Oneshot: The Bill That Could Reshape Crypto | Rebecca Rettig

Transcript

People have said like no bill is better than a bad bill. Understand that sentiment in many ways, but like we're pretty close. And if we can get it there and then do really positive rulemakings, I think that'll be great for the industry. But yeah, it's not like, oh, I guess it's I guess the industry goes away with no clarity. I think the industry will grow in a very different way and even more significantly if we can get clarity across the line. But like the institutions aren't going to be like, oh, we started this whole thing, but we're gonna put it all away. Like Morgan Stanley is not going to pull its bank charter or ICE isn't going to be like, "Oh, we don't care about Poly Market anymore." Right? Like everybody is going to keep moving forward on this.

>> Nothing said on one shot is a recommendation to buy or sell securities or tokens. This podcast is forformational purposes only and any views expressed by anyone on the show are solely our opinions, not financial advice. Michael, Vance, and our guests may hold positions in the company's funds or projects discussed. >> All right. All right. Well, Rebecca, welcome to the pod. It is March 5th. There is still no bill. Um, we are looking forward to hearing from you as to what the status of that is and whether or or not it will happen. But yeah, how are you doing?

>> Good. How are you? Good to see you guys again. >> Yeah. Yeah. >> You officially uh the first guest of the oneshot pub. >> Yeah. >> There we go. Let's go. >> I know. I know. It's it's it's an honor for everyone involved. Um, >> so how much time have you been spending in DC recently? Um there's time in on DC in DC and time on DC. So I think um you know you don't always have to be on the ground every day to sort of be involved in conversations. So the conversations have been ongoing. Uh I think the time I spend on it depends on the week and the topic at hand and um you know what is most pressing. So yield discussions are among people who like really have a big stake in stable coins whether it be not

the issuers so much but anybody who's going to offer rewards. Uh and then there are these other topics that are really relevant. Title three of the bill what everybody talks about is the national security side but it has a lot of impact on DeFi. So I spend a lot of time on that. Um so there are lots of different pieces of the bill and it just depends on the week and how much time I'm spending. Well, I I think one kind of quick thing would be um there's a poly market that's out there on whether or not clarity will pass. It seems to be whips on between like 40% 90% 70% 50 like who I what what's your kind of general sense as to um maybe like um talking through a bit of just like where the the congressional process

is and kind of like um I mean we were just talking about this before the show but like in DC they say there is no bill until you know a bill is is is live. um kind of like where where are we in the process and um how how should we think about kind of like is this expected or or is this just like taking longer for whatever reason? >> Yeah, great question. Uh so I'll say a few things to start that poly market is indicative of how most policy people feel which is like some days or some hours we're like yes it's going to happen and some days we're like no I don't think so sometimes changes hour to hour. Uh that's probably true of some congressional staffers or people you know on the hill generally. Um, so I would say that the change is probably

indicative of, you know, what people are experiencing live. Um, so that's the first part of it. The second thing to really keep in mind about this bill is this would be the largest piece of financial legislation, like comprehensive financial legislation since DoddFrank. And that and just to put it all into context, DoddFrank had a significant number of like rulemakings by agencies and not all of them are done yet. So it is really hard to pass comprehens comprehensive financial regulation. So that's part of this. We have to put it in context. And while we've all been thinking about it and harping about it and it's been number one and like all of our books for so long because we just sort of want to like get it done, move on and be able to build our businesses

in pretty reasonable ways with a lot of certainty. Uh there are other things going on in DC. Hard to believe. Um and it's since it's March 5th, I we can say there's a lot going on in the world that um in some ways is taking attention away and in some ways is not like the other thing that uh everybody should know is people are still working on this not just on the industry side but actually on the Senate side. But before we get into those details, let's take one step back to give an overview of where the bill is today. So there was a comprehensive bill that we called clarity that went through the house. It had a SEC side that went through the House Financial Services Committee and a CFTC side that went through the House A Committee. It seems strange that the Agriculture Committee would care, but

they have long been the overseer of the CFTC because, right, the CFTC was historically agriculture and futures on that. Um, and so that went out of the bill, out of the House with a um with a majority and bipartisan. Um, so then it got to the Senate and you know the Senate went and said, "Okay, we're going to pull these two pieces apart." The banking committee has the SEC and Treasury side. The Treasury side is important and we don't talk about that a lot, but we should today. And then the A committee and the Senate has the Senate has the CFTC side of the bill. There's not a lot of focus on the CFTC side.

That seems fairly baked. It is not so different than what we saw in the House. There is a little bit of discussion around one section of that bill that looks at sort of uh for lack of a better word like an innovation exemption on DeFi and just like there has been so much attention on that on the SEC side. So that's what's happening on the CFTC side of the Senate. There's a lot of heat and everybody is paying attention to what's happening on the banking side because that covers the SEC stuff and the Treasury stuff. So on the SEC stuff that has held everybody up, obviously the yield question, which was section 404, if you want to look at the last version of the bill, and as everybody probably is painfully aware from crypto

Twitter, there have been ongoing meetings cared by the White House um between the banking industry and the crypto industry. Narrow group of people. Uh one of the last meetings, the funniest part was that everyone had to check their phones at the door. Uh >> so funny. Um, but then they also really looked at text and working on text. So, um, I think that's, uh, and notwithstanding the March one deadline, nobody has left the table. Um, we can see the banks being really loud about it and saying they don't want it. And we can see the White House uh President Trump tweeted or on posted on True Social yesterday.

Same same but um uh that he had a very specific opinion on this. But ultimately PE no matter how vocal people are being about how this is not this is not acceptable that's not acceptable. The deal is not off the table completely and people are trying to work on language still. So that's what's happening there. Maybe taking one quick step back is just like describing the differences of it's not like the ad committee and the the Bennett banking committee are working on the same parts of of the bill which is why there's a separation and so maybe like we don't need to go into like what is market structure or what is this but like what are kind of like the broad strokes of what they individually what those committees individually care about

within the broader market structure question. >> Great question. The CFTC side is pretty straightforward. What the Senate a part of the bill is doing and the House A part of the bill is doing is creating a registration regime for various centralized intermediaries who either trade or otherwise have interaction with tokens. So like exchanges, brokers, um things like that, uh dealers, whatever. Uh they you would have like digital commodity brokers, digital commodity exchange. They'd have a registration regime and it would go through the CFTC.

So you would what you do this is actually a great question Michael thank you for bringing it up is the Senate side uh the Senate a side is really important because it gives a whole new set of authority to the CFTC so the way tokens trade now is what's called spot trading they're spot commodities um they're not futures or derivatives things take per stuff out of it because the bill does not touch those things um whether everybody likes that or not but we can talk about that later in the in the show because there's there is an interesting side of like what happens if the bill doesn't pass. Um so, uh it just creates a whole registration regime and gives a CFTC authority over spot markets, which it doesn't have today. It has, um fraud and empty manipulation, um authority over spot markets. So, if

you're like actually manipulating a token market, maybe uh but otherwise, no. And so, that's an important part of this and I think everyone kind of takes it for granted like great, Coinbase will register with the CFTC and we can keep trading tokens. So, that's that side of it. Let me ask you this. When when like what role does the White House play in all of this? Ostensibly, they've got friends on both sides of the aisle and they're they're kind of cat hurting. Um but like what what's their role in all of it? >> Uh Patrick Whit who took over for Bohind as the executive director on the President's Council on Digital Assets is Captain Cat Herder for lack of a better term, but he's really good at what he's doing honestly. Uh, and I'm not saying

that just to like blow smoke, but he has everybody's numbers. He is texting people in industry. He is being very vocal about what this administration wants and expects to see. He is keeping things moving. And so, and obviously, as we can see from the post that we were talking about, he is bubbling things up to the president when it needs some sort of strong arming. And look, president was very clear that he wants to pass a crypto bill. And you can hear from Patrick Whit all the time like that is a priority and they are going to keep pushing it and as long and as far as they can.

>> Um what what what like what what's the deadlines on on this stuff? Is like are do the midterms come into play? Obviously if there's a change in dynamics in the House and Senate that that upsets some of the balance, but like what are the real deadlines? What are the imagined deadlines? Like March 1st was probably more of a guideline. It was um I think everybody is pushing to try to get this done before the midterms. Not just because we think that you know things will pass now, but you can see even we have a markup on the Senate a side of the bill. So what I was saying like this pretty straightforward part of the bill and it did make it out of committee and a markup is when you like look at the bill, you offer

amendments, you try to change it. The whole thing was partisan and it did pass out of committee but like 12 to 11. So on a very narrow margin um and something like the Genius Act passed with a hu a super majority um now not out of the ad committee but still so like you don't want things to be that narrow and I think people think if we hit the midterms this feels like a partisan issue even though it's not anymore and you have Dems super engaged on this side of things. So, um I think everybody wants I'm not saying that's the deadline, but that people are pretty motivated to get it done.

>> And I guess the so the main issues seem to be the yield question and then maybe this DeFi exemption. Is there anything else that that we'reing? >> Yeah. So, let's talk about the banking side. The CFTC side feels straightforward and kind of easy and like not controversial except for this DeFi part. So, the banking side is a little more controversial. So, you have the 404 yield stuff. Obviously, that is front and center, but nobody is letting the other open issues stop while the yield negotiations are going on because people feel like if we get to a deal on yield, we will have to have most other open issues sewn up so we can move this quickly. Um, and so the other open issues are section 505 of the last draft

was the tokenization section, right? Like RWA kind of thing. And uh people were pretty uh upset about that section because they thought it meant to limit or constrict the ability of the SEC to allow for this innovation exemption it's been talking about to allow for trading of tokenized equities on non national securities exchanges potentially. And so there's still a lot of negotiation going on in the background on that uh and discussion uh and whether we can get to an agreement there. Um and then the other big issue is under title 3 a lot of it would touch defi and um there are these

national security questions for sure but section 3 talks about self-hosted wallets interfaces um how regulated financial institutions uh can plug into DeFi and use it in a way that gives them certainty uh and then of course when is something not decentralized and it gives the Treasury department rulemaking authority to determine basically when something is you know I know decentralized in name only um or has a control element and thus needs to whether it's a protocol then it could register so people just want to make sure honestly on some level fine we need to figure out the line of what that means but like I also don't think we should say if you hold an admin key you're the same as a bank and you

know what I mean so um I think we just need to make sure that there are appropriate guardrails around all of those things >> so interesting think that that goes to Treasury. That's not necessarily what I would have expected. Um >> they're not like a regulator as you know historically. Well, I guess they are, but not not like making rulemakings on like you're a you're a centralized protocol of some sort. >> So, Treasury has under its umbrella Fininsen and OFAC. And so, yes. Yes. Uh this is an educational this is like um this is like schoolhouse rock of agencies for crypto. And so Fininsen is the financial crimes enforcement network. It actually has put out some of the best guidance ever on crypto which

really talks about DeFi. Uh their 2019 Fininsen guidance was amazing and that talked about like self-hosted wallets and admin keys and control and things like that. And so I think there's a thought that that makes sense to have some of that happen there. >> Got it. >> Yep. I forgot Fininsen that's your point on on the yield question which is like the trillion dollar question. How do you make a deal on yield when one side is like you're going to kill us like you know the community banks are going to go away if you let this happen and the other side is like there's no world and this is like a direct quote from >> well maybe before we get there like what is the the crux of the yield question >> great the crux the crux of the yield question is when and if you can give

rewards on stable coins they've agreed in genius just by you know issuers cannot give rewards. And the interesting thing is, and I think the banks have said really openly like, oh, we didn't really see that in genius and understand that it meant that there were other people who could give rewards on stable coins for other types of activities. And so ultimately, people feel like if they erode um stable coin uh if they allow for rewards on stable coins, it will erode bank deposits particularly in community banks, but also in other places as well. You could see after President Trump's post on True Social.

Jaimeie Diamond was out I think on CNBC saying like this is going to ruin everything from the banks and there has to be a level playing field. I do think you could have some form of give to the community banks whether it be that all stable coin issuers have to hold a portion of their reserves in a community bank or something like that. I'm not quite sure. And look, I generally try to stand lane on crypto policy. So, you know, the stable coin people should definitely be thinking through those things and I think they are. Um, but I I think there is a deal to be made.

>> Yep. And one question I had too is so those are the US-based stable coin issuers. There's like the the US ones and there's the overseas ones. And I think the overseas ones, as far as I saw, there's like a study that the Treasury has to do on those to determine if they're, you know, NATSAC issue. But like how how will those be treated on a go forward basis if this passes? >> Well, Genius only covers US stable coin issuers. I think the most important thing to come out post Genius is this concept of stable coins as a service. So you can see that bridge is doing that um through the specialized API. You can see that Anchorage is doing that because like I think Athena and Tether and a few others and maybe Western Union is all

announcing they're doing it through Anchorage. So they are a like you know a genius compliant stable coin issuer. So you're going to see offshore stable coins potentially come through US regulated entities and have you know these not they're not going to be called shadow versions right but USA is a you know US version of tether. Uh so I think that's how we'll see it all come through but you certainly can't have like an offshore stable coin running through regulated financial institutions. And maybe a subsequent question but same same vein is just like how do we think or how should we think about decentralized issuers for stable coins.

I know that has been a very uh I mean there's been many decentralized issuers. There are still a few that are large. Um you know Athena maybe is is a good example you just said. Um Sky would be another one. But how should we think about the relation of payment stable coins or non US stable coins or or decentralized stable coins? >> That's a great question. And I've been grappling with this idea of decentralized stable coins for a long time because I also have said like we shouldn't be calling them stable coins in many ways because they're just not onetoone. Uh so I genius doesn't solve it and nor does clarity. So we'll still like have to see and I think you can assume that those types of stable coins will not have the same reception and the

same usage in the United States. >> Right. >> Yep. So, so back to the like how do you make a deal on yield question. Um, they the two sides seem it it's almost like inexplicable inexplicable to me that the banks didn't notice that uh genius was passed in the way it passed. Um, but now they're trying to claw back at least some of that. Like how do you put that genie back in the bottle without creating another large loophole for, you know, everybody else? Is that possible? No, I don't think they're going to like revisit Genius because Genius applies to issuers. So, the way the banks are talking about it is like we're not trying to revisit Genius. We want to talk to make sure there are no loopholes to it for people outside the issuers.

Um, that's how they're positioning it. Whether you Vance, I can see you're not on board with that. Um, but they are. And look, when you when it it does seem sort of hard to fathom that like the Bank Policy Institute and others were not really looking at Genius in this particular way, but I think people wrote off crypto for so long in so many ways and then Genius passed by a super majority and people were like, "Okay, we totally miss like what?" Um, and so I I will say you've seen now and some of this is public, so I'm not like even giving tea, but like Sithma, right, the securities fin like the large securities trade organization is up in the SEC all the time already talking about

self-hosted wallets and DeFi and the innovation exemption. You couldn't have tokenized equities trading on Dexes and things like that. Like now everybody's woken up. I mean, like, oh, this is a real industry and we're going to have to contend with them. And I actually don't think people want to stop us. I think they want to slow us down so they have enough time to catch up. Is that's my personal view. No one's said that to me. But if you look at what people are doing like I do think and I don't know you guys are on the venture side, you probably see things differently than I do. But like uh sentiment is highly uncorrelated with price right now. Like it doesn't matter what's happening on tokens. everyone is building and the institutions are

building in a massive way. So I think everybody just want like nobody's like oh I don't want crypto or blockchain to be the back end of the financial system. I think everybody is just worried that crypto will get out ahead of them, right? Like cryptonatives will be out ahead, >> right? Like all these people will adopt stable coins in some way, shape or form. It's the logical tech build for a large bank. Um, I guess if you could guess at what like a deal might look like that would or or something that would make everyone happy, like what does that look like?

>> So, prior to really uh going in house in crypto, I was a litigator and when I would explain a settlement to a client, I'd be like, just think about settling. You're not going to be happy. Like, neither side is happy. It's like what you can live with. So I think there will have to be little gives and there will probably be a lot of curtailment on what you can offer rewards on and maybe limits to those rewards but like other industry off other industries offer rewards all the time right airlines whatever your points are your Walmart points whatever um so it does feel like there is a lot there are a lot of restrictions based on the fact that there's a technological aspect to this but hopefully we'll get to a place where

nobody is happy but everyone can live with it. >> So maybe and this is um my perspective so I'm not I haven't been told this this is internal as well but also um you don't have to agree with this perspective per se but I know that they're positioning and by they I mean the banks are positioning this to be an issue with fear for deposits leaving the bank and that's what they say is the big issue. It's like if we allow stable coin yield, people are just going to hold their dollars in stable coins and like the community banks are need to hit first. But then even the J JP Morgans with Jamie Diamond, they're they're going to see a flight of deposits. This doesn't matter the fact that JP Morgan, you know, typically pays you like 10 basis points yield um already. So you

would assume that there would be flight of deposits anyways. But um I think the other angle to it and um you know, maybe I'm overthinking it, but curious to get your thoughts. Um the strongest network effect in financial services is credit card networks and because the merchant pays the fee but also the consumer who's choosing which credit card to use gets paid 2% let's say or one and a half 2% 2 and a half% in the form of rewards points that are literally redeemable for for things or dollars. Do you think that there's a possibility that you know Jamie Diamond who operates Chase um and uh the CEO of Bank of America who operates the second largest credit card network that their fear is actually losing the control of the credit card

networks that they operate uh versus the deposits or do you think like it doesn't feel it feels like they're positioning this as we're going to lose deposits and that's the biggest fear but it doesn't feel like the data supports that nor like even like that that is a real concern or or should be a real concern And so it's kind of like, well, what are they actually trying to protect here without admitting it? Or is this just like a partisan issue and you know, the the banking lobbyists are the largest funders of the Democrats and therefore it's just like the Democrats don't want this and they're using you know that as like may some conjecture on um just like what is actually happening because it whatever they're saying doesn't feel real.

>> Yeah. And I started hearing this strange argument about deposit flight before like before it came an issue in clarity and a little bit after genius. And I didn't understand where it was coming from because stable coins will have to have backing one to one in dollars, treasuries or other of those types of things. So maybe they won't be held at JP Morgan, but like maybe they'll be held at community. I I don't know. But I I couldn't maybe I'm you know I was great at math at a certain point in time in my life. Maybe I'm not as good at math, but like it just the math didn't always line up for me. Um, so I don't know. I think that there is a look, I will say from watching things on the institutional side and watching things

in DC, there is a lot of fear around how the technology is changing everything. And I think the I think people were not paying attention on crypto and there was such a strong push against the industry in the last administration that people felt like they had slowed us down sufficiently. But I think the AI like how fast everything is moving there and it's changing every day and we all see that um I think is adding fear to how fast crypto will change things. >> Yeah. doing that with money. You know, if we're moving at the pace of club code for money, that that's tough for people to accept, but I I get that. Um I guess in terms of the voting dynamics,

without getting into specific names, like is it is this a question of flipping one person or 10 people or or like numerically how far apart are the two sides? So on the yield question, uh we are far apart because there is one pretty prominent Republican senator who is not seeking reelection. So you know doesn't feel that they need to be in lock step and has very close banking relationships who needs to really be convinced. Now the word is that that person also is a safe front for other Republicans who do care about this issue and have close banking ties. So I don't think we can like name and shame. Um but I don't I

think we have to get everyone on board and and some of the Republicans are in lock step with certain of the Democrats. So, uh, people are meeting with them repeatedly and I feel for those staff. I mean, I feel for all the staffers because, uh, the funniest part of this industry, I don't know if that's the right word for it, is we are more proactive in being in DC and saying what we want and tweeting about it and talking about meetings and leaking drafts of bills and things like that. I've never done any of those things, but um, we do that in a way that, uh, like congressional staffers and members of Congress have never seen before. And people have really had to get used to it. Uh the funniest thing is on like some behind the scenes stuff is like

over time and I've been part of lots of these market structure cycles. So all the way back to fit no even before the DCA but even before that the DCA like >> YCPA but what would happen is you'd get watermarked copies of the bill with your name on it. um so that they'd know if you were the one who leaked it. Then they'd start locking the PDFs so you couldn't order them. So they had to learn a lot of lessons in contending with crypto. And so I think what people lose sight of is how lucky we are that we live here and can be so proactive and engaged in this process.

>> And so the name and shame won't work. Uh is it like exposure therapy just like saying it a thousand times? Is it, you know, Trump doing some sort of PR blast? Like, like what does get it over the line? >> I think getting to language that the banks are like, fine, we're not going to we're not going to lose ourselves over this because as of today, and Patrick Wood says this all the time, genius is the law of the land, >> right? Like it >> Yeah. If we don't get to an agreement, like everyone's going to be able to offer rewards in the way that they want to except the issuers. So that that should behoove the banks to find some sort of uh resolution >> and and while all this is going on, you

also have I think the SEC is doing rule making or or or >> Yeah. >> And so there's kind of like this like alternate path where paths there's going to be all these new rules made, sandboxes, innovation exemptions. Could you talk us through just what those look like in practice? >> Yeah, so some of that's going to happen even if the bill does pass. The one thing there are 42 I don't remember the exact number now but an unprecedented number of rulemakings in this bill. So the SEC and the CFTC are going to do lot and the Treasury Department are going to do lots of rule making if this bill passes. So like this is a highlevel contour 30,000 foot view. Um although I'd say it's more detailed than most financial services bills I've looked at.

And then the rule making is going to be very deep onto the nitty-gritty. In the absence of a bill, there's still going to be lots of rulemaking, maybe less so by treasur like Fininsen like we were talking about, but ducked by the SEC and the CFTC. Chair Atkins on the SEC side has been talking about an innovation exemption for the better part of a year. I can tell you from having been in that building a lot that they have been working on it. Um, not just the crypto task force, but other more traditional sides of the or departments within the SEC, trading and markets, corporate finance, things like that. um obviously investment management that's another piece. So, they've all been thinking about this um and working on it and uh there was a notice yesterday that

went up that said they were talking about the rule making um and it said like on crypto assets or something like that. Um so it didn't say innovation exemption but that's what everybody thinks it was and I think that Chair Atkins the last time he spoke was at East Denver last time he spoke publicly about this was at East Denver in a Q&A with chair uh commissioner purse and said this year. So I don't think you know people have said spring summer I would say we'll probably see the innovation exemption by the end of the year and that's a rulemaking and we will see lots of people push back against it including SIFMA I think but we'll probably have a lot to say like we talked about and maybe other traditional securities players. Sorry. Go ahead Michael.

>> What what what does it mean a rule making >> and and innovation exemption? What does that mean too? Okay. So, uh we don't know exactly what the innovation exemption is going to say, but what we think it's going to be covering is how you going to trade tokenized securities um not on a national securities exchange, but in some other way, whether it be on dexes or how we do that. And he did talk about transfer agents who will allow these to trade. and I would say Superstate and maybe some others have been trying to get these transfer agents up and running for tokenized securities.

So that's very interesting. I think that also um we so that's the innovation exemption. It also is likely going to touch token launches in the US or when a token token launch uh constitutes a sale of securities or transactions in securities. So I think that's what it's going to touch. It's certainly going to touch the tokenized equities question. We've seen lots of guidance come out about that, but I think it's going to talk about the token side too. >> One one quick point uh or question um you know the uh every transaction where us as venture capitalists are you putting money into an equity. It's it's called the red D offering. Um and that is something where you're selling

securities, you you file the red D exemption with the SEC. Do do we expect that there will be some sort of red D type offering uh exemption for for crypto assets within that rule making or is that something that would have to be codified in you know whatever clarity ends up becoming? >> Um so everyone has been selling tokens pursuant to a regggd exemption for a long time. Um and so yeah I mean there may be something that looks like that. Um regggd is a regulation. it is not a law. So that came under theoretically rulem too. Um and so >> I don't I mean something new that would

be like >> Yeah. You know this thing there may be like a version of regggd but for selling tokens. >> Exactly. Okay. Interesting. >> So and what you can see in section one of the banking side of the bill is something that looks like regggd but for tokens. >> Yeah. Yeah. And this is more in the path of um okay maybe clarity doesn't happen or it doesn't include that section or it doesn't include uh uh the offering exemption um and so that we have to go to rulem um that's where something that the SEC could step in and provide that. >> Yeah. Now let's talk about what a rulemaking is just to go back to it. You may hear some people say it as NPM notice of proposed rule making. Uh this is another great part of the democratic process which is if a regulator who has

a public mission right so the SEC has like capital formation production of investors things like that um they have to put out a rule that they want to implement for comment uh and we saw that with the OC. I think we're probably going to talk about that but we saw that with the OC. So you go and you put it out and you say here's our proposed rule. Come tell us is it good? Is it bad? how we should change it. What this is a very important part of it. What the economic analysis is on this rule. Um the economic analysis is really really important. Uh during the we you might remember rulemaking because Gensler put out an exchange rule >> ad version of this. Yeah.

>> Yeah. Yeah. Yeah. Um, and you saw everybody flood and and you all your responses by the way on the rulemaking are public so you can like read everybody's too and like that's kind of an amazing part of the process and everybody takes a different stance on it. So like when when the Gensler exchange rulemaking came out I read it and I was like by the way this is going to capture not just dexes but like base layer players because they were talking about validators coming into register as an exchange. So like my whole letter on that was about validators and not about dexes. So, it's like a pretty amazing process. Um, query whether it's the most efficient, but it certainly does allow you to participate in the process in a different way than just like having rules imposed upon you. It

>> it feels like this version will take our feedback maybe into account versus the previous version with Gary was like we're doing this because we have to. Do do you expect like any of the public comments to make their way into the actual rule making like how will that actually manifest? So, you know, not to give Chair Gensler credit where credit is not due, but they were going to have to take I mean, the part of the process, >> right, >> to take account of all comments and on that exchange rulemaking that was about like communications providers. So, it wasn't just crypto putting in stuff. it was like Bloomberg and others um who were going to who were putting in comments and the other I know this is like very nuanced and technical and annoying but this economic analysis

piece of rules of like how would it e impact both the US economy but also participants in the market the really important part of the analysis and the interesting part of the rule making is it can go be challenged in court >> so that's right we have three branches of government to go back to our schoolhouse rock analogy And uh right, we have the executive branch um and we have the legislative branch, Congress, and then we have the judiciary. And so you have lots of bites at the apple to deal with that.

And okay, so just to double click on the OC rulem, how does that impact the industry? Like I saw that they came out with something recently. I I didn't exactly get the whole gist of it. What what was that? >> Ah, okay. So the OC which is the office of the control of the currency is the agency under Genius who has authority to regulate um payment stable coin issuers >> who have to apply for a charter through the OC. Everyone thought it was going to be the Fed, but because the prior Fed was so hostile, uh supposedly the Fed did not get the nod and the OC did ingenious. I don't know, but the Fed will be involved in some way, shape, or form. And OC obviously works with that

the Fed and the FDIC. So there all these banking regulators that work together and Treasury. Um, and genius, by the way, is not by itself done, right? There's going to be there's a rule making by the OC, a rule making by Treasury, a rule making by the FDIC. So anybody who touches banks is going to be touching uh Genius as well in doing these rulemakings. So the OC put out a very long NPRM notice of proposed rulemaking last week. I don't know it's crypto so all time um comes tends to >> last believe it or not >> uh last week and it did touch the yield question and people thought that it set off um issues around how yield would be handled that upended the discussions

that were going on around resolving yield question um under clarity. So people there the other thing that's um difficult about the OC rulemaking is that they gave people a 60-day window to respond to a very robust rule making. It's very difficult to do it. So lots of the crypto industry groups are working on responses. Um issuers are working on responses. So we'll get to see what everybody has to say about that I guess in 60 days. But the other problem with putting out something that requires something to go so fast is the economic analysis part either may not have been done robustly enough, which some people are saying out loud. That's not my opinion. I'm just saying publicly what people have said. Um, and there may be a

big challenge under the economic analysis piece. It's like the most boring part, but like that is the piece that gets challenged a lot in court. >> H are there. And then there's the CFTC which Michael Zel seems to be doing an amazing job and he'll be rulemakings. Does that kind of cut across any of these or or influence any of them? >> No. Uh he'll have his own stuff going on, right? He >> on his own like pitch. >> Yes. But he'll do his own innovation exemption, right? He said we're bringing pers back to the United States.

Perpetuals, by the way, are not fully illegal in the US. They are illegal for retail. um basically or inaccessible to retail in the US. But you can see even from like uh >> you can see the major players getting back into a lot of these newer things. So like NASDAQ filed earlier this week for binary options on securities. So binary options like you know like prediction markets uh NASDAQ and I think SIBO or CME were talking about PERPS uh the other day as well and trying to offer what are called swaps um which uh you know fall under the CFTC's jurisdiction. And so there's a lot of innovation going on here and yeah I think that that he is going to be super proactive including on giving you know

different types of innovation exemptions to make sure all these types of products can he also worked for Chair Atkins for a year >> right >> and he worked at Wilky representing a lot of the industry uh as outside council for a long time and he's a very thoughtful very knowledgeable guy so um you know historically the chair of the CFTC really felt beholdened to ICE and CME, right? The two largest players in the derivative space and still does as well. But I think especially where ICE is, right? Huge investment in Poly Market. We saw them make a huge investment in OKX today, which definitely surprised me. They are talking about their tokenization efforts. So, you know, I think ICE is kind of on board with it. And there was

an oddlots a while ago with Terry Duffy who's the chair of the CME and he was talking about their partnership with DraftKings maybe DraftKings or FanDuel. So they were they were getting into all of this. So even though the CFTC has typically been very beholden to ICE and CME there is innovation going on there that I don't think is going to hold them back. I think the biggest issue for the CFTC, not to go off on a tangent, is what is happening in the state versus federal fight over prediction markets. >> Yep. And and that is the states say it's like state gambling.

>> Yeah, that's right. >> When and federally there's no regime for prediction markets. Is that kind of >> No, there is a federal regime for prediction markets. It falls under the Commodity Exchange Act. So there are binary options or swaps. The CFTC has jurisdiction. So Kulshi is regulated by the CFTC. They have a what's called a DCM, a designated contract market license from the CFTC. The US app for poly market, it has a DCM and a clearing organization, a DCO. That all falls under the CFTC's jurisdiction. Um what the state regulators are saying is the NFL contracts on any of these prediction markets, the any of the sports contracts tennis Olympics whatever

should fall under state gaming regulation. And uh interestingly the CFTC put in a brief in the case against crypto.com over their prediction market saying actually we have jurisdiction and if you start eroding um uh if you start eroding our jurisdiction on the sports markets it's a slippery slope and then you're going to turn everything over to the states and that was never Congress's intent. So there's a big fight there >> and that's also what Chairman Celix said about um like if you try this we'll fight you in court. Don't don't >> Yeah. Yeah. That was his big we'll fight you in court.

>> Interesting. >> Yeah. >> And I guess one kind of orthogonal question. So everyone's getting these OC bank charters right now. Feels like there's going to be like 150 people with this license. What what what does that look like if there's 150 people that can issue like does that make sense to you or or or what do you make of that? >> Yeah, that makes sense to me honestly. Um well, it makes sense to me in the fact that um there's a regime to do it, but Morgan Stanley filed for one of these, >> right? I saw that, too.

>> Yeah. So, um I mean, when we're talking about like is this unfair to the banks, I don't know, you should ask Morgan Stanley, right? Like, everyone's taking a different approach to it. And I think that the interesting thing is um there was this carveout ingenious for like these non-financial institutions can't get these banking charters, right? That was a reaction to Libra and that Meta wanted to be issuing stable coins. And so there is this huge um push towards having stable coins on your back end if you're like a Walmart or a Spotify or whatever Shopify. And so there's a lot of opportunity for banks to get into this game. And I think the push against genius, as I said, is a temporary is

meant to be like a temporary setback so that everybody can catch up versus like an actual like we don't want this in the in the economy. >> So So maybe taking it a little bit back clarity is just like what I know it's whipsaw, you know, 20%, 90%, who knows? Uh daytoday, hour by hour. Um what what happens in you know obviously the the positive case it passes. Um maybe like a a pseudoadjacent question of that is is there a world where it passes but it doesn't include enough uh you know we've settled so much that it doesn't have the teeth that we want to include or or or do we feel like it's going to have enough where it will have material impact no matter what if it does pass.

And then the second question is what happens if it doesn't pass. >> Okay. So, let's do the last one first because that's like pretty easy. That's a status quo. So, everything you're seeing on the rulemaking from the SEC, everything you're seeing on rulemaking from the CFTC, innovation exemptions, all those things, that's going to keep going and probably will accelerate. So, we're going to be at the status quo where everybody will have continued to at the agency level to be pushing forward with these. We'll see it expedited. Uh we might see expedited challenges in court. That's great. Then we'll have the clarity we need um a lot of the things we care about. Um, if it passes with a lot of changes, it depends on what those changes are, but you're still going to have all the rulemakings that will give it the teeth you're

talking about. And we'll all have bites at the apple to put in our comments, to lobby the agencies and meet with them and things like that. It is a very strange feeling to I mean, I've walked into the SEC more in the past year than I did in the entire six years before. Um, so it's been a very interesting experience. a lot of receptivity just like people at the SEC emailing you like, "Hey, I have an idea. Can we chat?" Um, you're like, "Sure." Um, so I think if it I think I think we should all keep working towards getting it passed. Uh, it's a very specific moment in time. You have a lot of alignment. There are a lot of last minute issues and you have people on the Hill engaged and having learned about a lot of this in the last six

months. So probably worth it to try to keep pushing. Um everybody is still at the table as I said not just on yield but on all the other issues and we should be grateful to everyone in industry who's working on it. Huge group these are massive group calls when people talk about market structure whereas like I don't know when I first started doing policy there were like 15 of us in the room so and that was by you know nobody understood DeFi and so they'd be like call that person who's at a like she's a lawyer she probably can talk to us about it. Um, so this is a it it's really evolved a lot over the last six years. Uh, so grateful there. And then we have to be grateful to the staffers. No matter how hard it seems or how imperfect things seem, like they're

at the table, too. And they are so overwhelmed by hearing from industry all the time. Um, but they will show up and meet with you. And I think that's something, you know, very commendable. I >> I think, you know, it's probably like non-conensus within the industry right now. And it may feel for some who are not paying attention to it or or just like in conversations that we have that this is sort of like an existential thing for the industry. It's like clarity or bust. >> I I mean my my read is that that's definitely not the case. Um and we have a lot of different paths to getting to the regulatory clarity whether it's via clarity or whether it's via rulem plus you know clarity that direction that will get there. Is that your sentiment as well? It's like uh is this something

that we need or is this something that the right bill could be the right thing versus like we absolutely need this um to go forward. >> We're marking up text in small sections like that's pretty rare and like you know I don't I don't think yes you know I think people have said like no bill is better than a bad bill. understand that sentiment in many ways, but like we're pretty close. And if we can get it there and then do really positive rulemakings, I think that'll be great for the industry. But yeah, it's not like, oh, I guess it's I guess the industry goes away with no clarity. I think the industry will grow in a very different way and even more significantly if we can get clarity across the line. But

like the institutions aren't going to be like, oh, we started this whole thing, but we're going to put it all away. Like Morgan Stanley is not going to pull its bank charter or ICE isn't going to be like, "Oh, we don't care about poly market anymore, right?" Like everybody is going to keep moving forward on this. >> Yeah. Yeah. It's not I I guess the narrative that it's existential I just don't find to be real. >> It's crypto so you know if somebody every crypto Twitter feels existential. I like really don't go on Twitter anymore. >> I say and and price price uh price down means sentiment bad.

>> Yes. And I feel like I I feel like what's being built, as I said, is so uncorrelated with price, like unbelievably so. >> We we talk about this internally all the time, but you know, I I feel like in the last 12 months, we've been on uh a regime change path where it is um the movement in the direction away from sort of the crypto for for crypto native sake, but now bridging the gap between crypto and traditional markets, traditional players. You know, I I think to your point on the multi-billion dollar investment of ICE into Poly Market, they're not just going to like get rid of that or feel like, you know, oops, let's take that back. Like there's there's so much money and and the new OKX thing today at a $25 billion valuation, like there's so much money in this industry and and institutions are

trying to find their way in. I think we just don't see it every day because they're not interacting on crypto Twitter. >> They're building kind of in the background. Um and and so yeah, that's that's kind of like what we talk about a lot is like if you could only see what's going on, you'd be impressed. >> You're on Twitter, you have no idea what's going on. You just you feel the existential pangs. So I don't envy people. >> Yeah. I don't like to go on. Um, but what I have said a lot over the last year is like I'm so happy to be at Cheeto during this time because like if we're thinking about well the financial plumbing is really going to be crypto and maybe tokens are going to have different role than we think like a lot of what we're building that's not

even public is so tied into the plumbing behind the scenes. Um and it's actually really exciting to see a lot of the sentiment from like traditional players or players who are the intermediaries between crypto you know whether it be like uh just embedded infrastructure providers and stuff like that and the interest of just like landing transactions how do we do that and you know how do we get privacy right and our new product has a lot of privacy built into it and stuff like that so like being at jetto during this for me has been really cool >> and and same at framework we see a lot of really interesting ing pitches and it's fun to be in the liquid markets. So yeah, I mean clarity whether it happens or not it's kind of not up to at least

this group but I would agree with the poly market odds 70% right now feels pretty good and yeah I mean I think without it we can do rulem as well and status quo is generally fine with me. >> Yeah look it'd be better to know because I don't think people will stop asking for legislation if this doesn't go. So like and everybody's really tired. So it'd be better to get it done and across the line and we can like I think the hardest part is like we don't see it as much at jetto because we're really building infrastructure in many ways but like if you're building a dex if you're touching other things like you do want to have a lot of certainty around your business and look as a lawyer in this space um you do a lot of like I think it's this you know like I don't know

here's the you and you have to this is the right thing to do as a lawyer anyway here's the most conservative thing here's the least conservative. Here's the middle path, but like it'd be good to have like just a touch point. And I think for those of us who've also been through like a million market structure cycles, we're a little tired. >> Totally. >> Oh, I can I can I can feel that from the DC crew, but feels like we're almost there. >> Hopefully. Let's see how it goes. >> Yeah. >> Look, we can we can leave it there, but thank you so much for Rebecca for coming. This is this has been really insightful and I learned a lot. There's a lot of things that I uh I didn't know as well as I thought I did, but yeah, thank you for this.

It's fun to see both of you guys, too. >> I know. It's been a minute. Good to see you. >> Yeah.