I think by now it's safe to say shouldn't be terribly controversial to say that
not only what they're saying out of the sec but actually how they're conducting business
again, is strongly consistent with a strategy of we think crypto is in the
state we are. If the rest of the world wants to proceed with these
disintermediated computer systems where trading and assets which you can create a thin air are
the realm of the coin, the rest of the world can go with God,
but cut the United States out of it. This content is brought to
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please visit bitgo dot com link in a description. Welcome to the Thinking Crypto
Podcast, your home for cryptocurrency news and interviews. With me today is Bill
Hughes, who's the senior counsel and director of Global Regulatory Matters at Consensus.
Bill, great to have you on. It's great to be here with you.
Thank thank you for having me. Bill. Let's start with your background.
Where are you from and what's your professional background. I'm born and raised
in Washington, DC, and after attending law school at the University of Virginia,
I went into litigation up in New York, then went back into government,
serving most recently at the Department of Justice, working with the Deputy Attorney
General, the chief operating officer of the Department of Justice. I then had,
by that point, become completely obsessed with the crypto ecosystem and decided to
forego an opportunity to go back into private practice at a law firm and instead
really want to dig into the crypto ecosystem. I found a wonderful opportunity at
Consensus to help them navigate the regulatory landscape and really think about things such as
regulatory risk, and I've been with the company for two and a half years,
really taking a global perspective on the changing regulatory landscape in the context of
the ethereum, programmable blockchain ecosystem and interoperable ecosystems. Now was your first encounter
with the crypto acid class and technology wity theorem or bitcoin? And what was
your AHA moment? It was bitcoin? It was twenty seventeen. Funny enough,
I just flew down to Austin to watch this solar eclipse, the one
that hit in North America most recently. Really, the first time I started
thinking about bitcoin and crypto generally was at the last solar eclipse in twenty seventeen.
It was a family member who peaud my interest into the subject. He
was even back then. God knows. I certainly don't remember what the top
ten coins were back in twenty seventeen in August, but he was researching them
while we were all on vacation, and it really piqued my interest. And
as soon as I started learning about bitcoin, I quickly couldn't think about really
anything else. So this is like my third cycle now, so I'm getting
a little long in the tooth, but it really was Bitcoin that got me
interested, and it was really in that cycle where Ethereum was very new and
sort of the concept that its proposition was really a new form of Internet was
still not fully explored in the crypto ecosystem, let alone broader society. And
I think the idea of a new Internet that has structured fundamentally differently, that
gives a lot more control and agency and authority to individuals as opposed to intermediaries,
it's exciting to see that arc slowly evolve over time in a, in
my view of very positive direction. Yeah. Absolutely so give us a quick
overview of consensus for those who may not know about the earth. So Consensus
Software was created in twenty twenty the summer I joined basically six months after it
was formed. It's a US company. It is a software company that works
on what really is an entire blockchain stack that works with Ethereum. It was
born out of a company which still exists, Consensus ag or now called Consensus
Mesh, which is a Swiss company that was founded. Both have the same
founders and CEOs, Joe Lubin from who was one of the many people on
the project that created Ethereum, that former company still exists. It attracts a
lot of projects, incubates them, invests in them, and tries to do
what it's done since basically twenty sixteen created an environment where Ethereum has a two
sided market, developers building useful apps, users coming in and using them,
attracting more developers, and having it being a very virtuous cycle. Consensus software
where I'm working. Some of those projects came out of the old consensus into
the new consensus that includes meta mask, which I'm sure your listeners are familiar
with, the infuror nodes through which most people access the Ethereum blockchain, and
a lot of exciting new offerings such as the layer two solution Linear, which
we launched recently and are looking forward to decentralizing, and other services like smart
contract auditing and other things. So it's really across the board. I enjoy
very much as a lawyer being on the cutting edge of crypto in many respects
and having to stay very up to date on what's going on with the ecosystem,
how those new ideas are being received around the world, not only in
the market but by regulators. So you know, you could you could find
more boring companies to be at that's for sure. This is this is certainly
an exciting one in the crypto ecosystem to be a part of. Yeah.
Absolutely, I mean, uh, Etherorem second largest by market cap, tons
of apps and different projects being built on Etherorem. And I think you guys,
if I'm not mistaken, and I don't know if I misread this,
but over the years, Consensus also works on other blockchains, right, Uh,
the names escape me, but I believe at one point Cardano, I'm
not mistaken, and not not on Cordona. So everything that our offerings generally
are interoperable with, obviously there's development work in order to expand, to ensure
because we want to make sure our offerings are are are as reliable as they
can be for users. They they're all interoperable with essentially the way Ethereum works
the virtual machine. So a lot of interoperable chains include Avalanche, Polygon,
Arbitrum, just to name a few, And so a lot of what encompasses
the DeFi is in this ecosystem, and a lot of the NFT landscape is
in this is in this ecosystem. Excitingly, just in the last year,
a new development in meta mask has been meta Mask snaps. Basically, what
this is is it creates an interface through which anyone can develop an interface that
allows the meta mask wallet to work with essentially a blockchain ecosystem that it previously
did not. A huge snap in this regard has been snaps which allow you
to use meta mask for Solana and so a lot of people are starting to
use their meta mask wallet for Solana, NFTs and a lot of mean coins
and the rest. And that was basically a third party using the meta mask
interface as a development platform to create something new, which is very exciting for
us as a company to be part of. Yeah. Absolutely, I know
many blockchains integrate the e v M, and which is pretty amazing when you
think about it, the entire ecosystem using that the ev M, and so
I don't know, I don't know if you can answer it because you're not
on the you know, one of the developers on the technical side was that
the goal of the EVM to get it, you know, used by different
chains, to have more interoperability and much more. I don't know whether it's
necessarily a goal for the EVM to sort of be the one virtual machine to
rule them all. I think it's probably safe to say that you want the
virtual machine to be as useful and efficient as possible. And it's just the
nature of markets and that and network effects that as you have a big concentration
of developers and a big concentration of apps, that users will migrate there,
and then it happens to be a very virtuous cycle. And so meta mask
is millions and millions of users. Lots of people build their apps to work
with meta mask because they know the user base is there. I think the
same thing if you're building a side chain or a layer too. The fact
that it can be interoperable with Ethereum not only means improved security for your chain
to the extent that you can use that base layer as and it's decentralization for
its security features, but it also comes with a huge community that has been
using Ethereum for years now. I think we are still in the processes of
seeing, especially chains which aren't sort of directly interoperable, how they coexist and
interrelate with each other. Bridges have been so far technology that's trying to meet
that need. But you know, as they say, early days, we'll
see how the marketplace and technology evolves to actually connect these these different ecosystems.
Yeah. Absolutely. Now bill etherorem obviously getting a lot of adoption, second
largest by market cap, right behind Bitcoin of course, and there's a lot
of the Bitcoin etf issuers are looking to get an etherorem ETF spoty TF.
However, there seems to be some challenges with the SEC and share genser and
so forth. I would love for you to talk about the recent letter that
was sent by you and your team to the SEC regarding the approval of the
etherm' spoty TF. Sure, as your viewers may be aware, bitcoin was
ETFs went forward basically at the start of this year. There had been a
long drawn out process to discuss with the SEC and eventually litigate against them to
get it approved. There were disagreements as to whether the bitcoin ecosystem was safe
enough for the average person to invest in through these basically securities products. Ethereum's
going through very much the same process now. There Early on was a lot
of there was a lot of let's say optimism about the SEC approving the an
Ethereum spot ETF because ethereum futures ETFs have been a proved and it looks very
much like a Bitcoin ETF, so not the logical next step would be,
for similar reasons, approve and the Ethereum ETF. We're getting very mixed signals
out of the SEC, specifically in response to all of these applications put in
by Van Eck, Arc Valkyrie, black Rock, Grayscale and the like,
and they're asking a lot of questions about the nature of ethereum. One of
those questions, which which because we're on the tech side of crypto, that
peaud our interests, was basically tell us about the proof of stake consensus mechanism,
which is different than how bitcoin works, and what if any concerns regarding
fraud or manipulation of Etherium That consensus mechanism poses another concentration in the ethereum community,
and these are areas that were very knowledgeble bound, and we think the
SEC could benefit from getting our perspective, so we submitted a letter basically addressing
that the proof of stake can census mechanism, there's no meaningful risk of fraudo
manipulation. In fact, the way it's designed is in some ways very similar
to the way bitcoin works. To ensure that the transactions are manipulated that people
aren't defrauded. But in some ways it actually improves upon the security model that
bitcoin uses. It's more expensive to attack the network, and attack is short
lived. And there's this concept of data finality the transactions. You go back
enough far in time, you actually can't change the transaction ledger at all.
So for all these reasons, there really is should be no question that there
are in terms of Froudum manipulation which should which should affect the decision to otherwise
approve in the theorem ETF. And we were happy to share those comments with
not only the sec but with the broader community. Now, Bill, do
you feel that it's not maybe a specific to etherorem an etherorem issue per se,
but rather a political one, because look, the only reason to approve
the pitcoin spot ETF is because the courts made them do it, and you
still had two commissioners at the SECU who did not sign off on the approval.
Chair Againser was a third, following Mark Eueita and Hester Purse. So
is this the larger macro theme of we want to slow crypto down or stop
it because it's disrupting so many things. Is that the macro and then we
can talk about the micro of etherom. I think by now it's safe to
say shouldn't be terribly controversial to say that the not only what they are saying
at the SEC. In terms of SEC leadership. Again, SEC leadership is
five commissioners, but really one commissioner holds a majority of the power. That's
the chairman, that is Gary Ginstler. Not only what they're saying out of
the SEC, but actually how they're conducting business again is strongly consistent with a
strategy of we think crypto is a mistake. We are if the rest of
the world wants to proceed with these disintermediated computer systems where trading and assets which
you can create a thin air are the realm of the coin. The rest
of the world can go with God, but cut the United States out of
it. What we have is a good thing. The SEC does a good
job, Our capital markets are strong. We don't need to be changing horses
to this new way of doing business. It's safe to say that that's kind
of the majority opinion. Certainly the opinion as far as outward objective evidence suggests
of SEC leadership, and so I think that's manifesting itself in the discussion about
the ethereum ETF conversation, they got huge criticism from people who otherwise they consider
allies. The current leadership the SEC considers allies for approving the bitcoin ETF in
light of the DC Circuit Court opinion which for basically ninety five to ninety nine
percent of people ended the discussion they had to do it. There are some
people very close to the leadership in the SEC who insists that they'd made the
wrong choice none by approving it after the or decision, they should have rejected
it. Again, I think that's way off a ledge, but it goes
to show you the type of organized, persistent antagonism that is I think generally
behind this view of the market and of crypto specifically. I think you're likely
to see litigation again about ethereu ETFs, and but that's largely driven as to
like how the SEC actually responds when it and it needs to formally respond by
like May twenty third, that's when we're going to start to get a view
behind the curtain as to what the SEC actually think says to these things.
So on that note of litigation, and correct me if I'm wrong here.
You know, the litigation that took place between Grayscale and the SEC was just
between those parties. There were no other issuers. Now there's a lot of
issues she got Black Croc and Fidelity and so forth. So could the SEC
get a lawsuit from each of these folks? Potentially? Really it It will
depend on their reasoning with respect to the first two. I'm sure all the
issuers are going to be discussing amongst each other, like how do they push
forward to, you know, enjoy the rights that they would otherwise have.
If they think the SEC is rejecting something unlawfully or their their logic doesn't hold,
they can have that rejection reviewed. It is final agency action that can
be reviewed by a court. If you think the agency got it wrong,
so precisely, how to proceed, Well, we will see. I suspect
it will not be. I suspect you probably get one, maybe two lawsuits
that really focus on the core issues, rather than a number of redundant lawsuits.
But the thing about litigation is it's not just about the merits of the
case. The process through which you litigate the case, the strategy, the
blocking and tackling of litigating can sometimes meaningfully affect the outcome. And so these
are very sophisticated players. I think they will if they choose to proceed in
a lawsuit, will do so as smartly as possible, and that could include
bringing lots of lawsuits. Some question, could they come together and have a
group lawsuit if that makes sense. There are frequent instances in which a case
is brought by a number of plaintiffs, each asking for relief with respect to
something a little different, but basically all their claims are very similar, and
so it makes sense to collapse all of what they're asking a court to do
into one package, one complaint. So they could do that. Alternatively,
you know, you could have the best plaintiff go forward to get the best
outcome for that plaintiff, and then with the idea being that the court's determination
would be equally applicable across the board, and so it's just a more efficient
outcome. Maybe some of those applicants who deal with the SEC often, maybe
you're a bit squeamish, more squeamish than you know people in crypto maybe for
bringing a lawsuit against the SEC. So we will, we'll see how it
unfolds. But I think the weight of opinion is that we can expect a
rejection of these products come may, and that for them to eventually be approved
by this leadership in the SEC will require a fighting court. Let's say they
rejected the case you have, black Rock and whoever else you know decides to
file a lawsuit. Let's say the election goes, Biden doesn't get re elected,
and that meets Genzer is out. Could the new SEC chair, whether
I'm assuming will be a Republican Republican appointed, would come in and say,
okay, I'm going to prove this, you know, just drop all this
stuff. Could that happen? Can that be a scenario that plays out?
It? Certainly? New leadership would certainly mean a different SEC on a number
of a number of bases. As a general matter, new leadership does not
necessarily change how the staff at the SEC, which is, you know,
staff work from one set of leaders to another to another to another over a
long period of time. You don't necessarily see immediate about faces among the staff
or the agency as a whole as to a position they've taken for years.
But priorities change, policies change. You could see if there's new leadership,
whether that's a Republican or Democrat, frankly, just because if Gary Ginstler leaves,
if Biden wins another term, and Chairman Gainstler leaves at the end of
the year because he didn't get any other spot in the administration and he just
wants to leave on his own terms. New leadership could be like, look,
our policy on this is different. Maybe we think we haven't been true
to our word, that we're not a merits regulator, and in fact we're
making a decision that this is all stupid to invest in, and really that's
not our job. They could stad They could instead take a number of different
tacks, which would, let's say, result in the parties coming to an
agreement that the active litigation should be paused while maybe a new process is worked
out, maybe new applications or filed, and an actual productive back and forth
about those applications is done, and and eventually if things work out, you
could you could certainly move to withdraw the case to to and and a court
can answer that. So you you certainly could see that whether it will come
to that is hard to say for sure. All right, So let's jump
to the micro of etherorem under the J. Clayton administration, or as the
chair of the SEC. Him and Bill Hinman gave clarity on Etherorem that it's
not a security. Fast forward. You know etheroremy future is and all these
things will approved to c FDC views as a commodity. But then Gary Genser
comes into office, he refuses to echo the statements of Bill him In and
Ja Clayton. Recently, Rosston Benham, chair of the CFTC, testified saying
he's not sure what the SEC is doing here, especially with the approval of
Prometheum's license to custody Etherorem as a security. And then you have rumors,
and this hasn't been confirmed or reports, I should say, of the Etheroum
Foundation getting I don't know what, is it a wells notice or something like
that. I don't know, Yeah, administrative subpoenas, that's the rumor.
Yeah, So what the hell is going on here? Is this once again
going back to the political thing against HER's playing games here. Maybe he's trying
to use this as a delay tactic. I don't know's it's hard to say
what It's impossible to say what's going on in this head necessarily because no one
really knows, but from what is being reported from what you can sort of
see in the public sphere, the SEC has been completely mixed messaged on a
recently that the Chairman has been purposefully evasive in public forums about the status of
Ethereum, and I think once that started happening, that was a big sign
that the understanding of the market, well, it was. It was certainly
a latent way to do it, a covert way to do it, but
it if if ethereum was so established as a commodity across the board, then
the SEC Commissioner should have no problem stating such. The fact that he wasn't
was in my view, a very a subtle but important indication that something was
afoot those messages, however, I completely get how the market has been so
certain to this date, even looking past what Hinman sent, even looking past
the guidance that they put out basically describing based on some sort of factors relating
to decentralization, when something should be considered a security. I think if you
look, if you read that twenty nineteen document and you look at ethereum,
you think Ethereum clearly passes the test. It's no longer a security. Even
aside all that, as recently as October twenty twenty three, we are talking
six months ago, the SEC allowed ethereum futures trading products to be listed on
CFTC regulated exchanges called dcms. Implicitly, that means that they don't view which
is the spot, which is the spot asset that the future is tethered to,
is a security. If it were a security, they couldn't just hand
the the ethereum futures product over to the CFTC and say it doesn't impact us.
There is a whole process of through which securities futures are supervised really by
both of these agencies. So six months ago you have the SEC stating pretty
definitively, although it's an implicit statement that ethereum is not a security. I
think the reports reflect a very recent acceleration in scrutiny of ethereum. I suppose
that you know, to the extent the SEC is interested in looking at the
ethereum foundation for the role they play in being somewhat of a shelling point in
ethereum development. That seems to jive with how the SEC generally sees the world.
There's always somebody at the center of it that you can point to and
say you're responsible, even though that's really not how Etheroreum works in practice.
You know, they'll they'll view it with the lenses that they see that they
view traditional finance in with. And so I think we should take these reports
seriously that they may completely flip their position on ethereum, and I think that
that would have really remarkable and negative impacts on the market generally and investors and
people who just use this technology separate and apart from any sort of investment use
case that there is, because it'll have an impact on them too. Yeah,
So, as you're saying that, I thought of the Ripple case,
right, and the ruling that came there, and obviously that hasn't fully wrapped
up yet, but there was a key ruling that the asset itself intrinsically is
not a security, but it just depends on how it's served up, and
you know, there's a contract and whatever it is. So, for example,
the judge said, which I'm sure you know, secondary market sales not
securities, but the institutional sales where maybe there was a contract and Ripple actually
spoke to people and so forth, how does that play a factor with E
theorem? I know it's a difference set with the entirely different, but how
does that play a factor in possibly fighting back against the SEC. So where
Ripple and these other cases, even the coin base case, the terror Terrorform
Labs case, and the coin based case, where they differ is that the
court and Ripple looked at Howie and said, well, how he applies to
individual contracts, transactions or schemes. And she said that the units which I'm
going to be focusing on here are these specific sales, in part because that's
the way the parties kind of presented the issue to the judge. However,
in these other cases, the court said, well, you know, you're
not limited to looking to specific transactions or to specific contracts. You can also
look at schemes. And the problem with the scheme is from the perspective of
somebody in the industry, is the SEC can define a scheme to be as
broad as it would like, and all a court needs to do is collect
all these odds and ends that the SEC is assembled in front of the judge
saying this is all a scheme, Judge, everything in here is a security
and the judge says, yes, I agree, it's an entire scheme.
And so anything within the scope is considered a securities transaction that needs to be
registered, and so that is the scope of Howie. Of the Howie test
is precisely the issue which continues to be the club that the SEC wants to
bash Crypto with and the point where Crypto is in response saying, there has
to be some limiting principle to this test. It can't be a mechanism through
which the SEC basically says, whatever we say is an investment contract goes,
and obviously it's not. Whatever their particular boxes you have to check. But
those boxes are not terribly difficult in most situations, especially in crypto, when
the indish the facts that you won't need to pull from and to bring together
can be you know, so broad and so diverse. So if the SEC
is right, then really a ham they could they could they could label almost
anything in crypto of securities transaction. And of course they have the view that
of of their of their authority under Howie and also their discussion as an agency
too, to label things as they see fit. Hopefully courts draw some much
needed lines there, and the in the community say collectively with one voice,
no, it cannot possibly be that Howie is a blank check for the sec
to do whatever it wants in this space, and if it indeed is,
then all the more reason for the legislature in this country to get its act
together and put forward meaningful, meaningful new legislation which sets forth a coherent policy
that doesn't set America at the sideline. And then in the rear view of
this, you know, world changing technological ecosystem. Hard question for you,
what do you think happens? First, this thing goes to the Supreme Court
because there's this split decisions in different circuits and so forth, or Congress gets
their act together and passes clear legislation. It's hard to say. I'd like
to say Congress, because anything going to the Supreme Court will take years because
what you need really unless it's really a crucial, juicy applicable in this setting
but also more generally issue of federal law or constitutional law, it really needs
to be something important that a lot of circuits disagree with, or at least
two we're not even anywhere close to two circuits disagreeing on these issues yet.
There way is for two circuits to take up the issue and decide it,
and then you have a conflict and do that quickly, but that doesn't normally
happen in situations like this. Congress could change laws this year, we can
get into this, but I think it's unlikely unfortunately that they will. But
who knows what the next Congress will bring. You know, A lot depends
on its composition and who's in the White House. I do think, and
I maybe i'd be so bold to share this with you. I do think
something will happen, which will I think in spur more legislative debate on these
issues. And it has to do with Prometheum, a special purpose broker dealer.
Well, I've had Aaron Kaplan promete them on and yeah, there's a
lot of things happening there, and it just I know, my gut feeling
is something seems shady there, there's something on there. Well, well let
me well, let me fan that fire for you. So basically when the
special purpose broker dealers, I believe this, this type of entity came into
existence basically in twenty twenty and Prometheum hasn't been approved by the SEC. It
was it was allowed membership into Finra, which is a self regulatory organization that
sort of does a lot of the day to day supervision of like what are
SEC rules and so operating is a special purpose broker dealer. In most instances,
you really don't have to go to the SEC and say, mother,
may I do X, Y or Z. What you do is you basically
say, I'm a regulated entity. I'm going to make a judgment as to
what I'm able to do, and I don't need that before I go off
and do it. I don't need that decision. Second guest or reviewed.
So Prometheum on their own said Ethereum is a security. Implicit in them custodying
it. It gets a little murky because under my understanding based on things I've
read, is it doesn't necessarily need while while it should be a security,
it may not necessarily need to be. To make matters even more complicated is
that they may not need to custody only registered securities. The long story short
is, there is a scenario it appears where by virtue of Prometheum saying on
its own, we are going to custody ethereum, the implication that it is
a security would open an opportunity for the SEC to revisit the issue. And
how it would revisit the issue is essentially finally talk to the CFTC and say,
hey, our view as the theoryum has changed. We understand that there
are products that are traded on exchanges that only you supervise that could no longer
happen given our change of view. Let's talk about a process through which we
can try to keep the market as stable as possible, but transition the regulatory
regime from being just CFTC to being combined. Because these are futures of securities
that has been posited by mostly in question form via blog by some very smart
regulatory lawyers, would it be consistent with these I think not too fanciful conspiracy
theories from people in the ecosystem about how convenient it's been for this prometheum to
come out of nowhere and be the darling of the sec and bandied about in
front of the press and in congressional hearings and all of a sudden picking ethereum.
It's all just a bit too coincidential. Yeah, and and this is
this is sort of what I just described to you could potentially be the third
act of what would be a masterful administrative strategic gambit to undo years of treating
ethereum as a commodity. We shall see how it plays out. But the
one thing that kept me skeptical of that being the outcome is whether special purpose
broker dealers like Prometheum could custody unregistered securities, not just registered securities, because
no one's registered Ethereum and no one practically can. There's maybe there's some notion
that maybe they could, and if that's true, then the last bar for
them to being able to custody it would be would go away. And so
I think watching Prometheum closely and how the SEC and finn RA handle Prometheum is
going to tell us a lot about the long term plan for Ethereum here.
So, so Bill, let's say that this is Gary's master plan, right
and under the current administration, Elizabeth Warren and all these people anti crypto Army
and all that this is the plan to try to classify ether as a security.
There's so many projects built on etherorem and so forth. What would the
next steps be if you were at the SEC to sue the Theorem Foundation and
what would that look like? Would Consensus enter into battle against the SEC with
other entities in the crypto industry? What can you tell us there? So
there was some I was watching another podcast I think it was last week,
where it was positive that all any investigation, any smoke associated with that or
Prometheum, was all about providing a basis to deny the ets and it wasn't
really an enforcement action in the sense that they were actually trying to build a
case that they could then bring to federal court. I actually don't subscribe to
that at all. I think that they're going to do everything across the board.
I think they're going to deny the application. They will make their they
I wouldn't be surprised if they make it strong of a case and many using
many different tactics that ethereum is a security, and I would and with respect
to who a case would be brought against. Again ones just speculating they could
do what they've always done and not bring a case against who they assert is
the issuer. Ethereum is a security could be an allegation in a case against
essentially anyone transacting or offering, facilitating, offering software in offering a platform where
Ethereum is traded, much like Coinbase. In the Coinbase case, they asserted
all the thirteen different tokens or securities without again bringing those claims against any one
of those token foundations or development teams or founders or anything like that. So
you could do it that way, I will, So it's it's unclear exactly
how it would happen. I think one thing is for sure, though I've
said this in the past, if bringing a case asserting the ethereum as a
security would essentially put everything outside of Bitcoin and some other proof of work tokens
that practically nobody cares about saying all of that is within the ambit of the
SEC, and the current SEC wants to see all of this go away.
So Ethereum would really would be the last stand. And so much like at
the end of Avengers Endgame, where all the different Avengers appear out of the
portals to fight the final fight against Stanos, you'd see something similar. I
think you'd have Gary Gensler standing across from an entire crypto ecosystem loaded for bear
to fight a fight which really dictates how the rest of crypto, at least
in the short term goes in this country. So I think it would be
I think it would be a very important fight and one that lots of people
would show up for. Absolutely that would be really crazy for the market.
And I'm hoping if it does get it at that Congress, they would be
forced to act like immediately like you have an entire industry, because what we're
seeing too is folks are suing the SEC counter suing, being proactive, like
not even waiting for any type of wells notice or anything. We're going to
sue you because we want to know what the hell is going on? What's
security? What's not? What about secondary market sales? And I want to
ask you this, given that both the CFTC and the SEC many times they
have turf wars going on. And look, we know they all battle for
more budget and who gets more share of the market and reviewing the market.
So what the sea FDC joined a crypto industry in fighting against the SEC.
Here is that even possible? I there are turf wars, I would be
extraordinarily surprised whether that they would take any dispute to the judiciary branch for resolution.
That's generally really not how things happen. When it comes down to it,
what the CFDC thinks and says does matter. It certainly matters to the
market. It should matter from in the interest of just sort of federal government
speaking with one voice for the Biden administration, speaking with one voice on issues.
It doesn't help anybody to have two different appendages of this same executive authority
saying completely different things about the legal status of certain conduct. That said,
the simple truth about securities is that the CFTC does not Their view that something
is not a security is not afforded weight in cot in comparison to what the
SEC has to say about it. If the SEC declares something of security,
then it's a security for purposes of the executive branch's position on it. I
think what notably you see here is the including very recently the chairman of the
CFTC appearing to tell Congress who funds these agencies and supervises them, he has
absolutely no understanding why the SEC has proceeded along this path appearing to be preparing
to declare ethereum a security. If they were to do that, the SEC
has to, for the sake of the market, work it out with the
CFTC about what comes next. There are a couple precedents about things going from
commodity status to security status based on how the rules work and how particular funds
are operated, and so these there's not It's not like there is no precedent
as to these things. But what's clear in those instance is the two agencies
talk and come up with a plan. It appears that that has not happened
yet, and being a wily political operative like Chairman Gensler, maybe the plan
is to ask for forgiveness rather than permission, and just to go ahead and
make it clear publicly that ethereum is a secure in the SEC's view, and
then leave the SEC the CFTC no choice but to get on the same page
with them, rather than try to come work out in some sort of compromise
beforehand, where the SEC would, you know, conceivably with that cfty C
would conceivably dig in its heels and be like, absolutely not, ethereum is
a commodity, full stop. We'll we'll argue, well, we'll take you
to the mat on this. Who knows how it plays out. It's just
clear that the agencies aren't talking right now, and certainly everything that's CFTC has
to say about it or has said about it historically, is going to be
brought up in any fight about the status of ethereum going forward, and as
rightfully it should be, and I think a federal judge would appropriately be alarmed
with what the market's been told and what it might be and the flip flop
which we may in fact see happen soon. Now. The House Financial Services
Committee, Patrick McHenry and these folks have been hounding Gary Ginter on these issues.
There's a couple of bills in the House, but it seems like stable
coins are or stable coin regulation is going to be the bill that gets through.
But do you think we can at least see the bills making out of
the House, not go through the Senate or get put into law, but
at least making out of the House this year Because Patrick McKinny and these guys
are making a big push. Maybe, and I think stable coins is a
maybe. I agree with you that out of all of the bills, stable
coins probably has the best chance of proceeding all the way to a bill that
would be sent to the White House. I will note that in terms of
what has been really standing in the way of the stable coin bill so far
has been the White House because the Fed and the National Economic Council do not
like the way that the original bill was structured. Whether their concerns have been
ameliorated hard to say. I think the next likely bill that would go forward
has to do with anti money laundering, some sort of expansion of the Bank
Secrecy Act authorities of Treasury or the sanctioning authorities of Treasury. This is in
response to DPRK hacking. This is in response to Hamas using tether and finance
and other rails to you know, transact in what on a relative basis is
a very small amount of cryptocurrency compared to their normal fundraising efforts. Right,
But that is Elizabeth Warren will not stop talking about it. Well, she
has an amazingly impressively poor track record of getting bills actually through the Congress.
She's a much better talker and backroom dealer than a legislator by any objective measure.
But she's not gonna let a drop. She actually has a number of
hawkish Republicans who just are very hawkish on national security things, feel very strongly
about drug trafficking and child trafficking and the like, and so so ani money
laundering, especially as it's applied to not just intermediaries but software developers in their
programs, wallets, DeFi protocols. I actually think that has a larger likelihood
of going through then market structure, which purports to divide the token ecosystem into
commodities and securities. And so, you know, all the best of luck
to Chairman McHenry and the other sponsors Chairman Thompson in getting this through. No
one's really seen revised language of the bill that they've they've put forward and have
kept very close wraps on. But we'll see what they can do. McHenry,
this is his swan song. You know, he'll be leaving Congress before
before the year is out, and so hopefully he is successful in getting these
things through. But with the election, with the how evenly divided the parties
are in terms of numbers, it's a very all task at the moment,
for sure. Bill, I forgot to ask you about this and how it
plays a factor as relates to what the SEC is trying to do. But
like black Rock tokenizing on Etherorem, PayPal launched your stable coin and Etherorem,
how does that come into play in fighting back against the SEC. I don't
know if it does, but maybe showing the centralization and utility and things like
that. I think it's biggest application is showing that, you know, this
stuff has a future, like the weird crypto people have been insisting for years
now, When Larry Fink says, yeah, they're right, it's a big
deal. More people who tuned you out because you were nuts or you were
different, you were a little radical, a little rough around the edges,
well styles, start listening to you and be interested into the argument that you're
saying. This is this is not just a way to gamble on you know,
fundamentally worthless Internet money. It's it's a new layer on which the world's
economy can run. Certainly it's financial markets can run, but it can also
do lots of other stuff too. So I think it really matters from that
perspective. And I and that really matters when it comes to how legislation and
rules are drafted. There there's sort of a spectrum about how careful legislatures legislators
are when they're drafting particular language on the negative impacts they're trying to address a
problem. Normally they're trying to solve a reduce a risk, or solve some
sort of problem that they see in the marketplace. Whether they're really also hyper
sensitive to doing something that is unnecessary that would injure that ecosystem. There's a
spectrum there. A lot of the folks who we view as very crypto friendly
are very sensitive to that. They don't want to pass legislation which unduly squelches
hitpers the industry, makes the tech fundamentally difficult to develop and use in the
United States. There are others who just simply don't care. Elizabeth Warren is
obviously the paradigm on that end of spectrum, whereas the purpose of the burdens
and regulation is to kill it in the United States and hopefully around the world
with any luck. So the the the the, So you get that sense.
I do think things where you can see blockchain as a settlement layer for
real world assets in a way that traditional financial entities are interested in leveraging that
technology and maybe even get on the same page with you with sort of evangelizing
it as the future, as Larry I think has clearly started to do.
I just think it's positive across the board, and you know, we'll see
what the future brings. I you know, is it going to be this
sort of crypto DeFi you know, a non utopia that maybe some people on
CT like strongly advocated for or probably not. But at the end of the
day, I think the market's going to dictate how it looks and and if
we're going to onboard the biggest financial institutions in the world, let alone governments,
the ecosystem, which is really just white space, is going to be
built accordingly to suit their needs and to suit their risk profile. So I
think you're going to see a range of offerings across the board, a range
of protocols across the board that are really tailored to what people want. And
I think that's one of the features of crypto right. So it's exciting,
to say the least. We've come a long way, and you know,
still have a long way to go. Sure, Bill, I know you've
kept you over time, So we can hit the wrap up questions here.
First, If you could create your own metaverse, what would the theme be?
Gosh, honestly, I couldn't say. I want it to be really
I think it would be really neat and I and I've not necessarily a metaverse.
Having having a way to incentivize uh, collective input on policy, I
think would be really interesting. You know, you know, betting markets actually
do a fairly good job at sort of like assessing otherwise uncalculable risks. And
I think there may be something really interesting about incentivizing smart, thoughtful, crowdsourced
input on policy and having that be a more effective fulsome way to like try
to get to the right answers on questions which are very hard right and get
around the you know, the secret vested, hidden interests of big players masquerading
as the voice of the masses. Right, there's something, there's something there.
There's something there, and you know, when if I ever have time
to work on it, maybe I do that for sure and get some rapid
fire questions for you. Firstus favorite food, let's say pizza because it's easy.
Favorite fast food is Popeyes swear by Popeyes. Favorite musician or band.
Really have liked The National for a long time. But if people have not
checked out Gregory Allen Issakoff, they should favorite movie. An eighteen year old
me would have said Shawshank or Braveheart. Recently, I really loved Oppenheimer,
and I'm pretty much one of these very you know, non unique persons who
think Interstellar is like a masterpiece. I mean, two of my top favorites
like Interstellar and I love Oppenheimer I also love If no one has watched Margin
Call, that's great, great, great movie about an investment bank and the
collapse and the collapse of the financial system. It's a endlessly rewatchable. Yeah,
I've watched in many times as well. The Dialogue and All those Things
is a really great favorite book. Favorite book. When I was a kid,
I loved The Killer Angels, which was a story about the Battle of
Gettysburg. Recently I just completed again completely pedestrian take for a crypto guy.
But I recently completed all four books related to the Three Body Problem. It's
the hardest best sci fi I've ever written in my life, and so I
wholeheartedly approve it or recommend it. So I would say recently, the most
captivated I've been in a book is the Three Body Problem series. Interesting,
I'll check that out. And when you're not working at consensus, what are
you doing for fun? I got three kids, so I'm driving them to
softball practice, picking them up from school. I love to cook. You
may have seen our new puppy walking around in the background. She's a handful
and exercising, and I'm like complete midlife guy right now, where I really
care that there are weeds in my lawn and it needs to be just so,
and so I get to play chemistry mad scientists by you know, trying
to kill some of the plants in my yard and not others. So you
know, getting old is fun and enjoying family life and you know, doing
what dads do, and that's what I do for fun. Bill, a
pleasure chatting with you. I got to have you on because obviously this etherorem
situation is going to continue, so I got to have you back on sooner
than later. But thank you so much for joining me my pleasure. It
will be an exciting summer to say the least, So thank you for having
me on.