Latest / CRYPTO 101 / Ep. 757 Crypto Is Becoming the Architecture of Finance with Former CFTC Chairman Chris Giancarlo

Transcript

Ep. 757 Crypto Is Becoming the Architecture of Finance with Former CFTC Chairman Chris Giancarlo · CRYPTO 101

0:09
[SPEAKER_02]: all right everybody welcome back to another episode of the crypto one-on-one podcast.
0:13
[SPEAKER_02]: I am so excited for this one.
0:15
[SPEAKER_02]: I'm joined as always by my good buddy Brendan.
0:19
[SPEAKER_02]: How are you doing Brendan?
0:20
[SPEAKER_01]: I'm doing fantastic.
0:22
[SPEAKER_01]: Igly is excited.
0:23
[SPEAKER_02]: Yeah, the bull market vibes are high.
0:27
[SPEAKER_02]: The charts are looking pretty explosive and we've got a great discussion ahead of us with former CFTC chairman, Chris Giancarlo.
0:37
[SPEAKER_02]: Chris, welcome to the show.
0:39
[SPEAKER_00]: Bryce, Brendan, good to be with you.
0:41
[SPEAKER_00]: Good to be back on the show.
0:43
[SPEAKER_00]: Last time I was on the show, we were in Sunny East and the Eastern Long Island, enjoying a clearing and beautiful morning and it's great to be with you now in studio.
0:53
[SPEAKER_02]: Yeah.
0:53
[SPEAKER_02]: Oh, very, very excited.
0:55
[SPEAKER_02]: Um, and you've got a new book coming out, which we're going to spend a lot of time talking about.
0:59
[SPEAKER_02]: It comes out October 27th.
1:00
[SPEAKER_02]: So I want everybody just to write that date down October 27th, where you could get a copy of new adventures.
1:06
[SPEAKER_00]: Three order now.
1:06
[SPEAKER_00]: Don't wait.
1:08
[SPEAKER_02]: Don't wait.
1:08
[SPEAKER_00]: Go order your Amazon on Amazon on on on on on on Barnes and Noble on all your favorite online booksellers.
1:16
[SPEAKER_02]: awesome and we're going to put a link in the show notes for that the title is the new adventures of crypto dad the quest for financial freedom in the 21st century a sequel to your original 2021 publish publication called crypto dad the fight for the future of money.
1:33
[SPEAKER_02]: We're really excited to have you, somebody who has ran the CFTC prior.
1:40
[SPEAKER_02]: And look, there's a lot of good stuff going on in the market right now, you know, when we were talking last, we were talking about the Clarity Act.
1:48
[SPEAKER_02]: And since that discussion, the Clarity Act has been delayed, it didn't pass, closure.
1:53
[SPEAKER_02]: But you were about a month or two ahead of schedule.
1:56
[SPEAKER_02]: You were like, look, pass or fail.
1:58
[SPEAKER_02]: It doesn't really matter because the CFTC, the SEC, these guys are in lockstep.
2:03
[SPEAKER_02]: They've got guidelines.
2:05
[SPEAKER_02]: They've got rules of the road that they are working on sort of simultaneously for, you know, call it the contingency plan.
2:15
[SPEAKER_02]: And you were the first person that I heard a spouse, this idea.
2:19
[SPEAKER_02]: And you were,
2:20
[SPEAKER_02]: 100% accurate and the markets have roared ever since the passage or the failure of passage of the Clarity Act.
2:27
[SPEAKER_02]: So, just catch us up on how you're seeing the chessboard right now with the CFP.
2:32
[SPEAKER_00]: Well, in fact, it should not be surprising that Clarity failed to pass on a Tuesday and by Thursday, the SEC was rolling out these rulesets.
2:42
[SPEAKER_00]: It's not like Tuesday night they sat down and wrote them.
2:45
[SPEAKER_00]: They hadn't had them ready to go.
2:48
[SPEAKER_00]: And they had not put them forward because they didn't want it in any way to impact the calculus that went into whether that bill was going to get passed.
2:58
[SPEAKER_00]: But they were ready to go as was the CFTC, which also that very same week put a number of proposals forward and put before the White House certain other rules that they're looking to put forward.
3:18
[SPEAKER_00]: know what they want to do, you know, in many ways it's a reaction to the Gensler era when the SEC just refused to put rules forward, they went in prepared to put rules forward, they were going to defer to Congress, give Congress every opportunity to lay down a framework, but once Congress basically footballed it on that opportunity,
3:39
[SPEAKER_00]: they struck.
3:41
[SPEAKER_00]: And there's no end to it.
3:42
[SPEAKER_00]: I mean, they're going to be now writing rules for the next two years.
3:45
[SPEAKER_00]: My personal view is clarity's dead.
3:48
[SPEAKER_00]: Let me just tell you, in our system, if a bill comes up in one Congress, every Congress is a two-year period, if it doesn't pass by the end of that Congress, Congress has to start over.
4:01
[SPEAKER_00]: And so if this doesn't get passed by the end of the year, then in the new Congress that will be elected November will take their seats in January, they start over again.
4:13
[SPEAKER_00]: The House last summer passed a very good version of the Clarity Act.
4:17
[SPEAKER_00]: then moved over to the Senate.
4:18
[SPEAKER_00]: The Senate has been pooling around with that legislation for over a year.
4:23
[SPEAKER_00]: Couldn't get over the finish line.
4:25
[SPEAKER_00]: I don't think they're going to turn around and redo this after in that lame duck session in December after the election.
4:32
[SPEAKER_00]: Sadly, I think it's dead.
4:34
[SPEAKER_00]: The good news is CFTC and SEC, they're going to fill in the blanks, they're going to write rules, and they're going to put forward in the next two and a few years, and probably two years, three and four months before the next presidential cycle would begin.
4:50
[SPEAKER_00]: A comprehensive rule set of rules for crypto to the industry to follow.
4:54
[SPEAKER_02]: And do you think that, you know, clarity didn't pass and won't pass because like, you know, how would you rank it or wait at the ethics, the stable coin yield, you know, something else, where was the stick all of the above, I mean, Senate calculus is complicated because every senator is almost a veto on anything getting through the Senate's very different than the house.
5:19
[SPEAKER_00]: with things that pretty much directed by the committee chairs and you get pretty much not exactly party line votes, but you get committees of jurisdiction being able to move things and so it's less fragmented than the then the Senate is.
5:36
[SPEAKER_00]: all of those factors played into the Senate and I could give you an explanation every one of those issue sets.
5:45
[SPEAKER_00]: I think the biggest issue is at the end of the day, the product that was before the Senate over the last several weeks.
5:54
[SPEAKER_00]: Nobody loved it, it just was like an unloved pet.
6:00
[SPEAKER_00]: Sadly, there was really not enough people willing to stand up for it and get it done.
6:07
[SPEAKER_00]: There was confusion on both left and right, where did the banks stand on this?
6:11
[SPEAKER_00]: Where did traditional financial system stand on this?
6:17
[SPEAKER_00]: What about these ethics issues?
6:19
[SPEAKER_00]: What about the president?
6:22
[SPEAKER_00]: As I write about it in my new book, The New Adventures of Crypto Dad, I myself, when I was in government, was very excited about crypto.
6:30
[SPEAKER_00]: I mean, I was early in that, as certainly as a regulator, and there was no restriction on my ownership of crypto.
6:38
[SPEAKER_00]: You know, in the same way the CFTC doesn't stop its employees from owning gold, even though we oversee the gold futures market,
6:46
[SPEAKER_00]: In the same way, we don't stop employees from owning petroleum and filling their cars with gasoline even though we oversee the crude oil futures markets.
6:55
[SPEAKER_00]: In the same way, we don't stop our employees from eating wheat and we oversee the wheat futures market.
7:01
[SPEAKER_00]: We didn't stop employees from owning crypto.
7:04
[SPEAKER_00]: even though we oversaw the crypto futures market.
7:06
[SPEAKER_00]: Now I did require employees to disclose any ownership and if they had a large holding in presented a conflict of interest, maybe they didn't get to work on the crypto rules.
7:16
[SPEAKER_00]: But I felt as chairman of the agency.
7:19
[SPEAKER_00]: in a position to direct rule-making for crypto, it would be inappropriate for me to own crypto, even though legally I could.
7:26
[SPEAKER_00]: And so I did it, too much to my financial.
7:30
[SPEAKER_00]: Just may, yes.
7:33
[SPEAKER_00]: I did it.
7:34
[SPEAKER_00]: And quite frankly, I feel that with an administration coming in that's pledged to writing rules for crypto, maybe a little bit of restraint
7:46
[SPEAKER_00]: uh... might have been an order and I write about this in my new book uh... did the did the so-called ethics issues really stop things uh... let's be candid right this congress really care about ethics no look at what they do they all insider trade if they if they cares about ethics they would stop insider trading right so this was more about stopping trump
8:09
[SPEAKER_00]: Yeah, you know, it wasn't about really ethics and, you know, that's the proper administration is their political.
8:16
[SPEAKER_00]: They have to know that and their own crypto activities, you know, set them up for that.
8:22
[SPEAKER_00]: You might call that an own goal.
8:24
[SPEAKER_00]: But was that what killed it?
8:26
[SPEAKER_00]: That might have been the reason for some who probably some who weren't to wild about crypto legislation begin with.
8:34
[SPEAKER_00]: You know, I think the banking lobbying groups played a role here as well and at the end of the day it was an unloved bill.
8:42
[SPEAKER_00]: It didn't really have, it had some champions and I tip my hat.
8:48
[SPEAKER_00]: to both sent the alumus on the Republican side and and Kristen Gillibrand on the Deltra grad side who fought hard for this and gave it a lot of love but the end of the day they couldn't convince enough of their fellow senators to get behind it and it seemed like that Gillibrand even wrote it no on her own bill which is kind of interesting.
9:09
[SPEAKER_00]: Yeah, I would call that more procedural than anything else.
9:13
[SPEAKER_00]: Once she knew it wasn't going to pass for political reasons, she had to do that.
9:18
[SPEAKER_00]: I don't think that indicated a lack of commitment to which she certainly laid out hard to get that over the finished line.
9:25
[SPEAKER_00]: But here's what I would say.
9:27
[SPEAKER_00]: It's a disappointment.
9:28
[SPEAKER_00]: It definitely will take the United States ability to take a leading role at some of the international standard setting bodies like Iosco,
9:37
[SPEAKER_00]: Association of Securities Commissioners that sets global standards takes away some of the U.S. influence in that.
9:44
[SPEAKER_00]: It also means that whatever the CFTC and the SEC do in the next two years is subject to being pulled back by an Elizabeth Warren Luddite administration if they were to
9:57
[SPEAKER_00]: come into power.
9:58
[SPEAKER_00]: But I don't think that's highly likely because I think the building is happening so fast than when the CFTC lay down rules that people rely on and now we're seeing the movement from retail to institutional.
10:16
[SPEAKER_00]: When Wall Street builds on distributed ledger rails, when Wall Street clears and settles in stable coins.
10:26
[SPEAKER_00]: And as we were getting ready to come on Bryce, you were talking about an announcement that came out of my former agency in the last 24 hours about Coinbase.
10:36
[SPEAKER_00]: Coinbase just received a licensed operator
10:40
[SPEAKER_00]: a future's clearinghouse.
10:42
[SPEAKER_00]: Now, that's really important because in CFTC world, if you operate a licensed exchange, you must clear your products through a licensed clearinghouse.
10:53
[SPEAKER_00]: A licensed clearinghouse for those who are not familiar with this, is basically a seller to every buyer and a buyer to every seller.
11:01
[SPEAKER_00]: When you buy a share of stock on the New York Stock Exchange, you don't actually deal with the person who sold the stock,
11:08
[SPEAKER_00]: It's the clearing house that makes sure you receive that chair or your account receives that chair.
11:13
[SPEAKER_00]: They're the seller to you.
11:15
[SPEAKER_00]: Now, they bought it from another seller and that's how you got it.
11:20
[SPEAKER_00]: So in CFTC world, every exchange has to have an affiliated clearing house.
11:26
[SPEAKER_00]: Some of them times they contract with the third party.
11:29
[SPEAKER_00]: Now Coinbase is no longer relying on the third party.
11:32
[SPEAKER_00]: They haven't.
11:32
[SPEAKER_00]: And here's what's interesting about this new Coinbase clearing house.
11:36
[SPEAKER_00]: It's denominated in U.S.D.C.
11:41
[SPEAKER_00]: It's denominated in stablecoins.
11:45
[SPEAKER_00]: It may be, I'd have to do a little research.
11:47
[SPEAKER_00]: It may be the world's first clearing house that's not operated on bank account money.
11:54
[SPEAKER_00]: It's operating on stablecoins.
11:56
[SPEAKER_00]: And that's really interesting.
11:57
[SPEAKER_00]: That's another step.
11:59
[SPEAKER_00]: in crypto moving from just some funky alternative asset class to truly being the architecture of the financial system, which is really the core argument in my new book, the new adventures of crypto dad, that the crypto I was dealing with the CFTC eight years ago, we were focused on its role as an asset class, a new asset class, but an asset class nevertheless,
12:27
[SPEAKER_00]: of the global financial system and it's starting right here in the United States.
12:31
[SPEAKER_02]: Yeah, and Brendan, before I hand it over to you, I just want to have a quick follow-up on that.
12:34
[SPEAKER_02]: It sounds like, so we didn't get the legislation, but we're getting high-powered high-speed roll-out of, you know, SECCFTC.
12:43
[SPEAKER_02]: So is the goal kind of to get, you know, Wall Street sort of and everybody else, you know,
12:50
[SPEAKER_02]: using this and then seeing the benefits of it, seeing the new distribution channels, the new you know, AUM explosion, the global sort of set of opportunities here.
13:01
[SPEAKER_02]: And then by the time you get sort of the coin flip of are you going to get a, you know, Democrat or Republican, a continuation, a complete,
13:08
[SPEAKER_02]: It's already been so ingrained and people have already gotten used to it and loved it that people on both sides becomes a nonpartisan issue end up loving it and saying, you know what?
13:21
[SPEAKER_02]: We got bigger fish to fry.
13:22
[SPEAKER_02]: We're not going to try to spend all of our energy unwinding two and a half years of work that you know what?
13:28
[SPEAKER_02]: Everybody kind of likes it.
13:29
[SPEAKER_02]: Is that kind of the end game
13:31
[SPEAKER_00]: App, that's exactly the endgame here.
13:32
[SPEAKER_00]: That's exactly the endgame here.
13:34
[SPEAKER_00]: And it's a little bit of a race.
13:36
[SPEAKER_00]: I understand.
13:37
[SPEAKER_00]: I've been told that some folks have come back from Washington meeting with Democrat leaders who have said, don't pay any attention to what the SEC and the CFTC are doing because what if...
13:49
[SPEAKER_00]: if and when we get into power in two years, we're going to rip all that up.
13:53
[SPEAKER_00]: Some of the people that are coming back from those meetings said, nah, it's probably going to be too late.
13:58
[SPEAKER_00]: And look, some of the opposition, the crypto over the last few years, in my mind, was the kind of low-dite reaction you get to any new technology.
14:09
[SPEAKER_00]: there's always people that said, I like the way the system works now.
14:12
[SPEAKER_00]: I'm happy with branch banking and paper checks.
14:15
[SPEAKER_00]: Why do we need to change anything?
14:17
[SPEAKER_00]: But, you know, those people have already moved on.
14:19
[SPEAKER_00]: Now they oppose data centers in AI.
14:21
[SPEAKER_00]: Yeah.
14:22
[SPEAKER_00]: And, you know, two years from now, who knows what new technology they'll be railing against.
14:27
[SPEAKER_00]: Meanwhile, Wall Street will have built on these new digital rails.
14:31
[SPEAKER_00]: And once they do, there's no turning back.
14:33
[SPEAKER_01]: Yeah, you know,
14:38
[SPEAKER_01]: When you look at this, I think the goal was always to have so much infrastructure be built and so much success come from this five year exemption, that by the time that it's up, they kind of say, okay, well, we really can't afford to undo this, because maybe it would be unpopular with the general public, maybe it would be political suicide from the donor side.
14:59
[SPEAKER_01]: I think the idea is that
15:01
[SPEAKER_01]: the big monies, the banks, the financial players are going to want and use this over the course of the next five years.
15:08
[SPEAKER_01]: So that by the time that we get there, it's not as simple as, okay, we'll just undo it.
15:11
[SPEAKER_01]: It's like now, you got a lot more complicated of an issue by then, but, you know,
15:17
[SPEAKER_00]: Chris, I was just hoping to point right now people want to send global remittances to the loved ones around the world on a hundred dollar transfer their pain as much as seven dollars to ten dollars and their loved ones are netting ninety.
15:34
[SPEAKER_00]: Wait until they can spend 35 cents.
15:37
[SPEAKER_00]: And their loved ones are netting over $99 a transaction.
15:40
[SPEAKER_00]: There's no way those people are going to say, oh, you know what?
15:43
[SPEAKER_00]: Elizabeth Warren, please get rid of this service.
15:46
[SPEAKER_00]: Yeah, we're paying too little for it.
15:48
[SPEAKER_00]: Make us pay for the nose again.
15:50
[SPEAKER_01]: I mean, think about how mad people get when inflation happens with something that they purchase every day and it goes up 5% 10% 20%.
15:57
[SPEAKER_01]: would if it goes up from 30 cents to $10 or seven dollars again.
16:01
[SPEAKER_01]: You're talking about hundreds of percent or 1,000 percent increase.
16:04
[SPEAKER_01]: And then, you know, then you see people really get mad.
16:07
[SPEAKER_01]: Right.
16:08
[SPEAKER_00]: And the other thing is, you know, there's a generational aspect of this too.
16:11
[SPEAKER_00]: Yeah.
16:11
[SPEAKER_00]: People that want to stop it are the people that grew up with, I mentioned before, with branch banks and paper checks.
16:17
[SPEAKER_00]: And that's the world they know, and they like that world.
16:20
[SPEAKER_01]: Yeah.
16:20
[SPEAKER_00]: Let me tell you that you guys are going to go to branch banks paper checks, you know, my kids are in their 30s.
16:25
[SPEAKER_00]: I mean, so there's a generational aspect to this, the generation that's entering into careers on Wall Street or entering into careers in finance, bring with them.
16:38
[SPEAKER_00]: the expectation of a networked world, right, an expectation of digital commerce, they're going to say, oh, you know what, we're not going to do that.
16:47
[SPEAKER_00]: We're going to use our parents' form of finance.
16:50
[SPEAKER_00]: It's just not going to happen.
16:51
[SPEAKER_00]: That's just not the way the world works.
16:54
[SPEAKER_01]: I agree with you, I completely agree.
16:57
[SPEAKER_01]: And I'd love to have you walk us through at a very high level.
17:01
[SPEAKER_01]: What's happening with these SEC and CFTC guidelines being rolled out?
17:06
[SPEAKER_01]: Because I think people still have questions.
17:08
[SPEAKER_01]: We touched on it a little bit.
17:09
[SPEAKER_01]: But I think the average person still has questions.
17:11
[SPEAKER_01]: Like, what are these guidelines?
17:13
[SPEAKER_01]: How does it actually impact myself in how I view the space?
17:17
[SPEAKER_01]: And what is this five-year exemption?
17:19
[SPEAKER_01]: Because a lot of people were just solely researching, looking into the Clarity Act, and now kind of as you said, it doesn't look like that's going to be something that goes through.
17:27
[SPEAKER_01]: And now people kind of restarted this learning process of saying, okay, well, I learned all about what would happen through the Clarity Act.
17:33
[SPEAKER_01]: Now I need to figure out what is this exemption and how does this work with the new guidelines?
17:38
[SPEAKER_00]: Well, the way to sort of frame this is to think about where we were during the the Gensler years.
17:45
[SPEAKER_00]: Yeah.
17:46
[SPEAKER_00]: One of the big issues during the Gensler years was people that wanted to use crypto as a finance tool that wanted to raise capital had no way of doing that in a SEC framework, which was designed for an analog world
18:05
[SPEAKER_00]: of financing.
18:08
[SPEAKER_00]: And the complaint was, is that we were getting regulation by enforcement, Burms are being sued rather than getting actually rule set.
18:16
[SPEAKER_00]: So one of the important things I think that you're seeing with Paul Atkins and his team is they're trying to address that by actually coming up with proposals and rules as to how that can be done.
18:29
[SPEAKER_00]: And I'm just actually, I was talking about this just this morning, but in a proposal called regulation crypto assets, you're seeing the SEC try to put forward rules as to how we might actually be able to do that in a new crypto world.
18:44
[SPEAKER_00]: And then, of course, we had an innovation exemption put forward right after the clarity went down.
18:50
[SPEAKER_00]: which is looking at how can we create a marketplace that are designed right from the Gitgo for tokenized assets where you've got automated market makers and what is that impact?
19:03
[SPEAKER_00]: Will there be a requirement for
19:06
[SPEAKER_00]: The train crew rule, which really was designed for an analog world, what does that mean in a new tokenized world?
19:12
[SPEAKER_00]: So I think they should get every bit of credit for now putting forward rules that some of them are experimental, open to comment.
19:24
[SPEAKER_00]: They're setting horizons on it because they're recognizing the technology so moving so fast that even five years from now what they put forward today,
19:35
[SPEAKER_00]: may no longer make sense then.
19:36
[SPEAKER_00]: So their experimentation is underway, the rule writing, and the rule proposals are underway.
19:43
[SPEAKER_00]: And I think that's what we should want from a regular.
19:46
[SPEAKER_00]: That's what I tried to do when I was at the CFTC.
19:50
[SPEAKER_00]: The job of a regulator is not to conflate
19:53
[SPEAKER_00]: The status quo with financial stability, I think that's sometimes the problem was the problem we had during the Biden years.
20:01
[SPEAKER_00]: There was sort of like we can't change anything because we'll have financial instability.
20:07
[SPEAKER_00]: Well, in fact, a famous Italian novelist wrote that if you want things to stay the same, you have to change.
20:16
[SPEAKER_00]: And in many ways, if we want to have financial stability
20:22
[SPEAKER_00]: a technology cycle, then the regulations need to adjust with time.
20:29
[SPEAKER_00]: And that's what the CFTC and the SEC are trying to do.
20:33
[SPEAKER_00]: But they're trying to work with industry, trying to solicit and comment.
20:36
[SPEAKER_00]: I was with Tyler Lindman, the other night, who's the...
20:39
[SPEAKER_00]: the Chief Council of the SEC's crypto task force, and he explained to me, he said, look, we're putting things out.
20:46
[SPEAKER_00]: We want robust response from the marketplace, so we can get it right, but we are not going to sit still.
20:52
[SPEAKER_00]: We are going to try to experiment.
20:54
[SPEAKER_00]: And that doesn't mean everything we put forward is going to work as we design it out of the gate.
21:00
[SPEAKER_00]: It's going to just over time, which is no different than what industry is doing every day by itself adjusting over time.
21:07
[SPEAKER_02]: Yeah.
21:07
[SPEAKER_02]: And to that point, you know, I was going to mention the SEC, I think on the 25th or the 24th, they came out with sort of some commentary on buybacks and how just because a protocol has some sort of buyback mechanism doesn't inherently make it an investment contract.
21:29
[SPEAKER_02]: And but of course all this stuff is up for I think 60 days of review and comment and all that kind of stuff and then I think it again I don't want I don't want people to miss quote me I believe it was one of the lawyers or Councilman at a 16 z who said
21:45
[SPEAKER_02]: I think you need a clarification point.
21:47
[SPEAKER_02]: It needs to have a buyback that doesn't come from a centralized company.
21:52
[SPEAKER_02]: So it has to be more decentralized way.
21:54
[SPEAKER_02]: And then the SEC came out and guessed today and kind of put that point of clarification on it.
22:00
[SPEAKER_02]: And so it's good like you said that they're coming out with
22:04
[SPEAKER_02]: They're, I don't want to say they're throwing spaghetti at the wall and seeing what sticks because that's kind of a crude analogy, but they're putting the lot out there, they're giving it 60 days to breathe, they're getting response from the industry, and then they're saying, okay, here's going to be the official guidelines.
22:17
[SPEAKER_00]: I think it's a really interesting, I mean, just a little bit of inside baseball when,
22:23
[SPEAKER_00]: If you hours after that came out, a former member of the Gary Gensor Senior Team at the SEC, criticized the current SEC for making that revisions, it's basically saying, why do you get it right the first time before you put it out that you had to go and make corrections?
22:40
[SPEAKER_00]: I actually view that that's a good regulator, a regulator who's trying to anticipate the direction of technology and there's not afraid to admit that we miss something, let's correct, correct, that as fast as we can.
22:53
[SPEAKER_00]: I think that's, you know, look, none of us have a crystal, none of us see perfection.
22:58
[SPEAKER_00]: The differences, those who are simply willing to not willing to make any changes,
23:06
[SPEAKER_00]: and those who are willing to make changes because the ground underneath us is shifting and at risk maybe getting something wrong that they then have to revise and pick up.
23:15
[SPEAKER_00]: I'm saying the SEC got it wrong, but they're willing to say, oh, we missed something.
23:19
[SPEAKER_00]: Let's put it in.
23:20
[SPEAKER_00]: I'd rather have the latter than the former.
23:23
[SPEAKER_00]: And I think that's certain.
23:25
[SPEAKER_00]: I know that's certainly what we've got now with Ceeleg and Atkins at the Health.
23:30
[SPEAKER_02]: Yeah, absolutely.
23:32
[SPEAKER_02]: And I'm curious, like, so there's crypto securities, which are maybe more like RWA's or things that are very clearly an investment contract.
23:43
[SPEAKER_02]: But then there's crypto commodities, things that are decentralized, open, things like Ethereum, where there's nobody really behind it.
23:54
[SPEAKER_02]: It's just an amorphous group of coders all around the world.
23:58
[SPEAKER_02]: But is there something in between a security and a commodity that doesn't yet have a designation that we're still trying to grapple with?
24:07
[SPEAKER_00]: Well, we've got native tokenized securities that are tokenized by the issuer will have wrappers that may or may not be authorized by the issuer and then we've got what DTC C is doing where DTC C actually owned the underlying securities but gives receipts to those
24:33
[SPEAKER_00]: There's something I'd like to explain to audiences.
24:37
[SPEAKER_00]: Why is there a CFTC in the SEC to begin with?
24:40
[SPEAKER_00]: Why does the United States, unlike virtually every other major economy, divide its regulation of financial markets between securities markets and commodity markets with two separate regulators?
24:53
[SPEAKER_00]: When I was in business,
24:56
[SPEAKER_00]: Frankly, I was confused by this, and I said, wow, this is just a lot of extra work.
25:00
[SPEAKER_00]: I haven't spent now time in the belly, I actually think it's a brilliant design, and I think it's one of the reasons it's not a coincidence, I think it's a consequence of two different regulators that the United States has the world's largest securities and commodity markets.
25:16
[SPEAKER_00]: And here's the difference.
25:18
[SPEAKER_00]: With securities, you almost by definition, always have a group of promoters, the insiders, the people that are launching the enterprise are running the enterprise.
25:28
[SPEAKER_00]: And by definition, they always have better information than their investors.
25:32
[SPEAKER_00]: And so our whole securities law regime is one design to basically level up.
25:39
[SPEAKER_00]: You know, at an issuance, the promoters have to tell their investor potential investors, everything that's material about the business.
25:47
[SPEAKER_00]: And then afterwards, every 90 days, they've got a level up.
25:51
[SPEAKER_00]: And yet even that recognizes it's imperfect because on day 89,
25:57
[SPEAKER_00]: You haven't leveled up yet, and so the promoters have better information than on the 90th day, they issue their quarterly filing and they level up.
26:05
[SPEAKER_00]: So the whole premise of the SEC world is how do you even out those information asymmetries?
26:12
[SPEAKER_00]: In the CFTC world, historically most commodities came out of the ground.
26:18
[SPEAKER_00]: gold, oil, wheat, corn, and guess what?
26:22
[SPEAKER_00]: Mother Nature is the only one that knows how big that gold load is or how much wheat's gonna come this summer, and Mother Nature can't be bothered to issue a perspective.
26:32
[SPEAKER_00]: So in commodity world, we recognize that the information asymmetries are there and can't be changed.
26:39
[SPEAKER_00]: And guess what?
26:40
[SPEAKER_00]: A former and Kansas views the weather differently than a former in Iowa.
26:46
[SPEAKER_00]: And so they have different information.
26:47
[SPEAKER_00]: And so what the CFDC world is not about leveling out information.
26:51
[SPEAKER_00]: They've symmetries.
26:52
[SPEAKER_00]: It's saying you're free to use what you know and trade on it.
26:56
[SPEAKER_00]: Because the end of the day you're trying to hedge that risk of what that means for you.
27:01
[SPEAKER_00]: And so, but we also recognize that by everybody using the information, they individually have and bringing it to the marketplace, it creates price discovery.
27:12
[SPEAKER_00]: If all the farmers across America, one who thinks the weather is crap, one thinks the weather is good, come together, we get a composite picture of what the weak crop may be like and therefore what prices may be like.
27:24
[SPEAKER_00]: So in CFTC world, we don't try to level up information asymmetries.
27:29
[SPEAKER_00]: We actually try to bring that information to the marketplace for price discovery.
27:33
[SPEAKER_00]: Because of that, it requires very different regulatory structures.
27:37
[SPEAKER_00]: The CFTC world is making sure that nobody uses their unique information to manipulate the market or create fraud in the market.
27:45
[SPEAKER_00]: The SDC is trying to get everybody to even out those information asymmetries, so nobody has a tremendous advantage over the others.
27:52
[SPEAKER_00]: It's a very, very different structure.
27:53
[SPEAKER_00]: Now, when we get into digital commodities and digital securities,
27:58
[SPEAKER_00]: many of the same things supply.
28:01
[SPEAKER_00]: I would argue to you, there's no need for disclosure by promoters a Bitcoin because just go on X for five minutes.
28:09
[SPEAKER_00]: You'll get 50 different viewpoints of where Bitcoin is going in the next three days.
28:15
[SPEAKER_00]: So you've got you've got an information overload.
28:17
[SPEAKER_00]: You don't need more disclosure, right?
28:19
[SPEAKER_00]: It's a commodity by definition Bitcoin is a digital commodity.
28:23
[SPEAKER_00]: We don't need more information.
28:24
[SPEAKER_00]: We just need to make sure there's not fraud manipulation of which the that's the CFTC's job and they're really good at it.
28:31
[SPEAKER_00]: On the other hand, if people are using digital tokens as a fun raising mechanism for an enterprise, we're back to that world where the promoters have superior information to their investors and we need a leveling up process.
28:45
[SPEAKER_00]: Hence, we have an SDC for native issues of digital securities, we'll have a CFTC overseeing the trading and the market activity of digital commodities like
29:01
[SPEAKER_00]: And thankfully, under the new leadership of the SEC and the CFTC, this has all been clarified.
29:08
[SPEAKER_00]: Under the previous administration, the chairman, the SEC, you know, was notorious for going in front of Congress, saying he can't tell, he couldn't tell Congress, whether Ethereum was a security or a commodity.
29:19
[SPEAKER_00]: Well, he won't tell Congress what it is, how can the, how can the industry, how can market participants, how can traders know, whether they're subject to SEC or CFDC law and that confusion, held back the market.
29:32
[SPEAKER_01]: Yeah.
29:33
[SPEAKER_01]: Well, I think you make a great point in that both play an important role, just maybe in different ways, and with how big the US financial markets are, I think it makes sense, right?
29:45
[SPEAKER_01]: It's the world's largest economy, the world's largest financial park market by far, and so having both of those plays a critical role,
29:55
[SPEAKER_01]: And it will be exciting to see how crypto continues to interact with these because it really does look like it's in a positive light in the moment.
30:02
[SPEAKER_01]: We hope that that trend continues.
30:04
[SPEAKER_01]: But now what you have is even within that bubble, there's all these different sectors of crypto, right?
30:09
[SPEAKER_01]: I'm curious what do you think are some of the most impactful or important parts or sectors within crypto or blockchain technology?
30:19
[SPEAKER_00]: Wow, there's so much, you know, in my, in my new book, I, I tried to kind of,
30:26
[SPEAKER_00]: give the big picture, and the big picture is we're in a third wave of the internet right now.
30:32
[SPEAKER_00]: The first wave impacted information sharing, the way we gather information, share information, socially interact, social networking.
30:41
[SPEAKER_00]: The next wave gave all of our devices the ability to go on network and to be driven centrally in a way that provides much greater information, much greater
30:56
[SPEAKER_00]: to banking and finance and money itself and bringing all of those efficiencies that any time you move from analog to digital you get in the markets and it's going to have such a dramatic impact on all of our financial activity, we're moving away from a fragmented, very expensive financial
31:21
[SPEAKER_00]: it's expensive and worst of all it's actually very exclusive in our current financial system you can't utilize the system unless you have credentialed identity and in a world of eight and a half billion people roughly a billion or more people do not have credentialed identity.
31:40
[SPEAKER_00]: They're just Joe from the other side of the mountain.
31:43
[SPEAKER_00]: And they can't access, they have no financial wherewithal in our current system.
31:48
[SPEAKER_00]: But by going to a digital network, we're going to not only make it cheaper, not only make it faster, but we're also going to make it more open to people around the world who don't have credentialed identity.
32:02
[SPEAKER_00]: So this is a major transformation of the financial system.
32:07
[SPEAKER_00]: It's not going to happen overnight.
32:09
[SPEAKER_00]: but it's definitely happening and it's jumped the shark from being something that was just a retail experience to now expecting all of Wall Street.
32:17
[SPEAKER_00]: So if you are already in Sir following what the depository trust clearing corporation is doing, so it's known as DTCC for your listeners, DTCC basically runs the plumbing of Wall Street.
32:30
[SPEAKER_00]: You know, brokers, after their clients to buy and sell securities, but it's DTCC that make those securities get to where they've got to go, where they serve as a buyer and every seller, and they move everything.
32:42
[SPEAKER_00]: There were utility that was founded in the 1970s when Wall Street almost came to a halt because all those papers certificates that had to be run all around Wall Street from Wampus to office.
32:53
[SPEAKER_00]: and DTC created that.
32:54
[SPEAKER_00]: But even DTC itself, up until now, was pretty much an account-based system.
33:01
[SPEAKER_00]: Well, DTC is moving all of its infrastructure to a blockchain-based system based upon its own inherent L1 Basu, but also the Canton network.
33:13
[SPEAKER_00]: And this is going to be a fundamental transformation.
33:16
[SPEAKER_00]: Wall Street is moving.
33:18
[SPEAKER_00]: You might say it's moving from copper phone lines to fiber optic.
33:24
[SPEAKER_00]: It's moving from an account-based system to a blockchain-based distributed ledger system.
33:31
[SPEAKER_00]: And every firm on Wall Street is tied into DTCC, everyone.
33:35
[SPEAKER_00]: And so everyone are going to have to move in that direction, and not unsurprisingly, both NASDAQ and New York Stock Exchange,
33:41
[SPEAKER_00]: have it announced they're going to similarly do the same thing to hook up to this new system.
33:45
[SPEAKER_00]: So ladies and gentlemen, the whole architecture of the American financial system is moving to a blockchain basis.
33:52
[SPEAKER_00]: We're way past the crypto's just some funky new asset class.
33:57
[SPEAKER_00]: It's really the architecture finance and that's what my new book is really about and what the impacts of that are going to be.
34:04
[SPEAKER_01]: I mean, that sounds like the fundamental definition of tokenization, right?
34:09
[SPEAKER_01]: It is.
34:10
[SPEAKER_01]: I mean, which is a really positive thing.
34:12
[SPEAKER_01]: You gave the different examples of how that's happening.
34:15
[SPEAKER_01]: But that's what that sounds like to me is like, this is,
34:19
[SPEAKER_01]: exactly how tokenization is happening in real time.
34:22
[SPEAKER_01]: And we're not theorizing.
34:24
[SPEAKER_01]: We're not saying it's going to do this in that.
34:25
[SPEAKER_01]: It's like how is this actually happening at the highest levels, which is an exciting thing, because there's a couple of big things that come out of this, right?
34:33
[SPEAKER_01]: More people get access.
34:34
[SPEAKER_01]: If more people get access, then you have more liquidity.
34:37
[SPEAKER_01]: If there's more liquidity and more access, then you have more trading, obviously.
34:42
[SPEAKER_01]: It's a good thing for everyone.
34:43
[SPEAKER_01]: It's a win-win where people get to have, yeah.
34:45
[SPEAKER_00]: Let me give you one example.
34:47
[SPEAKER_00]: So one of the things that DTC does is have to move credits of ownership of securities, not just equity, but also debt securities, government securities, from various accounts.
35:00
[SPEAKER_00]: Now, you can imagine a firm like JP Morgan is probably got not hundreds.
35:05
[SPEAKER_00]: We're talking about thousands of different accounts.
35:08
[SPEAKER_00]: with DTCC and with different banks and every one of those accounts they have to keep a few dollars in to keep them alive right and it's probably not a few dollars it's probably a few thousand dollars if not tens of thousands of dollars just to have you know a little minimum amount of liquidity keep your accounts going.
35:24
[SPEAKER_00]: Well, when you move everything to a blockchain, you're no longer keeping little bits of money here and there in thousands of different accounts.
35:31
[SPEAKER_00]: All of that capital goes back to the balance sheet of these financial institutions.
35:36
[SPEAKER_00]: And if you're a customer of these financial institutions, that greater capital efficiency is for your benefit.
35:44
[SPEAKER_00]: So Wall Street is not doing moving
35:50
[SPEAKER_00]: If this is real dollars in cents that are going to be saved and brought back into the system because of this.
35:57
[SPEAKER_00]: And by the way, once the United States does this, every major economy is going to move in the same direction as well.
36:01
[SPEAKER_00]: It's being invented here as we speak today.
36:04
[SPEAKER_00]: It's really impressive.
36:07
[SPEAKER_02]: I think the one thing that bankers hate more than crypto, or what they think they hate about crypto, they probably hate idle capital and just non-yielding cash, and so blockchain unlocks idle capital where it's going to be a thing of the past.
36:21
[SPEAKER_02]: People are in 20 years and we're like, oh my god, can you, you guys remember when we used to just have cash sitting around that was yielding nothing for no reason other than just technology?
36:30
[SPEAKER_00]: Absolutely.
36:30
[SPEAKER_00]: And by the way, people talk about the banks being opposed to crypto.
36:35
[SPEAKER_00]: It really wasn't the big Wall Street banks.
36:38
[SPEAKER_00]: They got it a long time ago.
36:40
[SPEAKER_00]: It really was the trade associations for the middle tier banks.
36:45
[SPEAKER_00]: Again, in my new book, I recount how the banking lobbies representing America's community banks and regional banks,
36:54
[SPEAKER_00]: opposed virtually every new innovation over the last 30 years.
36:58
[SPEAKER_00]: From branch banking to chip readers on credit cards to ATM machines, they went to Congress to use their cloud to stop everyone of those only to have those innovations happen anyway that usually happened in Europe.
37:13
[SPEAKER_00]: and eventually Americans came back from Europe saying, why am I swiping my credit card when in Europe I could just tap for it?
37:20
[SPEAKER_00]: Why am I having to go to a branch bank to earn business hours when in Europe they've got ATM machines?
37:26
[SPEAKER_00]: And eventually American bags had to adopt the technology, but only after they fought it in the holes of Congress.
37:32
[SPEAKER_00]: And so once again, I think it was the lobbyists, and I'm not even sure these banks fully bought in to what their lobbyists were telling them, but their lobbyists were telling them, we need to fight for you to stop this innovation.
37:44
[SPEAKER_00]: And maybe it was so you can buy time so you can adopt it.
37:47
[SPEAKER_00]: I don't know, but unfortunately I don't think there's lobbying groups.
37:51
[SPEAKER_00]: We're in the back and the best interest of the banks who are going to be affected by this technology anyway, so better to get in front of it and use it to provide value added for your customers rather than to try to stop it in Congress and hope it goes away only to have to pick it up in a few years' time anyway, which is where we're headed.
38:09
[SPEAKER_02]: I'm curious where you think sort of the big winners are going to be.
38:13
[SPEAKER_02]: And I know we've talked about like, oh, you know, there's going to be a rising tide that lifts all boats, but do you think it's going to be, and maybe you could do a top two or top three, if you were to have to narrow it down?
38:23
[SPEAKER_02]: Is it going to be the decentralized exchanges that sort of you look out 10 years?
38:27
[SPEAKER_02]: That's where the most
38:29
[SPEAKER_02]: capital accretion was or do you think it's going to be the the layer ones like a theory more everything kind of settles back down to do you think it'll be the equities um... that are publicly traded stocks that sort of facilitate this or something else where do you kind of see uh... if you were to look out ten years where most of the value and uh... i don't know the next multi millionaires are going to be minted from well first of all i wouldn't discount the incumbents
38:55
[SPEAKER_00]: Sure, you know, some of our great Wall Street banks and financial institutions.
38:58
[SPEAKER_00]: I mean, you can't get more Treadfire than DTCC and look at them getting out in front of all of this.
39:05
[SPEAKER_00]: So you can't discount a firm simply because because they've been around, it really is about the leadership.
39:11
[SPEAKER_00]: And the leadership of DTCC, Franklin Salos, the CEO there is one of the visionaries in this industry, and he's going to go down in history as one of the real leaders.
39:21
[SPEAKER_00]: But on the other hand, there are some real new entrants who I think are very, very exciting.
39:27
[SPEAKER_00]: So, you know, I've been, and I write extensively about this.
39:30
[SPEAKER_00]: I devote a whole chapter to prediction markets in my new book.
39:34
[SPEAKER_00]: They're bringing a service to the public that once the public gets used to it is not going to turn around and walk away from, and that's prediction markets themselves.
39:44
[SPEAKER_00]: In the same way that Uber didn't replace right-hailing, but brought a service that people really liked in terms of right-sharing,
39:53
[SPEAKER_00]: And there was no turning back.
39:55
[SPEAKER_00]: And that right sharing had to fight against entrenchment, monopolies, airport, and limousine commissions all across the country, but the public really liked ride-hailing and, after a while, those monopolies had to yield to that new service.
40:10
[SPEAKER_00]: I feel the same way about prediction markets.
40:12
[SPEAKER_00]: They're not going to replace bookies and casinos.
40:16
[SPEAKER_00]: But they're going in the same way that ride sharing became a compliment to ride hailing.
40:22
[SPEAKER_00]: Prediction markets are going to be a compliment to to booky models because they create real marketplaces that uncover the truth.
40:31
[SPEAKER_00]: They uncover more and more studies are coming out.
40:34
[SPEAKER_00]: And I cite some of them in my book about how accurate these prediction markets are.
40:39
[SPEAKER_02]: Yeah.
40:39
[SPEAKER_00]: You know, people love the weather report, even though they know it's 10% wrong, because it still tells them bringing umbrella today if it's in it might rain.
40:47
[SPEAKER_00]: Well, the weather's important.
40:48
[SPEAKER_00]: Not getting wet's an important thing, but you know what's more important?
40:52
[SPEAKER_00]: Where gas prices are going?
40:54
[SPEAKER_00]: What's more important is we're interest rates are going, because they affect whether I go on a summer vacation by car, they affect whether I'm gonna buy or sell a home.
41:02
[SPEAKER_00]: Those are really important for people.
41:04
[SPEAKER_00]: And here to for, we've got very little predictability.
41:06
[SPEAKER_00]: But these prediction markets are turning out to be very, very probable providential as to what the outcome of some very important things are.
41:16
[SPEAKER_00]: And once the public gets used to them, there's no going back.
41:19
[SPEAKER_00]: And they're creating their own marketplaces that are built on block chains that are paid for and stable coins and cryptocurrency.
41:25
[SPEAKER_00]: And they're here to say, I think that, you know, if I'm not in a company exchange like New York Stock Exchange or a NASDAQ, I'm looking over my shoulder at these new emerging exchanges.
41:35
[SPEAKER_00]: Oh, by the way, they're also investing in them.
41:37
[SPEAKER_00]: So they're not being surprised by this.
41:39
[SPEAKER_00]: They're trying to get ahead of it.
41:40
[SPEAKER_00]: And I write about that in my book.
41:41
[SPEAKER_00]: So I think there's some really new players.
41:44
[SPEAKER_00]: I think some of the,
41:46
[SPEAKER_00]: Those that are building on some of these digital rails or some of the potential winners in this.
41:50
[SPEAKER_00]: I think firms like Paxos and ZeroHash and Agura are doing some really interesting things.
41:57
[SPEAKER_00]: So I'm excited.
41:58
[SPEAKER_00]: I think we're going to have a lot of winners and losers.
42:01
[SPEAKER_00]: The losers will be those in combat firms.
42:05
[SPEAKER_00]: that for whatever reason think they can sit this out and be laid adopters to this, things are going to move so fast that you really need to be a first mover or a close follower for this innovation.
42:19
[SPEAKER_01]: Absolutely.
42:20
[SPEAKER_01]: There's so much to do to digest here, which is a, I guess, a double edged sword because it's like, man, we have to balance out, making sure that we, we don't go over here, but there's so much that we want to talk to you about, but yeah, I kind of said, maybe we make this, you know, a two part of we break for five minutes, get some water come back for another two hours.
42:37
[SPEAKER_02]: That would be ideal, but we want to be sensitive of your time.
42:41
[SPEAKER_00]: Um, you know what, we can, we can, we can get a part two.
42:44
[SPEAKER_00]: Let's get it on the
42:47
[SPEAKER_00]: My son Luke John Carl, who can join me, Luke helped me with the book.
42:51
[SPEAKER_00]: He said standard charter now headed digital assets.
42:53
[SPEAKER_00]: North and South, it brings a bit of a generational viewpoint of this that's really helpful.
42:58
[SPEAKER_00]: So they'd we can do that.
42:59
[SPEAKER_00]: Be fine.
43:00
[SPEAKER_02]: Crypto Dad Crypto Son.
43:01
[SPEAKER_02]: Yes.
43:02
[SPEAKER_02]: That's awesome.
43:03
[SPEAKER_01]: Yeah, go for Brendan.
43:04
[SPEAKER_02]: Sorry to interrupt.
43:05
[SPEAKER_01]: No, not at all.
43:06
[SPEAKER_01]: And I was going to say speaking of crypto dad, I want to dive into this new book a little bit.
43:12
[SPEAKER_01]: It's exciting.
43:12
[SPEAKER_01]: It's coming out here in the next month for everyone, but it's going to be the new adventures of crypto dad following up on the previous book.
43:20
[SPEAKER_01]: And in this book, you're arguing that tokenization could reshape things like stocks, bonds, mortgages, real estate, identity,
43:29
[SPEAKER_01]: you know, money is a whole.
43:30
[SPEAKER_01]: I guess which of those markets changes first and which ones maybe change later on.
43:36
[SPEAKER_00]: Yeah.
43:36
[SPEAKER_00]: And by the way, we didn't even get to, but I do in the book once AI comes into this in a Gentic AI.
43:43
[SPEAKER_00]: That's really that.
43:44
[SPEAKER_00]: who flips the switch, but what's coming first?
43:46
[SPEAKER_00]: Well, certainly, again, we talked about DTCC, tokenization of the collateral stack is going to want to be one of the big institutional movers there.
43:58
[SPEAKER_00]: In more retail markets, whether it's prediction markets or perps, are really becoming a game changer in those markets as well.
44:08
[SPEAKER_00]: And I think we're starting to see the debasement trade come back a bit too with Bitcoin, you know, that one of the drivers of Bitcoin is the fact that it's immune from the debasement of the U.S. dollar.
44:22
[SPEAKER_00]: And it wasn't surprising to me that Bitcoin began its renewed run
44:29
[SPEAKER_00]: At the same time that we saw interest rates being rising in the fed raising the basis rate which indicated the United States is going to be paying more interest on its debt and how do they pay interest on its debt by basically printing more money.
44:47
[SPEAKER_00]: And so the debasement trade I think is back and so we're seeing the twin effects of crypto as an asset class hasn't gone away.
44:56
[SPEAKER_00]: But crypto as architecture is really on on the move right now.
44:59
[SPEAKER_00]: So both ends of the of the crypto value proposition right now.
45:03
[SPEAKER_00]: I think I have been re-energized.
45:06
[SPEAKER_01]: What do you think has changed the most since your first book came out that you're like, man, we got to follow this up.
45:12
[SPEAKER_01]: We got to talk about it.
45:14
[SPEAKER_01]: What what have been some of those big changes.
45:17
[SPEAKER_00]: Well, I'll tell you something I'm very proud of.
45:19
[SPEAKER_00]: At the time that my agency, that we launched LabCFTC in the summer of 2017 and instructed it to learn everything we could about crypto and to prepare for.
45:34
[SPEAKER_00]: the eventual launch of Bitcoin futures and then be in petition by two of our largest exchanges the CME and the CBOA about launching their future in the fall of 2017 and the decision to do it.
45:51
[SPEAKER_00]: Against the opposition of Wall Street against the opposition of some of the major futures industry trade associations against the opposition of a whole series of regulators both in the United States and in Europe, and I write about this in my first book We did it anyway that would you know at the time I was scared to death.
46:09
[SPEAKER_00]: I don't think I slept for nights with that decision, but I knew is the right thing.
46:13
[SPEAKER_00]: I felt it was if Congress didn't outlaw the asset class
46:17
[SPEAKER_00]: Then I felt it was my duty as a regulator to put a regulatory framework around it, not to somehow bury my head in the sand and hope it would go away.
46:25
[SPEAKER_00]: Well, I think there's two types of regulators.
46:28
[SPEAKER_00]: There's those that we saw of last four years that tried to stop technology under the belief that any threat to the status quo was a threat to financial stability.
46:41
[SPEAKER_00]: And those regulators like me who are now and followed by Paul Atkins and Mike Seelig, who are saying, yeah, we can't try to stop this technology.
46:50
[SPEAKER_00]: In fact, what we've got to do is put it on solid, a solid foundation.
46:55
[SPEAKER_00]: So what I'm most proud of is that example that I hope we set back in 2017, 2018,
47:02
[SPEAKER_00]: And what's continued by my successor, Heat Torbert, is now being picked up by a new generation regulators that are doing the same thing.
47:09
[SPEAKER_00]: And that is, that same thing is saying we're not going to fight the tide of technology.
47:15
[SPEAKER_00]: We're not going to fight the march of time.
47:17
[SPEAKER_00]: We're actually going to flow with it.
47:19
[SPEAKER_00]: It doesn't mean we're going to get everything right.
47:22
[SPEAKER_00]: but we're not going to try to resist it.
47:23
[SPEAKER_00]: We're going to try to put guardrails around it that are suitable to that technology as opposed to guardrails that were built for an analog world trying to control a digital world with those old guardrails.
47:35
[SPEAKER_00]: It's a scary proposition.
47:37
[SPEAKER_00]: You know, nobody in Washington gets the next job if something goes wrong under their current watch.
47:43
[SPEAKER_00]: I had the benefit of when I went in, I for a five-year term, I said I'm not serving a second term.
47:49
[SPEAKER_00]: So I didn't have to worry about getting reconfirmed for another job, for those people in Washington that want their next job and the job after that and the job after that, they're usually quite risk adverse.
48:00
[SPEAKER_00]: And I don't think risk adverse in a country that celebrates technological evolution the way the United States does.
48:09
[SPEAKER_00]: I don't think risk adverse should be a prerequisite for a job
48:14
[SPEAKER_02]: Yeah, I mean, the country was built on risk-taking, I mean, George Washington himself was a private ear.
48:22
[SPEAKER_02]: Great point.
48:23
[SPEAKER_02]: Yeah, and, you know, capitalism, it's all about, you know, taking risk and so we couldn't, we couldn't echo that sentiment more here at Crypto 101.
48:32
[SPEAKER_02]: On your book, I love the subtitle, I think that's what it's called, where, you know, it's the new generation of Crypto Dad sub, sort of the quest for financial freedom in the 21st century.
48:42
[SPEAKER_02]: And to me, it's like, you know, it represents sort of this fight, this quest, this adventure, this not just, you know, passive thing, but where you have to kind of go out and fight over the future of your own financial freedom.
48:59
[SPEAKER_02]: But I want to kind of ask you, what do you think is the biggest threat to freedom today?
49:07
[SPEAKER_02]: is it the regulators?
49:08
[SPEAKER_02]: Is it the government?
49:09
[SPEAKER_02]: Is it, um, you know, a lot of people have the technological fears.
49:12
[SPEAKER_02]: I mean, my mom called me the other day.
49:14
[SPEAKER_02]: She goes, hey, I'm reading headlines about AI and robots killing all humanity by 2030.
49:19
[SPEAKER_02]: You know, and she's like, there's these real thoughts and fears over just technology.
49:25
[SPEAKER_02]: So where's the biggest threat to our financial freedom?
49:27
[SPEAKER_00]: Oh, Bryce, I'm so glad you asked it because it really is the key themes, the key focus in my book, and the focus is how do we make sure that this wave of the internet?
49:37
[SPEAKER_00]: doesn't wind up like web 2 where we became beholden to a new set of intermediaries that turned us into a product.
49:47
[SPEAKER_00]: How do we make sure that doesn't happen?
49:49
[SPEAKER_00]: And I think the biggest risk of that happening is a continuing insistence on
50:03
[SPEAKER_00]: on law enforcement reliance on an analog-based know-your-customer KYC system.
50:10
[SPEAKER_00]: The current system we have to prevent financial crimes is known as the Bank Secrecy Act, which has nothing to do with secrecy.
50:21
[SPEAKER_00]: It has everything to do with surveillance.
50:24
[SPEAKER_00]: And the current system, and I write about this extensively in my book, the current system is designed
50:32
[SPEAKER_00]: in advance, in the event that people are doing something illegal.
50:37
[SPEAKER_00]: It's operated not on the presumption of innocence, but on the presumption of guilt.
50:43
[SPEAKER_00]: It's almost like every car has to be stopped before they get on the highway and searched.
50:49
[SPEAKER_00]: In case they may do something wrong on the highway like speed or or or reckless driving.
50:56
[SPEAKER_00]: That's the wrong method of law enforcement, but that's the law enforcement way that came out of the traditional analog financial system.
51:04
[SPEAKER_00]: And because of that, it requires, as I said before, credentialed identity to access it, because the law enforcement needs to be able to go after somebody if something does something wrong.
51:16
[SPEAKER_00]: But the new technology enables us to transcend that old approach to financial surveillance and actually allow law enforcement to be nodes on blockchains and to observe activity suit anonymously.
51:30
[SPEAKER_00]: and only unmasked that activity if there's actual probable cause of law breaking, which is much more in line with the Western democracies approach to law enforcement.
51:41
[SPEAKER_00]: You know, like, we don't stop you before we get on the highway.
51:44
[SPEAKER_00]: We allow you freely onto the freeway.
51:47
[SPEAKER_00]: And if there's probable cause of lubricating, indicated by speeding, reckless driving, driving without your headlights and other things, then you're stopped, the behavior is stopped, and then if there's a reason they'll gather identity and maybe record identity.
52:03
[SPEAKER_00]: But it's identity last.
52:05
[SPEAKER_00]: not identity first.
52:07
[SPEAKER_00]: Our current financial crimes enforcement approaches at much more identity first basis and it's become a giant surveillance system and every intermediary in the financial system has to gather that information and make it available to the government on a moment's notice, often without a subpoena, without any probable cause,
52:27
[SPEAKER_00]: Again, I write about this in my book, Jim Harper, a Constitutional scholar, had the IRS take all his information off Coinbase without any probable cause whatsoever, since because they want to know what was going on.
52:39
[SPEAKER_00]: That's not the usual deal, the, a free society like America, had with their government that governments have titled to know what you're doing with your money.
52:46
[SPEAKER_00]: but that's what's going on in the digital world.
52:48
[SPEAKER_00]: So we're already off on the wrong foot.
52:51
[SPEAKER_00]: The genius act was an enormous accomplishment, except for in one area and that one in the area was it applied, the analog bank secrecy act rubric on top of a new digital platform.
53:02
[SPEAKER_00]: And so stablecoins will become the new government surveillance tool, which is truly unfortunate.
53:13
[SPEAKER_00]: on this new digital world when it comes to having financial privacy.
53:18
[SPEAKER_00]: And I think as a free society, we do not want to do what China's doing with their government CBDC, which is meant to be a control instrument.
53:27
[SPEAKER_00]: IE, if you criticize the regime, your money gets turned off and you can't get a bus out of your village.
53:33
[SPEAKER_00]: We don't want a system like Europe's new digital euro which I'll be not a control system is going to be a government surveillance instrument.
53:42
[SPEAKER_00]: European officials have said with the new system they'll be able to track wherever euro goes.
53:47
[SPEAKER_00]: Even if it's a lawful transaction they want to track wherever euro goes.
53:51
[SPEAKER_00]: We in the United States, I think, have the opportunity to create a system that's much more in line with our values, where there's a balance, the same balance that goes all the way back to Magna Carta, between a person's individual rights of freedom and privacy, balance against legitimate law enforcement needs.
54:09
[SPEAKER_00]: A person's home should be their castle and government should nail the eavesdropping what's going on.
54:14
[SPEAKER_00]: Unless, of course, there's probable cause, you know, methane coming out of the chimney, indicating there's a meth lab going on inside.
54:22
[SPEAKER_00]: And guess what, in that case, the government does have the right to break down the doors.
54:26
[SPEAKER_00]: So we've always had this balance between law enforcement and privacy.
54:30
[SPEAKER_00]: We need to, but every generation has got to fight for it a new.
54:33
[SPEAKER_00]: And that's why I call it the quest for financial freedom.
54:36
[SPEAKER_00]: We've got your generation.
54:38
[SPEAKER_00]: has to fight for financial privacy, reaping real establish as a good and it's in its own right.
54:46
[SPEAKER_00]: You should be able to buy things for your wife and children without the government knowing what they are.
54:52
[SPEAKER_00]: It's none of the government's business.
54:53
[SPEAKER_00]: Unless you're using it for law breaking.
54:56
[SPEAKER_00]: Right now, the government under our Bank Secrecy Act can scoop up jobs and jobs of information about people's financial transactions, simply because they want to have a look through it.
55:07
[SPEAKER_00]: That's not good enough, and has their purse, Commissioner at the SEC, has given some great speeches about this during their tenure and just gave one as she's walking out the door.
55:16
[SPEAKER_00]: And I talk about that in my new book.
55:18
[SPEAKER_00]: But I really, on this note, I really encourage your listeners to get a copy of my book read it and get activated.
55:25
[SPEAKER_00]: We all need to go and fight this fight to make sure that
55:29
[SPEAKER_00]: the future of finance is one that's not only faster, cheaper, includes more people, but it's also one that protects our privacy as citizens to conduct our financial affairs without being eavesdropped on by government or by big tech companies or by financial institutions using our information, selling our information, doing what was our information.
55:50
[SPEAKER_00]: You know, get away, get out of my pocketbook, get out of my wallet, my financial transactions, as long as they're legal or nobody's business.
55:58
[SPEAKER_00]: And you know, maybe I want to sell that data and get a discount on something, that's fine, but that should be my choice, not the government's choice, not a big tech company's choice, not a banks choice.
56:08
[SPEAKER_02]: Yeah, it's such a powerful note to just kind of be reminded of as we sort of wrap today's call and it kind of, you know, resonates a lot with me.
56:17
[SPEAKER_02]: I mean, that's why I called my book The Crypto Revolution.
56:21
[SPEAKER_02]: I didn't say like the crypto discussion, you know, we were founded on revolutionary principles, you know, in 1776, we were always, you know, you know, that's just the American spirit and crypto, I think in bodies that it's a revolution, it's totally putting the traditional frameworks upside down against their will and saying this is the will of the people.
56:44
[SPEAKER_02]: Um, and so I love that you've got this, um, you know, theme throughout your book and I cannot wait.
56:50
[SPEAKER_02]: I've got to open here on Amazon.
56:51
[SPEAKER_02]: I'm going to pre-order it right now.
56:53
[SPEAKER_02]: I can't wait to bust into it on October 27th.
56:56
[SPEAKER_02]: And Chris, we're going to have you back on, uh, bring your son on Luke, uh, head of digital assets at Standard Chartered.
57:02
[SPEAKER_02]: We're going to have an awesome, uh, you know, rest of the year all together celebrating
57:06
[SPEAKER_02]: the early stages of a renewable market celebrating incredible, you know, new regulations, the chilling effect from the last administration is gone.
57:16
[SPEAKER_02]: We've got now the the reheating phase.
57:18
[SPEAKER_02]: And so a lot of good stuff and again, I've got so many other questions that we just don't have the time to dive through right now, but we're going to make sure it's covered so Chris,
57:28
[SPEAKER_02]: Thank you.
57:28
[SPEAKER_02]: And that's all I could say.
57:29
[SPEAKER_02]: Thank you.
57:30
[SPEAKER_02]: Everybody at home watching.
57:31
[SPEAKER_02]: Check the show notes and Yeah, it was awesome.
57:35
[SPEAKER_02]: We're blessed to have you guys.
57:36
[SPEAKER_00]: Bryson Brendan look I look forward to doing it again soon.
57:39
[SPEAKER_00]: See you soon.