expected thing. Uh if you do that in public markets, you have to careful of getting MNPI.

Uh right? Also, you can't have all the investors call you. You might have a handful of venture investors. But when your token is out there, you're going to have, you know, thousands, tens of thousands, hundreds of thousands, hopefully millions of holders of your token. They can't all call you. Right. >> And ask you questions. That's That's ridiculous. With Claude Copilot agents, perhaps. Uh maybe. Maybe. But then you have to feed Claude the info. >> Right, right, right. You got to feed the info. >> way, but that info needs to get out there. Maybe Claude helps you digest it uh and it helps facilitate those conversations. But that disclosure still needs to get out there. And you know, I'll tell you from our hedge fund perspective, like I assign a haircut on

the valuation I'm willing to pay in secondary markets to teams that do a worse job disclosing. And I'll apply a relative premium to teams that give me the certainty that I want to see as an investor. Which makes complete sense, right? I mean, if nothing else, too, it shows a sophisticated team. And I think one thing that's challenging um Like if we were There's a lot of baggage in the industry because we've had to operate in this very bizarre way. And you know, if you were to look at the way that it typically works, like the life cycle of your average company, start private. And yeah, you're hustling for product market fit in your private company then. By the time you are talking about having a

public instrument, you're way past PMF. You know, you have a lot of infrastructure around you. And then you can take on this additional burden and responsibility of having a publicly traded instrument, doing the proper disclosures. There's also a skill gap for a lot of founders about how to speak to inves- It's not super easy, honestly, to tell a compelling story that operates on a now time horizon and later. And maybe some founders today are in the position and listening to this where maybe you did launch the token a little bit too early, right? Like you're not really set up to do that. You don't have the infrastructure around you. You're going to have to level up. And maybe you might have a There are probably a lot of founders that have live tokens and don't have product market fit. That's not a super unique instance.

How would you advise them to behave um in this instance? Like the right thing is once you have product market fit and you know, you can start to invest in this stuff. But if you're a if you're a founder that has a token live, you don't have the PMF yet, but you're still still got a live token. What do you think they should do? Focus on PMF. At the end of the day, like capital markets should be secondary. Yeah. The thing that actually matters is build a business Yeah. that makes money. Sells a product that customers want to pay for. Simple stuff. If you can't do that first, forget about all the capital market stuff. Maybe there are some like meme coin traders who want to buy this stuff but uh that's not the future of crypto. Uh I think if you don't have PMF, you can do

all the disclosures in the world. I know it's going to buy it. It doesn't matter. >> Yeah, yeah. It doesn't matter. Yeah. Uh I think that's make useful things. Um the hardest thing you can do is create a technology that people will adapt to and adopt and have it be net positive for their whatever aspect of their life that they're looking for. But ultimately, how this industry goes from zero to one 100 is more useful things. And it may not happen immediately, but the market will reward those. And we do have a number of instances where people have built things that people want. It work They work.

They create revenue. That revenue doesn't always go to either the tokens or the lab co or or to stakers or other market participants uh in a uniform way. But ultimately, if you're a founder, the number one important thing is build something useful. I've got two follow-up questions on this, and then I actually want to end on the banks and their impact their their behavior on clarity. Uh in terms of value accrual, can we zoom in on that for a second because my reading of the latest draft of clarity is that you can uh clearly provide value to the token, but it's through a lot of these um crypto-native mechanisms that we've had in the past. They specifically call out things like airdrop, staking fees, things like that. It seems like what's

not actually okay is what would trip traditionally have tripped the Howey test of a centralized team and company, their efforts driving profits to token holders. Do you How do you guys view that? I guess I A little part of me, you know, the the safe harbor window, it seems like that we might get here is about 4 years. That's a long time, but it's really not a very long time for a new protocol to find product market fit and decentralized to the point where it's a commodity. Do you have any trepidations or worry about the way the value can be? Um I don't think it's 4 years only.

>> Okay. Right? That's 4 years from launch. There is a building period before that as well. So, you know, it it you can have a lot more time than 4 years to figure this all out. And if you're launching without a plan on what you're going to do uh when that 4-year clock runs out, you're not serious people. Yeah. You know, you need to think ahead. Uh so, that that's point number one. Uh point number two on the value accrual back token holders and some of the mechanisms that are called out. Look, I think it's going to be the same things that work for companies. It's going to be things like uh dividends. You can rebrand them as

staking rewards or airdrops or and call them anything, but basically, this is a thing that you get in exchange for owning a token. All right? And maybe I require you to take some action like staking it. But ultimately, it's very similar to a dividend. Or buybacks. Buybacks are the classic way to return value back. And uh you know, I've seen some discourse amongst founders in the crypto community of like, "Hey, buybacks don't work." Like and they point to the median token performance, and they point to buybacks not working. And I think uh that's completely wrong. Because you don't have a counterfactual of what would have happened if they were not buyback. Yeah.

And second, I think the way that crypto has done buybacks in the past has been unnecessarily bad. It's been really inefficient. And it has been inefficient because of the regulatory constraints. So, it's been programmatic. But programmatic for a lot of these protocols means when they're making the most money is also when the token price is highest. >> Yeah, right. >> And so, they're forced to buy back their token at the top. Which is like I mean, it doesn't take an investing genius to be like, "You're supposed to buy low, not buy high."

Right? Like that's that's very obvious stuff. But they weren't able to imbue that level of discretion or conversation around it. Right? Now, what I expect to see is more interesting mechanisms like, "Hey, we put the uh capital for the buybacks into a pool, which buys it back programmatically once the token drops below a certain uh free cash flow multiple or buys it back programmatically once it drops below a certain price. And it you know, it's kind of there as a buyer of last resort, but it doesn't need to buy it today at the top of a bull market, for example. All right? And I think that those types of mechanisms will now be

possible because one, you can have governance conversations about it. You can set real expectations Yeah. about it. And I think that there will be ways to do this that's compatible with being a decentralized network and a commodity, but still has some level of governance um that the ultimate owners of that business, the token holders, can implement. Yeah, I think that's right. I think the cleanest way is purely programmatic and embedded into the system, into the network itself. But there are abilities for you to do more post clarity and still have those value capture mechanisms so long as they're

tied to a decentralized governance system. Um and that will allow value capture to be smarter. And that will also provide more clarity on where proper decentralized governance votes can influence the implementations. And that's going to be a big a big unlock. That's fascinating. I am I have Maybe I could end on uh Greg, we talked You mentioned you were a supporter of the foundation. Our foundation idealist, maybe is your your phrasing. What do we think is the structure that we're moving towards here? And I'll call out a couple of examples. Tushar, you already mentioned Uniswap and Aave.

I also just call out the bravery of those founders, too. Like, again, maybe from more of a founder seat here. Thinking about the pain involved of merging labs and the foundation, giving up an enormous amount of revenue that is accruing to the labs company, having it go to the token I just I feel like I've got an understanding of what the work is involved there. That is not an easy thing. And it's a huge headache, right? So, it's I think it's a very brave decision to do that. Do you think we are But also, if you look at even That's maybe a slightly more complete, holistic merging of the two entities as opposed to what Aave has done, which is Maybe complete or holistic is the wrong word. They've structured things in a way

which you're clearly directing value to the token, but they're remaining separate entities. So, from the investor perspective, do you have strong takes on like the correct setup here? Do you think there are many different ways to skin this cat? Is the market going to converge on one solution? And then also, do you think it's possible to have equity and token plays within the same like entity? Or are we done with that era of crypto? Well, I'll I'll I'll take a quick first answer and then let Tushar go. But I think one thing in the market structure process, we've really wanted to try to avoid is legislating a business model.

And we should always be in a world where the market has freedom to iterate. Because not every true business is going to be structured the same way. There are roles for foundations in certain circumstances. Oftentimes, foundations in crypto haven't been implemented for those purposes. There will be companies that build purely on shore. There will be companies that, whether it's for tax reasons or otherwise, will still park a foundation in Cayman. Um, and those That should be allowed to happen. We shouldn't pot pick, certainly not in legislation, a singular business model that works. Because every founder, every market, every audience

will be different. And people should be building for the TAM. Uh, I think it's hard to prescribe what like the one-size-fits-all model is. But an idealized version, I think, would be the token holders own the business. Yeah. There is a foundation or B corp or some other sort of entity that exists to face other legal entities on shore.

Uh, because a lot of institutions need to face someone and sign a contract, right? But very importantly, that entity answers to the token holders. Yeah. Right now, what we have is this like concept of an independent foundation that happens to control a significant portion of tokens, but doesn't answer to the token holders. Yeah. Because it's been forbidden for them to do that. Right? It's not that the foundations don't want that. At least not, you know, most of them. >> Yeah. It's that they weren't allowed to. But ultimately, I think the foundation is a representative of the token. Mhm. And the business, not the other way around. And it certainly

shouldn't be like this independent entity that has its own goals that token holders can't influence. I think that's a setup for the past. Can we end on the banks here? So, I'm, you know, not as in the weeds maybe as I could be on clarity in general, but I've been following especially the yield discussion. Um, you know, the charitable way of describing the banks' position here and what they'll talk about is, if you allow stablecoin issuers to pass back yield, then you're going to undermine small community banks, right? I Maybe grain of salt. I don't think JP Morgan is staying up at night worrying about the Community Banks of America, but that's one position. The other is you're encouraging maybe negative risk taking, right? And we've seen this in This argument holds some water with with

me as well. If you allow stablecoin issuers to off offer unsafe levels of yields, you know, there's kind of an adverse effect there. On the other hand, it does look a lot like regulatory uh, your um I mean, I'm blanking on the phrase here, but you leverage your incumbency to drive unfair, you know, like regulatory incumbency. Um, and I'm just a holder of US dollars. I'm like, why I'm Why is it illegal to pass yield back to me? I'm getting nothing in my bank account, and it just feels kind of wrong. So, where do you guys land on like What do you think about the banks' performance here during clarity?

Uh, so let me take a first stab at this, and Greg can give you more detail on how this all went down, but at a high level, this is an appalling uh, example of regulatory capture. Yeah, regulatory And the ability for powerful industries like the banks to go and influence policy, to implement uh, things that improve their profits at the expense of American uh, citizens and people who are using these services. Right? It is a ridiculous concept to me that uh, these political entities and these politicians are taking the side of the banks against paying interest to their

ordinary depositors. Uh, I also completely reject the deposit flight from small community banks argument. Uh, that is a thin fig leaf cover. Because one, those those dollars could have already flown to big banks. It's not like they're locked in there. They're there because those small community banks have built relationships with the community. They have They provide a service to the community. And also, a lot of those banks do offer savings products that offer yield. So, it's not that you need to leave the bank in order to earn yield. The banks all offer yield products. Uh, second, I don't think there's even broader deposit flight amongst the banking industry as a whole

if stablecoins pay interest. Because there is going to be a certain amount of treasuries that exist. Mhm. And the amount of bank deposits and bank money is set by a complicated set of policies at the Fed around reserve requirements and how the reverse repo facility works and the incentives around that. That is what actually determines the amount of bank deposits that are out there. Yeah. Uh the the fact that people move cash into effectively a money market fund or a stablecoin that pays interest doesn't mean that that cash is now destroyed.

It just goes into a different account. And so, the banking industry as a whole still has that deposit. So, no, I don't think the banks' argument about this going to cause deposit flight or specifically harm community banks is valid at all. I think it's a bad faith argument. And really, what they're worried about is they want your zero dollar interest deposits. Yeah. Because that's their float, and they're making a big fat spread on that. And I think that spread should be reduced. Finally, crypto is a technology that enables that. And even if the banks win this time around with clarity, uh, I think the the future is inevitable here. I

I If I could just respond to that, Greg, before I give you the final word on this. I agree with that so much, Tushar. And one idea that I see coming back and people are talking about it at this DAS. There's this old idea in crypto of owning your data that is coming back in a slightly different way. Now, I don't think that honestly, like the Brave browser idea of owning your own data ended up working. But one difference in crypto, when you actually hold a stablecoin, is you hold the asset. As opposed to if you hold a stock in a brokerage like Robinhood, you are so far away from the actual owner. There's like three or four levels of intermediary in between you and actually the asset that you think that you hold. And they're all making money on the float, lending it

out. A huge amount of the business model of Wall Street depends on this float. And I I think that's what we're kind of getting at here. There's a million little ways that that gets disrupted by the asset being on chain and you being the actual owner of that asset. And you should be allowed to benefit from that, not in this vague data sovereignty way that we used to talk about. The yield. You should get paid the yield for being the owner of the asset. And it's very difficult to enforce if it's actually Goldman and their account at the DTCC that has the asset, and then there's three layers, and then you. But if you're the actual owner, you have to compensate the owner. Rent seekers are going to rent seek. Uh, I I agree with everything Tushar said.

Um, a lot I've been in a couple uh, some of the meetings, and I won't go into detail about what's in there. But from what's public, yeah, the the arguments that have been made by the banks are bad faith. Yeah. Um, they argue that $6.6 trillion will flee from deposit accounts when $6.6 trillion is what sits in deposit accounts. This is not what's at risk. And it's not a Treasury report. Or it's a bank report. Um, but you know, this is an element of large banks saying, you know, playing a role of Chief Brody from Jaws and saying we need a bigger boat. Uh, and it's it's a little shocking though, because this is an upgrade to the system. And it's not

new. In 2015, the Fed put out a a FedNow report, which talked about how do we upgrade payment systems. And that's what stablecoins do. And stablecoins were a contemplated part crypto was a contemplated part of that. It is not the same as deposit accounts. They don't look like deposit accounts. And we saw this in the 70s when money market funds were introduced and forced business accounts to start paying interest because there was suddenly some competition even if it wasn't direct. The banks didn't like that either, right? They didn't like it then and they said it was existential and it wasn't. These things grow together and stable coins those banks that will integrate stable coins in their systems. And by the way, the genius act has some handouts to the banks that allow them to

issue and pay yield on stable coins that they issue whether they're tokenized deposits or otherwise. So there's a lot of flexibility and a lot of ham for the banks to chew to chew on from genius. But I do think you have some fear mongering about community banks which aren't impacted from competition uh from stable coins. They are impacted from competition from too big to fail banks when you do have fear in the markets. So it's it's bad faith. I think people acknowledge and see it as bad faith. But it's a nice reminder uh that you can have your opinion and your belief but power drives a lot of that. Um and if we were sitting 3 years ago the bank

industry would completely roll over crypto. But guess what? Crypto has spent the time, done the work and uh have the have our own set of ears on the hill to to listen to our positions. If I can add on something here. I would like us to remember the first line in the Bitcoin white paper. Chancellor on the bailout on the brink of a second bailout for the banks. Yeah. This is the reason the industry exists is to counter the regulatory capture that the banks have and the fact that they are profiting off the many layers of intermediaries, the fact that they're

profiting off of underpaying their depositors on interest uh and they're trying to disguise this as a social good. Uh so yes, the banking industry and the level of intermediation that exists in the financial system has always been the target for crypto to disrupt. And of course they're going to fight. All right, like Greg said, rent seekers are going to try to rent seek. Yeah. But I think the future is now inevitable. Right? If you think that AI agents are going to be paying each other using the banking system? Uh you know, that's a that's I think a ridiculous thought.

They're not going to be sending wires back and forth to each other. They're going to use stable coins. Uh and I think you're going to see the disintermediation of all these other services that the banks provide around securities lending, all right? With tokenized securities, now they can't take a big spread on that. They have to pass it on to you the user. The whole market structure of financial services is going to get far more efficient because of blockchain and crypto as an industry. And what that's going to mean is the rent seeking incumbents will see the margins erode. But for the end customers, the investors whether retail or institutional, the depositors, the the merchants, all of them will end up with

a better product and more consumer service. And I think that's >> good example of that, look what Figure did for Heloc. Yeah. They've been crushing it. Um Shut my cat tag me on sometime. But guys, that's a great note uh to end it on. Greg, Tushar, thank you guys so much for joining and coming to DAS and want to do it again sometime soon. Thanks for >> Thank you. Thanks, guys.