The State of Crypto Regulation | Jake Chervinsky (SotN 8/17)

Transcript

[Music] hey bankness nation this is ryan sean adams i'm here with david hoffman we are here to present you state of the nation that is our weekly live episode david we got a hot episode today i can't wait to dive in why don't you give us a little preview we are talking to jake schervinsky who is uh the probably everyone's favorite crypto lawyer in the space he's uh part of the the compound protocol that's where he he got he's really his uh first big foray into the world of crypto but then he has become one of the uh most important resources for maintaining just uh getting up to speed and staying up to date with what's going on in the world of crypto

regulation there has been a ton of drama in the last two weeks so many different things to talk about so much has happened when i was dming jake about coming onto the show he gave the line that it was one of those weeks where decades happened uh and so we need to unpack what exactly happened and also where we are going with the world of crypto regulation yeah it's pretty crazy david like uh crypto has been in the news it's been in washington dc right it was a like a blocker it seemed like for the major infrastructure bill for a period of time we're a little bit past that so it'll be good to kind of recap what happened and get jake's analysis on what this means for crypto how we responded how we might do it next time what this means

for for the future of regulation the space so we are doing that um a few things what's new in bank list david we just dropped a fire blocks podcast uh yesterday with the ceo of fireblocks just a fantastic episode talking about the institutionalization of d5 this is one of those reasons where i'm actually hopeful on the regulatory front because i think some of the big players are coming into d5 putting a stake in the ground saying like hey this is a useful asset class it's not just for terrorists and criminals this is a legitimate thing but uh why don't you give folks a preview of that episode yeah on one side of the spectrum we have the crypto regulation conversation right that the one we had all of last week and the one that we're having today and then

we have the institutional conversation as well and these are kind of very similar uh parts of the overall story of crypto the people that are paying attention to regulation the most are the people like uh michael over at fireblocks and all of his customers and so they are the ones that regulation really really matters and so if you want to get the institutional side of this of this story and also just hear about what it's like to provide financial defy services towards institutions that podcast episode is exactly what you want to hear yeah and tomorrow david we're hosting a panel on dows decentralized autonomous organizations maybe just digital organizations as you and i also like to refer to them who's going to be on that panel when's it going to be how can folks tune in yeah it's going to be on

the bankless youtube live stream we got kane from synthetics we got cooper turley and we also got tracheopteryx from yearn coordinate uh and so these are people which with a ton of different perspectives a lot of real world experience to you know what is it like to actually build out a dao and be a part of a dao and daos are having a moment uh so many things in in the ethereum world are having a moment but dao's are especially one of them and so we want to pick their brains as to what it is like to be a dow or to do dow things what is that like tell us because they have the experience and i want to know about it we should also mention another opportunity that's coming down the pike for bankless listeners then opportunity is here tracer dao friends at tracer dao

they are launching a new perpetual pools primitive so this is a new d5 primitive for leverage positions so say you want to go 5x long on eth i don't know who would sometimes i feel that way maybe a 5x short on something else perpetual products are the way to do that they're huge in traditional finance they're huge on centralized exchanges they're not yet huge in d5 the question is why it's probably because no one's built out the best product for this yet um but tracer dow is doing that we always say on bankless david that the the best way to uh immerse yourself in the crypto experiences is to immerse yourself go join a dow this is an opportunity to join the tracer dao and help them launch this product and govern

it they are looking for people to get involved there will be a link in the show notes you can click it it'll take you to tracer dao's discord and there will be some ways to get involved in the tracer dow launch i believe they are launching these perpetual products sometime in september we will keep you updated on that another doubt another opportunity to get involved another way to join the crypto revolution here uh david i gotta ask you the question i ask in each state of the nation before we get into our conversation with jake and that is this what is the state of the nation today sir ryan the state of the nation is rallied we are rallied as an industry i think one of the biggest takeaways there were so many takeaways after the drama from the regulation last week and the week before but uh the

biggest one of the biggest takeaways is that the crypto community showed up in washington dc we showed up as a we made phone calls we sent emails we tweeted at our senators and then we had people like like jake and and the team over at coin center and so many other other people that participate in political discourse they showed up and they and i think everyone was a little bit surprised as to how much energy uh actually and i think uh the the just the regulators were also did not see how much strength there is in the crypto community uh and so i think everyone should be a little bit proud of themselves for for uh you know doing what needed to be done when the moment came uh and i think that's going to be indicative of the future and also a line of questioning that we have for jake as

well is his own reflections on how rallied the crypto industry uh was all of last week yeah i'm super anxious to hear this take i think rallied is the key word david i was proud of us man like people called their senators we got the word out crypter crypto made its presence known for the first time i think at the national level in a way that it hasn't before so super cool good state of the nation today guys we will be back with jake in just a minute but before we do we want to thank the sponsors that made this episode possible living a bankless life requires taking control of your own private keys not your keys not your crypto that's why so many in the bankless nation already have their ledger hardware wallets which makes proper private key management a

breeze but the ledger ecosystem is more than just a secure hardware wallet ledger is the combination of the ledger hardware wallet and the ledger live app and if you're used to seeing all of your crypto services and favorite d apps all in one place ledger is where you want to be not only does ledger let you buy crypto assets straight from the app but it also hooks into decentralized exchange aggregators like paraswap which makes sure that you are getting the best prices on your trades without your assets ever leaving your control defy never stops growing and the ledger live app grows alongside with it so click the link in the show notes to see all the defy apps that ledger live has and stay tuned as more and more apps come online and if you don't have a ledger hardware wallet what are you even waiting for go

to ledger.com grab your ledger download ledger live and get all of your d-apps all in one place bankless is proud to be supported by uniswap uniswap is a new paradigm in asset exchange infrastructure instead of a cumbersome order book system where trades are matched with other humans uniswap is an autonomous piece of software on ethereum which is what ryan and i call a money robot no human counterparties or centralized intermediaries just autonomous code on ethereum input the token you want to sell and receive the token you want to buy something brand new in the uni-swap ecosystem is the uniswap grants program is now accepting applications for grants we have been saying this for a while and

will say it again dows have money and they are in need of labor if you think that you have something to contribute to the uniswap dao apply for a grant to uniswap just look at the size of the uniswap treasury it's almost 3 billion dollars this mountain of capital is looking for labor do you have something of value to contribute to the uniswap dal no matter how big or small your idea is you can apply for a uni grant at unigrants.org and help steer uniswap in the direction that you think it should go that's exactly what we did to get uniswop to be a sponsor for bankless and you can do the same for your project thank you uniswap for sponsoring bankless guys welcome back we are so excited to present you once again jake travinski

not his first time on the podcast he is general counsel at compound finance he's a strategic advisor to variant fund defy chair at the blockchain association none of this is legal or financial advice in fact jake uh first i'm gonna ask you how you're doing and then i'm gonna ask for your customary disclosures but uh let me ask how are you doing are you sleeping well these days i'm doing great it's great to be back with you guys i am not sleeping as much as i'd like but that's just part of the job right crypto never sleeps um no complaints about that and thanks for getting my disclaimer started i'm sure this will sound familiar to everyone i am a lawyer but i am not your lawyer i don't represent anyone in the audience so nothing i say here is

intended as legal advice also as you mentioned i am general counsel for compound labs incorporated but i'm not here to speak on behalf of the company just here to share my personal thoughts on all the craziness that's been going on in dc lately well that's what we want is your personal thoughts and i'm going to start with this question before you get into the story of the infrastructure built but like give us high level is crypto winning or are we losing in washington these days wow um i i would say both at the same time if that's an acceptable answer i think look i think we're we're sort of fighting a war on multiple different fronts in dc and we're winning some of those fronts and i don't want to say losing but i would say we're struggling a little bit more or we're fighting more of a war of

attrition on some of those fronts um i think just like a quick run down there is i think that in terms of our organization in dc right the strength uh and the coordination of our policy infrastructure we're doing an unbelievably amazing job of that we're building up really well we're you know gaining more influence in dc we're getting more effective i think that's great i think we are also getting through to a lot of elected officials you know you hear a lot of these senators and other members of congress saying really positive things about crypto and the promise of innovation that we haven't heard before so i think we are breaking through i think the problem is especially in the executive branch and and most especially within the treasury department uh we

have a tough fight ahead of us so i guess we're sort of winning and also struggling a little bit as well jake i would like to ask how did this thing come into your attention like all of a sudden like people who like don't pay attention to like the legal and regulation side of things we only know uh when something like this is relevant because people like you guys tell us but how do you find out when something is relevant and how did the story of the infrastructure build come onto into your into your brain yeah so so usually with things like this those of us who are working on policy get a heads up pretty far in advance of when something like this major legislation related to crypto for example is gonna come out uh and then we're sort of working behind the scenes

to try to influence how that legislation will look before it becomes public or you know to try to you know convince folks that they're either heading in the right direction or the wrong direction etc this was not one of those circumstances we were all just as blindsided as everybody else you know out there watching this in the public um we found out and when i say we what i mean is the blockchain association which is the industry's premier trade association in dc and that's the organization through which i do all of my policy work we found out about the tax provision related to crypto in the infrastructure bill on a friday uh nine days before the language was

released in public and it was sort of an especially shocking situation because ba had been working with members of congress including including senator portman who was the lead republican negotiator on the infrastructure bill for many months on what could be included in the infrastructure bill related to crypto and when we finally saw the language expanding the definition of a broker and we can get into all of that we were totally blown away by this so really we had about a one week lead time on everyone else finding out about this behind the scenes what's what's your explanation for why jake like 11th hour i mean it seems like it was it was

almost snuck in it seems malicious it seems nefarious there seems to be something shady going on is that one possible explanation are there other explanations it's definitely a possible explanation i always try not to assume malice when you can assume it incompetence or at least you know some other um some other reason other than someone really you know trying to pull one over on us i think to give the charitable view of how this happened i think that the negotiation over the infrastructure bill was very tense and very hard for the senators to come to an agreement on what should be in the bill and that had nothing to do with crypto right this was a major piece of legislation it proposed

1.2 trillion dollars of new spending and there was a huge effort within the senate to try to work out pay for provisions which are provisions in the bill that raise new revenue to offset the new spending so in a perfect world if you're going to spend 1.2 trillion dollars of new spending you would also raise exactly 1.2 trillion dollars of new revenue so that you don't have to run the money printers anymore right which is at least in theory something that the us government shouldn't be trying to do right to increase the size of the debt and the deficit and there was a really hard time working out pay for provisions to cover enough of the new spending and crypto just got caught up in that right that there is

this um i guess you could call it a meme there's sort of a narrative within dc about tax evasion in crypto there's this idea that most of what crypto is used for is people who are either intentionally evading taxes or people who are just trading on decentralized exchanges or even on centralized exchanges without a whole lot of oversight and who just aren't paying the taxes that they owe on capital gains so the view in congress was hey we need to raise more money in this infrastructure bill crypto is sort of just a natural uh you know industry for us to go after to try to raise more money i think that's that's the charitable explanation i think uh maybe we'll get into this a little bit more i think um to put my tin

foil hat on for just a second i think the other thing going on behind the scenes here is a push from the treasury department to achieve the goal that they tried to achieve in december and january with their proposed rule that secretary mnuchin was pushing that was the last time i came on state of the nation i guess i i only come on when there are crises in dc yeah when there's bad stuff happening yeah exactly that's okay i'm happy to play that role um but yeah i mean i think part of this was treasury trying to expand its jurisdiction and also to expand its warrantless surveillance over a peer-to-peer financial system through the infrastructure bill even though they had failed at least so far to do so in

the proposed role from secretary mnuchin seven or eight months ago that that second possibility that it's not incompetence that that is malice that it's treasury trying to push this in is one we're going to explore a little bit later and is uh particularly troubling but but could you talk about the the language itself why was the language uh so troubling what would it mean for the crypto industry just give people the tl dr yeah so what you know without reading you the very vague and very hard to understand language from the bill the short version is the tax code imposes reporting requirements on types of u.s persons called brokers and by person that could be an individual or a company or an

association of any kind brokers under the tax code have to prepare form 1099s everyone should be familiar with this right if you have a securities brokerage you get a 1099 from them at the end of every year or at the beginning of every year to help you understand what your capital gains or losses were and therefore what taxes you owe to the irs and brokers also have to provide that same form 1099 to the irs including all of the kyc know your customer information that we always talk about that means the name of whoever was uh you know committing some transaction and their address their phone number their social security

number right all of these other pieces of personal identifying information the infrastructure bill's tax provision would expand the definition of these brokers who have these reporting requirements to include basically every single actor in the crypto markets the definition says anyone who is in the business of regularly providing a service that effectuates transfers of digital assets is a broker so what that means is in theory miners might have to do form 1099s for any user for whom they uh you know include a transaction in a block uh potentially liquidity providers in decentralized exchange protocols

could be captured by this requirement and have to kyc all of the users of a dex protocol or d5 interface providers right which includes most of the major d5 developers and also aggregators in theory could be captured by this and then something we haven't even started to discuss publicly i think is how this impacts nfts you could imagine nft marketplaces being captured by this even in theory content creators themselves could be turned into brokers under the tax code and of course everyone who's listening to this probably understands there is fundamentally no way for these persons to comply with the irs reporting requirements that are usually imposed on centralized custodial intermediaries

those types of companies can do this type of reporting they have direct legal relationships with their customers they can ask for that type of kyc information there is no way that a miner or a validator is going to get all of the kyc information for every person using a public blockchain so that's hopefully a good sort of short explanation for what the issue was jake i was i was uh joking about this on twitter but it's almost like the irs wants you to tell them every time an axi infinity is mating do you know like that's how ridiculous this is right like yeah these digital objects don't work the way this language thinks that they work right and that's where you know so you said you know maybe it's

treasury being malicious i think it's possible that it's still just treasury being incompetent i i hope that you know for treasury folks listening to this they don't take that personally i don't mean it in an insulting way i just i honestly do not think that they understand the scope of this language um because i think you're exactly right the definition in the bill for a digital asset is any digital representation of value recorded on a cryptographically secured distributed ledger which means basically anything on a blockchain and it's just it's insane to imagine that the treasury department actually wants people to have to do you know tax reporting for for things like axi it just doesn't make any

sense maybe a possible explanation and i want to get your take on this one is that it doesn't even matter if they understood how overreaching and how nonsensical these uh asks are maybe they just wanted to ex like you said extend their jurisdiction as far as possible and then at some point time it'll get rolled back to what's reasonable but you know you don't start with just asking the minimum amount you start with asking the maximum amount regardless of whether it's it makes sense or not and then and then through negotiations and compromises it gets rolled back to a more reasonable level but you still got a lot of what you were looking for how does that like explanation land with you that's spot-on and that's it's a really good point and and the thing to remember

here is what we're dealing with is an amendment to the tax code but the amendment itself isn't all we will get before a law like this gets enforced we will also in all likelihood have a rule making process from the irs to further define who is actually captured by this new broker definition right if all you do is look at the broker definition i think it is truly impossible to know who this applies to and who it doesn't but just like we had that notice and comment period with fincen when they proposed rulemaking around the bank secrecy act so too will we likely have a notice and comment period and rulemaking from the irs and that i think is where we will actually work out who does the treasury

department right the irs is part of treasury who do they think that this should or should not apply to but their goal at least in uh in congress in drafting the legislation is to secure as much authority as possible to make it as hard for us as possible to challenge them if they do decide to have a very broad interpretation of this rule right think of it as a weapon in their arsenal that they can use down the road if they want to but it's up to them right and the more authority they have right the more room they have to to interpret this language probably well we inevitably always knew that this fight was coming as as many bitcoiners will illustrate

the state always wants to grow and grow and grow and at some point we are going to come to a head with that and the industry as we all know stepped up and a lot of people started you know after they identified how uh how big this problem was a lot of people started working on trying to get compromises in so so jake who who would you say where what groups started to form in order to like you know uh fight this if that's the right uh word to approach this what coalitions uh you know uh coordinated around various amendments who were the groups that that really uh came to the head when uh when we as an industry realized that there was something that we needed to tackle here yeah so i'll i'll give you a few specifics for the folks who who i think

we're most involved but let me start by saying the entire industry basically without exception got together and coordinated to fight this it was truly an unbelievable experience for me in dc just seeing all of these different companies and different stakeholders who frankly have a lot of different you know concerns and a lot of different things that matter to them coming together to fight this one thing and that's something we often see in crypto when there's a real threat we put aside all of our other disputes about which layer one is gonna win the smart contract fight and bitcoiners versus ethereums and all this stuff and we just focus and get the job done and i think that really is amazing so i don't mean to leave anybody out of this i i think everyone did a phenomenal job but in terms of of

the core group that i was involved in and that was uh you know in touch with the senators who were trying to fix this it starts with the policy organizations so that's coincenter which is an independent nonprofit think tank in dc and the blockchain association like i said the premier trade association for the industry in dc then there were also a bunch of the really large well-established crypto companies in the us that have their own policy departments internally or have hired their own outside lobbyists um primarily that was coinbase uh also square ribbit capital a couple of other venture firms so some of these really big players we all sort of got together at least once we realized that we were

really going to have to fight this thing out and once the language went public and we realized we weren't going to find a fix uh sort of through behind the scenes discussions we sort of got together in a signal chat and on many very long sort of endless feeling uh video calls to try to work out some kind of solution to this what was weird about all this jake is like um the the amendment process right too so we we had the initial infrastructure bill had this language that makes everybody a broker right that's kind of the tl dr and then uh we had some hope because uh senator uh blumus and some others who i'm not gonna remember all the senators on on

the amendment but they came up with a provision that would sort of carve out some key groups like software developers stakers miners that would be affected but then carve that them out and make sure that um the bill didn't qualify those as brokers so it felt almost like uh mission accomplished right like it felt like we were headed towards it on a good track uh and then some other amendments came out that were much more watered-down versions of those some of which maybe the treasury got behind i'm not actually sure kind of the internal politics but can you tell us like what what happened with that amendment process and i'm particularly interested

in this like it seemed like with one of the amendments the more watered down one from senator mark warner it protect just mining it didn't protect defy it didn't protect software developers it didn't protect staking and that was a compromise that some in congress and and maybe the treasury were willing to make like why does that mean treasury is is more concerned about defy and staking and some of this this other area or does this not imply uh anything like that um so well to answer your question directly this is all about d5 i mean i think we have to acknowledge that this is the treasury department wanting to

figure out how to get jurisdiction over defy the the thing about bitcoin alone and this is why all of us are interested in d5 in the first place right is if you are trading bitcoin you're doing it through a centralized exchange the centralized exchange is already subject to the treasury department's jurisdiction so the treasury department isn't that concerned about tax compliance or frankly surveillance of bitcoin transactions defy is totally different the treasury department wants to know if you're buying and selling assets on uniswap or sushi swap right or some other decentralized exchange who is responsible for reporting those transactions and those capital gains to the irs and how can they figure out who the people are who are transacting

through those systems that really is what this is about but let me step back and give you sort of the short version of how the amendment process went from start to finish when we first saw this language we had about a week before the language was public and so we thought at the time this has to be a mistake this doesn't make any sense we just have to explain to the senators why they have gotten this wrong we found out very quickly that it wasn't just the senators misunderstanding it right that the treasury department had played an important role in drafting the language and also that any revision we proposed was going back to the treasury department for their approval or rejection wow so at first we started by saying let's just remove this provision

this is a huge mistake we need to actually talk about how to solve this problem not attach a very meaningful impactful provision to must pass legislation with only two weeks to actually discuss it that was a non-starter again because the purpose of the provision at least in theory was to raise new revenue to offset spending and the provision had been scored as raising 28 billion dollars in new tax revenue right in unpaid crypto taxes no idea how they got that number no idea how they even possibly could but setting that aside the story was there's no way we're removing this we need the money in the bill we then tried to advocate for a

different version that would only capture those centralized exchanges and custodians that have customers that are already doing kyc that frankly have already agreed they should be doing this reporting and have no problem with it they just want guidance as to how to do it properly and again we were told the treasury department was not okay with that solution and the reason we were given was they weren't sure that it would adequately capture d5 so that's why we couldn't get the language changed to only capture the centralized exchanges the bill was then published and that's when we started this public process of trying to work out a compromise amendment we were very lucky to have senators wyden lumis and toomey

a bipartisan group get together to propose language that carved out exemptions for some of these crypto market participants that just fundamentally cannot comply with the requirement that included minors and the way the original amendment read said the language should not be interpreted as applying to any person solely engaged in the business of validating distributed ledger transactions right that would cover minors of any kind whether it's proof of work or proof of stake or proof of authority or some other consensus mechanism that we've never you know thought of before the treasury department and again this is what i'm told through hearsay but

this is at least as i understand it the treasury department was worried that we industry would try to say validating distributed ledger transactions is what dex lps do or is what lightning nodes do we would try to say that exemption applies to more than just layer one miners and stakers and as i understand it that's why we then got a competing amendment that specifically said the exemption is only for proof-of-work minors and we obviously that's insane so well i'm sorry to keep rambling on here but just to finish the story um

that proposal came from my senator mark warner a democrat from virginia and the the real issue there was uh as we've heard from elizabeth warren for a while there's a big environmental argument about proof-of-work mining so the idea that you would carve out an exemption for what is viewed as the really bad horrible climate change causing ocean boiling proof-of-work mining but then not have that exemption for proof-of-stake validators that just that made absolutely no sense and so eventually we were able to work out at least the senators were able to work out a compromise amendment that did cover validators of all kinds it wasn't a perfect amendment but it was at least

something that helped us clarify the boundaries of this new definition and that's what we went into the very final day hoping that we would get past and unfortunately we were not successful there is so much to unpack here and i really want to illustrate what i'm seeing as a result of this particular part of the story because i think this particular part of the story has so much meaning and importance in it the the treasury department or the people that were trying to introduce all of this overbearing reporting requirements carved out were okay to carve out a proof-of-work section to that protected miners because they were going after d5 because they needed some sort of route to like you said jake capture defy

all of these things all the you know the lps validators all the d5 stuff if they if everyone has to report uh as individuals then that is how uh this uh the treasury department or just regulation at large can capture defy but it's already but we know that it's completely nonsensical by the very nature of it because of all the all the same all the reasons that we've discussed the but this is exactly what ryan and i talk about when we talk about the bankless thesis you can't actually capture defy that's the point and i think one of the reasons why this has this elevated itself to such a massive story both inside of crypto and outside of crypto is because of the inherent

frictions between uh distributed blockchain technologies and the nation-state like it's designed to not be captured meanwhile the nation-state is designed to capture uh and i think one of the reasons why this story is so big is because this is the first big moment that these two things finally came to a head in the senate and will probably likely do that into the future and and to me i actually feel a little bit validated by by what happened here because it's explicitly validating of the bankless thesis is that you need a distributed proof of stake smart contracting platform in order to quote unquote live a bankless life those are my takeaways from from this part of the story how do you feel about

that i think you're right on track i mean i do think there is at least in terms of how traditional regulation has been done there is uh there's a deep conflict between how dfi operates and what the government expects from a traditional financial institution right and i think this this tax issue is a really perfect encapsulation of that typically the way the irs figures out what taxes it is owed is by deputizing intermediaries in the financial system to report to them who owes what and that just doesn't work in a financial system the purpose of which is to remove intermediaries from peer-to-peer or peer-to-peer transactions now my

idealistic hope is we can find a way to make sure that people who owe taxes are paying the taxes that they owe without also saying the solution here is to require intermediaries and all of our financial transactions and also to require warrantless surveillance of every u.s person and everybody else in the world who could even possibly owe taxes because to me that's just that's the wrong approach to the financial system from the first place um whether we will be able to figure something like that out i think is an open question i think you guys hopefully will agree with me that we spend way too much time trying to figure out how to pay our

taxes right like most people here are not trying to dodge taxes we would love to have better tools and better resources to get that right it's just a question of is government going to try to fit the square peg of defy into the round hole of an intermediated uh regulatory regime or are we gonna have the freedom to innovate and figure out a better way to make this work yeah what's so weird about this is like and part of the bankless platform from like day one has been like hey like if you're in a jurisdiction pay your taxes where you have to like these things are treated as capital gains what's so interesting to me is like this um was it 28 million or billion excuse me i don't understand where they're coming

up with this number because crypto's tax obligations haven't really changed what they've added is like surveillance and reporting type obligations but the the the tax obligations themselves being treated as capital gains or not hasn't changed at all which is super interesting so this this kind of begs the question because you kept going back to like talking about um treasury's influence on this and what's super interesting is like i don't recall ever electing you know treasury secretary right like why is treasury so involved in an infrastructure bill for one now like that's one and then why are they involved in kind of setting this this

kind of policy so can we have a conversation about like who who do you feel is is out to get us in this bill and by us i mean the defy movement the bankless movement the crypto movement and why what are their motivations jake yeah um i totally agree with you i find it pretty disturbing i think i would say it's pretty un-american for the treasury department to both write the laws and enforce the laws that is not how our system of government is supposed to work it is congress's job to write the laws and its treasury's job to enforce the laws i think it is totally fair to say that congress can consult with an agency that has expertise about how the law will be

enforced but the idea that secretly behind the scenes isn't the senators we're negotiating with or trying to explain these issues to it's some unknown bureaucrat buried in the treasury department to me that's that's um it's a deeply troubling situation to be in in terms of who is it i actually don't know and again that's part of the problem right there are folks over there who are having an outsized influence on the legislative process who are unknown to us in industry and also unknown to the public and the idea is if we are being properly represented in dc we should be able to hold our elected officials accountable for the decisions that they make that's very hard to do

when these decisions are are coming from unknown sources within the uh the executive branch i think though just to give you my best answer to the question i think it's the same people who we've been having this uh conversation slash debate with for a long time uh which is folks within uh the terrorism and financial intelligence division it's folks within fincen and within ofac the office of foreign assets control and the financial crimes enforcement network uh and i think it's it's people who are working with the fatif on new anti-money laundering regulations i i don't know that for sure there could be folks in the irs who are involved in this as well uh to me it's just we should know who

these folks are and what they think and be able to actually talk to them about it rather than having this process play out what are your best guesses on what they want like specifically what do they want so i guess two things um one is it's really hard to save a uh even though i've been saying it already for the last half an hour there are a lot of different people within government with a lot of different interests and that's true even within treasury and a great example of that is the former acting director of fincen michael mosher who was one of the greatest supporters of crypto innovation within treasury uh and you would imagine fincen as being sort of the the you know ultimate enemy

of crypto because fincen's goal is to surveil everything and crypto is a financial system that is hard to surveil that's not true because there have been folks even before him uh director blanco and before him uh you know director calvary there have been a lot of people at fincen who have actually been very constructive on the industry so it's really hard just to say they and have any real sense of what you're talking about but i think in terms of like who are the stakeholders who have an interest in this i think there are a few i think there are the people who genuinely just want to want people to pay their taxes and that is hard to disagree with right people should pay their taxes and it's okay for the government to carry out efforts to figure out who is and who is not paying

their taxes then there are folks who want more surveillance over defy in general because they think that defy is an illicit finance risk right this is the anti-money laundering piece of this maybe it's not really about taxes it's just about knowing who is using this system so that the government can surveil their transactions and figure out if they're doing something that the government doesn't like and then i think the furthest and maybe most problematic view that is held by some but hopefully not many is crypto is just bad right a financial system with no intermediaries is simply worse than the financial system that we have and really what should be done is

we should use distributed ledgers only in the enterprise blockchain sense where you create permissioned pools and all the same laws apply in exactly the same way they always have in the legacy system because why would we do this any differently we should have financial exclusion as the presumption and only let people get access to financial services if they can prove who they are and that they're not a bad guy and that really this law is just leverage to try to accomplish that ultimate goal of basically destroying everything that we're building and again like i'm putting my tinfoil hat on assuming that that is the policy position of the united states government i do not

actually think that it is but there are some folks who i i believe would prefer to see a world of of you know only permissioned pools and nothing that looks like the d5 that we're that we're excited about here jake the last time we had you on it was right after the fincen proposed rule which was kind of the same energy as as this whole uh debacle with it with the tax bill same sort of like reporting requirements or same sort of attempted capture of the industry um by by regulators right and we speculated at that time that you know well it makes sense that steve mnuchin who we you know suspected was really leading this effort well he's like friends with a bunch of bankers and there's a lot of you know people in that particular industry which would love for these these regulations

to come in and really disrupt our industry there's definitely a side of the the of the world that could have been lobbying for this regulation and against our industry do you think that uh show that um side of the conversation is even relevant were there people maybe lobbying behind closed doors that we don't really know about who are trying to get something like this included into the bill it's possible um and i understand the logic behind it right the assumption that the bank lobby is really behind all of this i haven't actually encountered anything to suggest that that's the case and nothing that i heard from

you know hill staff or uh you know from any of the folks we were talking to suggested that the bank lobby was really a big player in this i really do think this was much more about making the numbers look good on the overall infrastructure bill and also accomplishing this uh somewhat um hidden agenda that the treasury department has now is the bank lobby uh you know supporting a provision like this yeah sure um of course they they like this right they're not our friends they've gone out of their way to write um material that makes absolutely no sense but attacks crypto as a whole including just attacking bitcoin um so you know i'm not saying that the the bank lobby is

friendly to us at all i'm just not sure that we can blame them for this you know what's interesting jake is i kind of contrast uh this position with like the position that um that china is taking towards cryptocurrency right where you know china is much more explicit get it out we don't like the chinese government does not want uh free money cryptocurrency in their economy at all they don't even want mining to occur within their borders right what's really interesting is um we had richard turn on the podcast who who wrote a book called cashless about the chinese central bank digital currency is rather than stick with a status quo shitty banking system that they had you know analog paper garbage they actually allowed their big

tech to come in and eat that industry and essentially become the new fintech the new banking which is an interesting approach right it's like very explicit like china doesn't want crypto inside of its borders the government at least and uh so but but it is digitizing its system through a centrally controlled apparatus partially through big tech and then eventually they're on central bank digital currency feels to me like the us is is like if they're against crypto they're picking the worst of all worlds because they're just propping up the status quo banking system that is terrible in the united states like our banking system compared to crypto like writing checks versus sending usdc it's absolutely

insane like the difference between those two and so it feels like this uh i don't know half-ass authoritarianism where we're like not even doing that well we're just like keeping the status quo we're not going full china on the thing and digitizing the system and making it centralized but actually making it good and centralized and we're trying to suppress krypton i say we and i'm not saying that the the story is written and that this is the policy but there are some in that third camp in government who clearly kind of want that who clearly want to suppress crypto but the irony is they're not even providing a better centralized solution are they they're just keeping with our status quo banking system no wonder we're angry no wonder we're rebellious right like

uh we just want a better banking system we see this in defy we in you know and we're not getting it so i don't know if you have comments on on on that but like what what is the us's um approach to this digital currency revolution like what's their strategic plan do they even know that they're playing in this game i do not think they know and i do not think that there is a strategic plan and i think one thing coming out of the trump administration which had no national strategy for crypto right it was just sort of whatever agency had had a view on crypto they did whatever they wanted within their own world and that's why we had secretary mnuchin trying to you know go

after crypto at the same time as we have brian brooks at the occ who was you know one of the most constructive of any regulator we've ever had um and i think coming into the biden administration there was a lot of hope that the administration would have its acts together and come up with a holistic national strategy about how digital assets would fit into the future of the financial system as supported by the united states of america and we have not seen that yet and unfortunately because the administration and i'm not blaming them at all right the administration has tons of other things to deal with but i think what's happened in the void of a clear message from president biden and his team on how the

agencies should approach this issue the void has been filled by other loud voices like the voice of senator warren so you know this all kind of started a few months ago when she really decided to take on the mantle of hostility against crypto right she really decided i think very affirmatively that her view on crypto was she was going to be an antagonist and she was going to push negative narratives even where i think those narratives are not true or not based in fact and i think what's happening now is because she is a very influential member of the senate a lot of what we hear even from folks like gary gensler you know i think this goes far outside of

just the scope of the infrastructure bill what we hear is language that follows what she is saying because she's the one who's setting the tone from the top and i think that your reference to what's happening in china is so astute because this is the conversation we need to have with the administration and it's not an anti-money laundering question or a tax compliance question it's a national security question and it's a geopolitical foreign policy question right where are we positioning ourselves when we have one of our greatest foreign adversaries china trying to take over the world through the global financial system right and they have a very clear path that they're that they're trying to

sort of push their own interests through in in the uh you know in the digital yuan that they're trying to spread around the globe we need to have a a policy to address that concern and i think that is really where we're going to make progress in dc is talking to those folks who understand the more important us interests at stake more so than is there someone who traded on uni swap who we can't identify who like sold matic at a 10x and isn't paying their taxes right i think that's the conversation we have to start having jake i want to get your perspective as to how center stage this all this drama was when we're inside of the crypto world we kind of think that we're the

center of the universe right and ultimately every everyone's coming to crypto no matter what but from the outside of the crypto world maybe this was just like a blip on the on just the overall story of congress because that's this is what they do they debate about things and then they move on how big of a deal was crypto because it's so it seems like it could have been like the center of the whole entire world for at least a brief moment in time like can you kind of uh put into perspective how big this thing was uh this is a big deal i think we should not undersell this um a four-page section of a 2700 page bill held up the entire bill for about four or five days

just because of crypto that's a really big deal and as that was going on you saw articles in all of the major newspapers about the crypto industry's newfound lobbying muscle in dc and crypto hit the radar of a lot of people who had never thought about this before i was getting calls and emails and texts from people all over the place who never talked to me about crypto saying hey i just saw this news article or i just listened to this podcast and it was all about the you know crypto provision in the infrastructure bill that is really really crazy and it is a really big deal now not to oversell it either there were other amendments that also held up the process we didn't ultimately succeed in getting the amendment that we

wanted so i don't think you know we can like claim victory just because we made some headlines but this really was a turning point i think for our position in dc and also just sort of in the public consciousness uh just because of how effective we were at uh at spreading our message um in the face of all this jake it had to be the first time that like many senators were talking about these things like terms like staking terms like decentralized finance actually understanding that i wonder if the term uniswap was was uttered on the hill uh sometime that day so that in and of itself as dave and i often say the most bullish thing for crypto is to be understood that in and of itself is a small victory wouldn't you say

yeah definitely and i think you know here's one weird thing throughout all of this as we were explaining how potentially devastating this provision could be the price of everything just kept going up right which a lot of people reached out to me to be like this is really so bad why doesn't the market agree with you and look i i'm not gonna speculate on what the market is thinking because who knows what the crypto market is ever thinking about anything but i think one good answer is yes this bill is a threat but more important than that in the consciousness of market participants was how effectively the industry was able to rally and defend itself in dc i think a lot of people came away from this investors

thinking man the biggest fear i had about putting money into bitcoin or ether or what have you was regulatory risk because i thought if the government decided it didn't like this industry it would just steamroll the industry and there's nothing anyone could do to stop it and that is obviously not true right this isn't even the final boss we could talk about what the final boss is this is like an intermediate fight and we did an extraordinarily good job of showing how powerful we are fighting against that and to me that's more bullish than it is anything else well jake you actually just answered the next question i was going to ask which is like you said we lost the fight we the amendment did not the amendments that we wanted did not get included but everyone seems really optimistic about

the future with regards to the relationship between the crypto industry and regulators while the perspective i've had is that this regulation was so incredibly bad and backwards that it was actually bullish right it was it's so unenforceable and and no one like at me as like uh i mean i guess i'm not much of a service provider but like even if i was say for example i was dan finley at metamask i i personally wouldn't feel too threatened just because of how nonsensical this whole regulation was meanwhile we had like a fantastic like real life fire drill that actually illustrated to the world and to ourselves that when the time comes crypto shows up to protect itself when

uh in in dc right uh and so my opinion is that this is one of the most bullish events for crypto that we've ever seen and largely to your point uh we are now starting the era of crypto regulation this kind of feels like a starting pistol for that and it starts off as something just like crazy and chaotic and weird but at least it gets the ball rolling and so people that perhaps were scared about this industry can now see the process of crypto regulation uh begin to unfold and become more and more comfortable with it any reflections on that uh i totally agree with that i think um i think a couple things about

why it's okay to be bullish about something that seems so bad and i could be accused of being too optimistic about this but this is just my this is my perspective i think first of all this fight is not over right we didn't get the language amended in the senate but we will have another shot in the house now i don't want anyone to get too excited about that for procedural reasons it may be difficult to get an amendment in the house but even if we don't get that we could in theory get new legislation pushed through that fixes this in the future right and we have friends in congress who are already talking about the next bill that they can start moving through a fix to this uh to this overbroad uh provision also we have this rulemaking process

that we expect with treasury to actually define what does the broker definition mean who actually has to do this reporting and i think that even though we didn't get the amendment through that we wanted the treasury department has backed down a lot in public from its original position so when this started we heard reports that secretary yellen herself was making calls to senators to lobby against the wyden amendment that we were in favor of that treasury was supporting the warner amendment which was this competing amendment that only covered proof-of-work mining but after we had had this whole fight and i think after a couple things happened i think

one was senator warner realizing that he had maybe not fully understood the the impact of the language that he himself had proposed i think also folks in the administration learning more about what was going on i think treasury realized it wasn't on as strong of ground as it thought it had been realized that it really couldn't steamroll the industry and backed down from its position about using this language to try to go after d5 so we're hearing now that there's going to be guidance from treasury explaining who this really applies to and maybe it is only going to be interpreted to apply to those traditional brokers right the centralized exchanges and custodians etc and if that's the interpretation then great that's not really going to impact

the d5 market at all so that'd be a fantastic result and then even in the worst case scenario i don't think we could overestimate the capability of the developers in d5 to engineer their way around regulatory issues and that sounds kind of like an inappropriate thing to say i don't mean it inappropriately at all what i mean is what we have done so far in defy is figured out what are the issues that regulations are trying to address in the traditional financial system and then how do we build technology that natively solves those problems without having to coerce intermediaries into solving those problems for us and i'm very confident

that if you just tell us what the law is and give us 15 months of development time the d5 market structure could change in a pretty incredible way but in a way that would be very resilient to a regulation like this even if it's interpreted in a hostile way so i'm still feeling really good about the future of d5 we've got a lot of fighting left to do um but yes i think it's totally fair to be bullish coming out of this well that's really great and jake we have so much more to talk about including maybe uh other reasons you're bullish maybe we could talk about uh what good regulation looks like maybe we could talk a bit more about that final boss battle that's coming up and how to prepare for it but before we do guys we want to thank the sponsors that made this

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a user keep an eye out for your favorite defy apps building on arbitrage arbitrary has been working with over 300 teams including ethereum's top infrastructure projects and will be opening up to all users shortly there are so many apps coming online to arbitrary so you may want to pack your bags in preparation for the great migration to the arbitrary layer 2. to keep up to speed with arbitrary follow them on twitter at arbitrom and join their discord hey guys we are back here with jake trevinsky talking all about the regulatory situation in congress um jake jake i want to read something that ryan selkis said by the way ryan's coming in the podcast bankwest listeners pretty soon so we'll get his take directly but

i think this tweet really resonated i'm just going to read it out ryan selkis said i'm sick of feeling like we have to apologize for our early stage and walk on eggshells around politicians and regulators we built a two trillion dollar financial market from scratch in less than a decade with absolutely no institutional help and active encumbrances from government and then he goes on to say meanwhile banks give you 0.025 percent interest i i won't read the entire rant but like that feeling of man why should we have to walk on eggshells about this stuff like crypto should be proud of what it's built and we feel like i think ryan's speaking on

behalf of the industry like we feel like congress should recognize that everything that america has helped innovate i mean many of these d5 founders and entrepreneurs are based in the us like what we've built we should be proud of that what what's your take on that tweet and that and that energy uh well i agree and it resonates with me too and i think ryan is is really on to something here so let me tell you first my thoughts about the tweet and then the context of like what ryan is is doing right now which i think is exciting and worth talking about um it is very frustrating to feel like we have to apologize for everything that's happened in crypto and i think there's sort of two ways that i personally experience this one is

the view of crypto and this look it's understandable for people who are not in this day-to-day the view of crypto is more of dogecoin than it is of defy right most of the perception of what's going on in crypto is just speculative trading of meme coins and people who are gonna get you know wrecked putting money into illiquid jpegs just like they do putting money into call options on games uh you know uh gamestop at the top of um you know wall street beth's uh powered uh rally so i think a lot of what we have to do does feel like apologizing for what the industry has accomplished even though the focus is on sort of the less important or the less exciting

innovation right and more on sort of the messy trading of what's going on and that that is frustrating the other part of it is we often get asked questions about the promises that we that we discuss that that defy could have for the world right we talk about financial inclusion we talk about everyone having access to the same quality of financial services no matter where they are and what their background is and all of these other major benefits of innovation and what we get asked is well why isn't this happening yet why aren't there six billion people across the world using these systems uh why do you keep talking about financial inclusion where is the evidence for it and it just feels like talking about the internet in the 1980s

and i don't mean in the 1990s right we always have this conversation about oh is it 1992 in cryptocurrency or is it 1999 in cryptocurrency i think we're so much earlier than that even uh it took the internet decades to develop whereas bitcoin has existed for what 13 years ether you know ethereum's been around for six d phi has existed for three or four it's just so early and it's very frustrating to have to apologize for the fact that we haven't already recreated the entire global financial system on defy rails so i think that is is very frustrating the thing about what ryan is up to aside from the message

is ryan is talking a lot now about having a new type of association or organization in dc that looks a lot more like the national rifle association the nra and say what you want about the nra we shouldn't get into like second amendment issues now but the point is the nra is one of if not the most effective lobbying organizations in the country just because of the passion of its members it is an individual membership organization right individual americans pay whatever it is 40 bucks a year to get a card saying they are a card-carrying member of the nra and there are millions of them and when

something happens that threatens the rights of gun owners those members of the nra are extraordinarily passionate and effective in in mobilizing their grassroots and having an impact in dc what ryan is talking about doing is creating something similar for crypto i think it is probably true that there is no other industry aside from folks who are really excited about firearms who are as passionate as we are about you know the the technology that we are are you know engaged in and that we want to use that we want to have the freedom to use so i think his idea is a really good one and i think if you're following him now a lot of what he's doing is just testing

messages for that type of organization and i'm pretty excited for uh for what will come out of that yeah i i just want to interject with one one one thing one criticism that i've heard in in mainstream it's like well if crypto was this big decentralized a system that you guys always talk about not needing sort of the nation state's blessing how come you are obsessed with the nation state's blessing how come you're going to to capitol hill and saying like you know please save crypto and my thing is this is not about saving crypto at all right this is about saving the us from itself like crypto's gonna be just fine jake if it's not going to happen in u.s borders it's going to happen somewhere else

around the world and the u.s will have just exited itself from the next innovation wave of the internet but like crypto is going to be fine this is really a fight for the us can the us support innovation of the future can it support the freedom uh that cryptocurrency brings and the self-sovereignty what would you say to that uh as the saying goes you can't take crypto out of your country but you can take your country out of crypto you've never heard that it's amazing well there you go i think it's you know it's a little bit um uh you're going to see a ryan tweet later but uh no i mean i think it's like

mostly accurate and i think that's what's going on here right like crypto's not going anywhere and i think one of the one of the missing pieces here is we can argue all day and all night about what regulations we think should apply to defy protocols and if a governance system should vote to create some new type of tax reporting sort of like at the protocol level or if there's some other kind of solution or what have you there will always be a fork of that defy protocol that does not have whatever that compliance measure is period end of story defy is not going anywhere the only question is are we going to have two different crypto systems

one that is clean and custodial and intermediated and permissions that governments say hey if you're a company in our jurisdiction this is the one that you get to use and then a separate wild west version where all the terrorists and criminals are this is at least like in the minds of government this is how i sort of think they view this or are we going to treat defy the way that we treat the internet which is this is a really big open playground where where the interesting development happens right it's in the open source world it's in the vibrant ecosystem where anybody in their basement can build new software and deploy it to the world and have it you know be tested live is that the

world that we're gonna have like we do uh with the internet and hopefully hopefully that's where we'll end up um and i do think you're absolutely right to say the real impact here is not on crypto it's on the united states interests as they relate to crypto jake i'm in total agreement with you about what you said about the the massive amounts of of potential people that there are that might just be a single issue voter for crypto for the rest of their lives and there's a reason why we address the bankless community as the bankless nation that's more or less who we're talking about uh there's so many people who have dedicated their lives to this whole entire revolution me and ryan as two examples you as well and we have too much at stake both are all our money

and our savings and our jobs to care about anything else i mean i will only speak for myself at that point but to care about anything else that really ends up on like the the congress floor and there's a and so the and it's kind of a fun little trap is like oh you find out about crypto you buy some bitcoin you buy some eath oh you go down the rabbit hole you get really interested in it then you kind of become like a crypto maximalist and all your sudden you're too invested to to not fight these fights and one of the big stories that came out of this is how many calls emails and tweets were were sent to senators and regulators out of individuals like ourselves and so i want to pick your brain about that part of

the story when it comes time to do this again what is the most effective thing that that we as individuals can do to help sway the regulators into the directions that we want them to go uh what what did you see uh worked uh during the last two weeks that that helped the industry like represent itself yeah um great question uh so at least in this fight there were two things that i think were really extremely effective one was making calls the second was sending tweets uh you know emails are helpful too but the thing about emails is the congress person right the representative or the senator is not reading your emails the emails go to an inbox the inbox gets checked every

couple weeks by a staffer the staffer will you know put together a report saying here's how many emails we got on this issue here's how many of them encouraged us to do this for that but emails are not that helpful in the moment um calls are much more helpful right you're still not talking to the senator or representative but you are taking up the time of their staffer who is on the call with you and that's going to get back to the member much more quickly than an email does so calls are way more effective than emails tweets are kind of a funny thing so you might think well what's a tweet right that doesn't mean anything but the truth is most of these politicians have their phones in their pockets with them all

day and they're checking twitter right i mean think about president trump he conducted his presidency on twitter and they are checking and if you blow up their phones with tweets saying hey senator i'm one of your constituents you better vote no on such and such they do pay attention to that that can actually be the most effective thing to do because it's yeah exactly and getting their attention and i think like in terms of how do we influence them there's a bunch of things we need to do but first and foremost they just need to know that we are here and that we care and that there are a lot of us and that we are very very loud and that i think is something we did extremely effectively over the last few weeks

jay travinsky asking us to rally on twitter can do sir oh absolutely they're every day you know it's funny they say they've called uh twitter sort of the digi the digital town square right and like it kind of is if and if you can reach a politician that way uh that's fantastic i thought you would tell us that that tweets would be the least effective because um members of congress never check twitter but i guess all of that has changed in the trump era hasn't it it does it it has changed a lot and the other thing is even more effective than just tweeting at them is if they tweet something that is positive get them some engagement right they are human beings they like the dopamine hit just as much as the rest of us and one

of the coolest things was i looked back um when senator toomey uh tweeted something positive about you know he said the language in the infrastructure bill is unworkable i'm going to propose an amendment to fix it he got more engagement on that tweet within a few hours than any other tweet he had put out in 2021 and that's him with his phone tweeting right i'm guessing that but i'm pretty sure that's not just some staffer who has access to his twitter account that kind of stuff really really matters so i think both of you guys and everyone else out there who is you know contributing to that effort to show the senators how much we care you you definitely have our support there can i ask you a broader question about building coalitions in dc so

how maybe we use uh sort of um a case study right so how can we get senators and members of congress on our side uh maybe through some examples and and why are some senators kind of pitted against us right so like it's kind of a question of why is elizabeth warner uh warren excuse me so against crypto is kind of a question i'd pose to you does she see some political loss there like what are the reasons and then juxtapose that with why someone like senator uh lummus is so pro-crypto can we repeat that story in other cases what are the wins for senator lumus and being pro crypto um so big question let me let me tell

you what i think about senators warren and lumus first and then about sort of how we can move the ball forward in dc i think for all elected officials you have to consider both what they are saying and then what they really think right what their actual incentives are and those are not always the same in fact i would say often they diverge i think sometimes though you can learn a lot from what the senators or the members of congress are actually saying so let's listen to them senator warren i think is an unfortunate case of someone who could be a huge supporter of crypto and she gets almost all the way there and then at the last minute she just sort of turns the wrong direction she is 1 000 with us on the problems with the

traditional financial system right she just as much as we do thinks that the big banks should not have as much power and influence as they do that our financial system should not be dominated by too big to fail institutions that privatize gains and socialize losses she's as much a champion for that as anybody i think the problem is when she looks at crypto she doesn't see a solution to that problem she just sees different problems and again a lot of this comes down to her focusing not on the promises of a decentralized financial system based on credibly neutral protocols rather she's looking at things like dogecoin and other uh you know stable coins like tether for

example which has been a real hot button issue in dc where promises are being made about the stability or the reliability of these systems but in actuality it just looks like a fraud or something that lacks the consumer protections that she wants to see so someone like senator warren i think is looking at the banking problem and saying the solution is not to get rid of banks the solution is to do a better job of regulating banks and to make banks stop being so bad through regulation and that's why we see things like the stable act which says we're okay with stable coins it's just only chartered banks should be able to issue them so that's i think what we see on on that side um

with someone like senator lumis again you know what she says is that she's a believer in decentralization and i think her other policy positions and her general approach to how government should work is totally consistent with the idea of having a robust private sector including private creation of money which is the final battle right we probably won't get into that too much today but like that's the big question we have is it okay for private actors to create money and that i think in a world of mmt where government needs to have tight control over the money supply the creation of money as well um through modern monetary theory it's really hard

to make an argument that private actors should be able to create money i think the last thing to say about this is how do we influence folks like senator warren or others who haven't decided really to take a position on crypto yet like senator warner who came in with this problematic amendment in the middle of this battle and then i think realized wait i'm getting way too deep into a controversial issue that i'm not really up to speed on yet let me step back and figure out what's going on here i think there's a couple things one is we just need better arguments and we need better we need to marshal the evidence more effectively so that we can have anecdotes of cases where this technology is genuinely helping

real people in the world in a way that they could not have without crypto and there are these anecdotes we talk about them all the time we just haven't done a really good job of stringing them together into a coherent narrative and because we fail to do that it's much more easy for the you know boiling the ocean's narrative or the money laundering narrative or things like that to take hold so we just have to do a better job of articulating our position the other thing is we need to show candidates for office that if they are there for us we will be there for them this is like lobbying 101 we need to show financial support for candidates

who support pro-crypto policy and in the coming year in 2022 we're gonna have a real opportunity in the primaries right where where senators and representatives are trying to win their primaries so that they can go to the general election we're gonna have a massive opportunity to go into those primaries and say you will get funding from these very motivated very passionate supporters of the crypto industry very capitalized supporters exactly uh if you take a position that is beneficial to innovation in this country and that doesn't mean that we're going out to try to buy influence that's the wrong way to go about this it's just showing candidates that this is a really

important issue for lots of people who are willing to put money behind the issues that they care about this is always how things get done in dc jake we have a tweet that we want to get you to elaborate on and it is coming up right here uh you tweeted this out before this is all over i expect to be in front of the supreme court arguing about fourth amendment limitations uh on the third party doctrine in the cryptocurrency context bookmark this tweet can you elaborate on what you mean by that um yes uh this is also a big topic so let me give you this sort of like short uh non-legal non in the weeds explanation

um the fourth amendment says that uh the government cannot search or seize our persons houses papers and effects without a warrant there are some exceptions to that warrant requirements but this is our right of privacy as codified in the bill of rights to the u.s constitution right this is where our rights of privacy flow from that includes the right of financial privacy now there are exceptions or at least there is some wiggle room there where the government has been able to pass legislation that permits warrantless surveillance of our financial transactions but that is not

an unlimited right of the government right we have the bank secrecy act uh which was passed in 19 in the 1970s he was challenged at that time as a violation of our fourth amendment right of privacy the supreme court held by a small margin that the bank secrecy act did not violate the fourth amendment even though it constituted warrantless surveillance of our financial transactions but the court left open arguments that there are circumstances where financial surveillance could be so broad or so egregious that it would violate the fourth amendment and in the last few years the supreme court has actually been strengthening the fourth

amendment and prohibiting certain types of warrantless surveillance by the government a really good example of this was just three years ago in a supreme court case called carpenter of the united states and just to give you the quick summary there what the government was doing at the time was collecting data from cell site towers that showed where people were moving because their cell phones would ping the towers and the government said based on the same theory that upholds the bank secrecy act which is the third party doctrine because people are willfully or knowingly sharing their location with these third parties the you know cell tower operators

there is no privacy interest in that information so the government can look through cell site records showing where you are moving at all times without having to get a warrant the supreme court said no that type of search of cell site tower data is unconstitutional because even though people are sharing that information with a third party the location where a person is at all times is so important it is such a fundamental uh element of our privacy that it is unacceptable for the government to surveil our movement at all times by searching these these site tower records and i think the same argument can apply in the crypto context where

treasury says we have a right to surveil every single transaction that happens on a blockchain whether you like it or not just because the blockchain is public i do not think that that is the right interpretation of the fourth amendment so i think if we end up in a fight where treasury says it is impermissible for united states citizens to transact financially unless we know who they are and who they are paying and how much they are paying i would say that is a violation of the fourth amendment and the supreme court would agree with me so i hope that i don't end up in front of the supreme court having this argument but i fear at least when we look at the trend of increasing warrantless surveillance and the trend

of treasury trying to expand its jurisdiction into peer-to-peer uh you know financial systems that that is an argument that we are ultimately going to have to have and it's one that i'm very ready and very excited to take on if we have to it's funny too because we already have this right with uh cash right 100 bill i give it to you no one knows about it not surveilled no one knows about it and yet this is kind of an erosion as we enter the digital world yeah that's exactly right and there are other circumstances where courts have protected the right to have anonymous transactions so for example supreme court recently a case in california that had to do with anonymous donations to charitable

organizations california had passed a law saying it is unacceptable to take in anonymous donations and the supreme court said that rule violates the constitution we have a right a fundamental right guaranteed by the bill of rights to make anonymous donations for charitable purposes and i think the same argument as you're you know making for cash and that the supreme court made for anonymous charitable contributions applies to all kinds of other financial transactions given that they truly strike at the heart of who we are as people right you can never get more information about who someone is what they believe what matters to them than by surveilling their transactions

right so that i think is something that we need to protect there the bankless thesis and overall the crypto thesis at large is that these financial tools these you know ethereum and d5 become so ubiquitous that it's it won't become esoteric it will become the norm and just like how you were talking about cell phone towers back when you know cell phones were really becoming a thing in the 70s 80s 90s you no one can really ever opt out of cell phones anymore like you can't really operate in society without a cell phone uh and we kind of believe that that same thing is going to become true with ethereum and defy and all the other crypto tools that we have at our disposal first it's in a corner of the internet kind of only for the people

that that like to uh tinker and experiment and who like live on the frontier but as these as this ecosystem gets built out the tools will be so useful and so powerful that operating a life without using defy is just going to become absolutely impossible and so jake what you're saying is that in order to maintain our level of privacy that we've always been able to have previously throughout history as protected by the bill of rights uh you think that you might actually end up in the supreme court fighting that fight that seems like the fight the fundamental fight that is where the relationship between these crypto networks and the nation state come to a head at would you agree with that perspective

yes i think it's one of two right one is our right to transact with each other freely without government intervention the other is as i said our right to create money privately without being a nation state and i think those are the two major challenges and frankly i expect that eventually the supreme court will have to rule on both of them so the second one is a whole different conversation having to do with the gold claws cases from the fdr era but let's save that for another time i'm on for that crisis next crisis we've got to save some content for later well jake thank you so much for joining us it's very clear that this is going to be a long drawn-out battle uh the bankless nation is is here behind you we

appreciate the work that you are doing in dc and the work and just giving getting the word out there and educating us on what the issues are as we sort of educate uh the masses too um i'm curious your take on this because earlier in the show you mentioned that this infrastructure bill issue through treasury is not even the final boss it's just like a an intermediate fight right so like a mini boss or something for the level um what is the final boss and what do you think the next few decades will look like with respect to crypto and government in that relationship right so there are two major issues that i think ultimately governments will have with crypto

one is illicit finance risk right are bad guys using these systems to achieve bad ends that they could not achieve in the traditional financial system this is the money laundering and terrorist financing question that is the issue that brings us to this this issue of financial surveillance over peer-to-peer transactions the second major concern is monetary sovereignty do governments maintain their control over fiat currencies does the dollar remain the global reserve currency can the us government implement modern monetary theory which requires maintaining tight control over the money supply or is there a way for private sector

participants to create private money that is the second and i think real final boss we see this right now in debates about stable coins right the the bitcoiners love to say uh you know the imf and the world bank and all these other folks are really terrified that bitcoin is going to destroy the financial system that's not true they don't think that they're not worried about that that's not worried about bitcoin i'm sorry to tell you maybe they should be and maybe we wish that they were but that's that's not the case what they're worried about is us dollar instruments created by private parties that they don't control they view stable coins kind of like they view euro dollar markets which are a really

big issue that frankly is way too complicated for a non-economist like me to fully understand but that's their issue with stable coins they do not like the idea of die a decentralized stable coin that can be created by any person anywhere without government permission so that i think is really the final boss because ultimately the us government's control over the financial system flows from its control over the dollar and if they lose control over the dollar that means real problems so that i think is a much bigger fight that we're going to have ultimately about what kinds of assets can private market participants create and interact with without the

government being responsible for it or being able to censor or stop it jake this has been great we always send these episodes sometimes with the kind of action items so what can what can people listening do at home to partake in this fight um so i think a few things depending on who you are first of all uh just stay tuned right thank you to everyone who has made it through listening all of this just being more informed is so important there will be opportunities where it is critical for folks to get engaged and make those phone calls or send those tweets or like and retweet something that an elected official has put out just stay tuned and please be tapped in you know follow me on twitter i will always try to sort of like

mobilize the grassroots through my own twitter account keep following you know you guys at bank lists so that you know when those moments come otherwise get involved in the political process if you want to right if this is something that you want to do not everyone wants to and i think it's important to recognize a lot of people come to crypto explicitly because they do not want to ask their government for permission to build some system or to have access to some uh you know asset they literally are here to build systems that do not require permission so if this isn't your thing that's okay the rest of us will take up this fight but if you're interested be involved in the political process uh you know go to a

town hall go to a debate ask questions of people who are running for office tell them that you care about this issue and also i think most importantly if you're a us crypto company your voice matters more than others that's just the sad reality you're a job creator you are raising tax revenues right folks in government care even more about what you think especially if what you tell them is look if this new broker provision goes into effect i cannot comply with this i am going to have to move my company offshore i'm going to set up a cayman foundation which is frankly what a lot of people in industry are doing right now so make your voice heard i think one way to do that is through the

blockchain association i i'm a huge supporter in case you can't tell of ba i think that uh crypto companies in the us should at least consider membership or reach out um and then the last thing i'll say is a lot of folks want to get involved in their own lobbying efforts i think that's wonderful just please try to coordinate in some way with the policy infrastructure that we've already set up in dc right there's a risk of people saying i just found out about the crypto lobby i'm here to fix it and we don't want to do that right we've just proven that we are extremely good at the work that we're doing we have a really good strategy what we need is support and

resources so i also think committing resources and supporting the efforts that are already going on in dc uh is is the way to do this we didn't talk today about the defy education funds but efforts like that where dows can get involved in advocacy i think there's a lot of room for creativity and innovation there too so i guess that's that's a whole lot of different action items and maybe too much for um for folks to tackle all at once but stay tuned there will be a lot more to come about how we can raise our voices and make sure that we are heard loud and clear here in dc there's definitely a lot of work to do but i know the crypto community is up to the task and one reason i know this is

because we are building social coordination technology in fact financial social coordination technology so uh we are we can use our own tools to help solve some of these problems and i think last two weeks demonstrated that when the crypto community rallies it can actually affect a big change in dc jake travinsky thank you so much for joining us on bank list excuse me thank you for uh leading the cause here we appreciate all of your work and uh thanks for joining us it's always a pleasure talking to you guys thanks for having me back guys recent disclaimers crypto is risky eath is risky defy is risky who knows when the next nation state might propose some bad legislation for this space but

we are not stopping uh we are headed west this is the frontier it's not for everyone but we're glad you're with us on the bankless journey thanks a lot hey we hope you enjoyed the video if you did head over to bankless hq right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence we recommend joining our daily newsletter podcast and community as a bankless premium subscriber to get the most out of your bank list experience you'll get access to our market analysis our alpha leaks and exclusive content and even the bankless token for airdrops raffles and unlocks if you're interested in crypto the bankless community is where you want to

be click the link in the description to become a bankless premium subscriber today also don't forget to subscribe to the channel for in-depth interviews with industry leaders ask me anythings and weekly roll ups where we summarize the week in crypto and other fantastic content thanks everyone for watching and being on the journey as we build out the bankless nation