Speaker 1: The point of regulation is to protect investors, make sure
Speaker 1: that people get the right disclosure. If you spend all
Speaker 1: of this time and energy trying to figure out which
Speaker 1: regulator to go to, what the requirements are, that is
Speaker 1: not actually helping the bottom line and helping investors. So
Speaker 1: I agree regulations should be easy. Regulation is burdensome, like
Speaker 1: when you're regulated. It's not supposed to be easy, but
Speaker 1: the process of getting registered and regulated and understanding which
Speaker 1: agency need to be regulated with that should be easy
Speaker 1: so that you can get to the bottom line and
Speaker 1: protect investors.
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Speaker 2: in crypto trust Bitgo. Hey everyone, welcome into the Thinking
Speaker 2: Crypto podcast. I'm your host Tony Edward and we're recording
Speaker 2: at Station three in New York's Financial District. And joining
Speaker 2: me today is Tiffany Smith, who is a partner and
Speaker 2: co chair of the Blockchain and Cryptocurrency Working Group at
Speaker 2: Wilmer Hale. She has over fifteen years of experience advising
Speaker 2: the largest financial institutions on complying with securities laws. Last year,
Speaker 2: Tiffany testified before the House Financial Services Subcommittee on Digital
Speaker 2: Assets to discuss crypto market structure legislation. And she's also
Speaker 2: a member of the Wall Street Blockchain Alliance and Women
Speaker 2: in Crypto.
Speaker 4: Tiffany welcome, Thank you for having me.
Speaker 2: Yeah, Tiffany, it's a great day for us to be
Speaker 2: talking because we got the draft of the CLARITIAC today.
Speaker 2: The industry everybody's heads down reading through. But you bring
Speaker 2: a lot of experience at the table, and I want
Speaker 2: to pick your brain on securities laws and where you
Speaker 2: see the future of crypto going and much more. But
Speaker 2: before we get to all that, tell us about yourself.
Speaker 2: Where'd you grow up, how'd you get into the legal field,
Speaker 2: and much more.
Speaker 1: Oh well, first of all, thanks for having me. I'm
Speaker 1: very excited to be here. I've been listening to this
Speaker 1: podcast for the last couple of years. So I'm from
Speaker 1: New Jersey. Originally, I grew up near the Shore area
Speaker 1: in a town called Neptune, which is by Asbury Park.
Speaker 1: Went to d C for undergrad at George Washington, stayed
Speaker 1: in DC there for law school, and then I went
Speaker 1: to my firm, Wilmore Hail right after law school, and
Speaker 1: I've been there ever since. Been in New York for
Speaker 1: since twenty eleven, so i've been here back in the
Speaker 1: Tristate area for a while now.
Speaker 2: And where along the line at Wilmer Hill did you
Speaker 2: discover blockchain and crypto and how did you become the
Speaker 2: co chair of that group?
Speaker 4: Yeah, it's been a journey.
Speaker 1: So I started off in the firm and the securities
Speaker 1: broker dealer regulation group when I started back in two
Speaker 1: thousand and eight, no one knew what a broker dealer was.
Speaker 1: And I would go to cotail party any place and
Speaker 1: I would say broker dealer and people would fall asleep.
Speaker 1: And now I feel like everyone talks about broker dealers, exchanges,
Speaker 1: transferagious exchanges, transfer agents, and all of those types of
Speaker 1: entities which are very critical to crypto. And so for me,
Speaker 1: I first started thinking about crypto from the tokenization lens.
Speaker 1: So back in twenty seventeen, I was at Wilmer always
Speaker 1: focused on the intersection between technology and securities laws. So
Speaker 1: back then it was really fintech before they called it fintech,
Speaker 1: so really electronics trading instead of trading on the floor,
Speaker 1: trading using technology. And so in twenty seventeen, the Dow
Speaker 1: Report came out and it talked about how in certain
Speaker 1: instances crypto assets could be securities, and it sort of
Speaker 1: like had crypto and security as loss sort of front
Speaker 1: and center, and so I looked at it as just
Speaker 1: being another version of new technology being used to trade
Speaker 1: securities at that point, and so my first FORTE was
Speaker 1: actually tokenization. So it's sort of funny because back in
Speaker 1: twenty seventeen, everyone.
Speaker 4: Talks about RWA today, but back in.
Speaker 1: Twenty seventeen, it was tokenizing real estate, art, wine, collectible
Speaker 1: and those are the first types of matters I worked
Speaker 1: on initially, and over the years I started working on
Speaker 1: crypto matterage more broadly. But my first forte was a
Speaker 1: tokenization of real world assets, which is like, come full circle,
Speaker 1: because everyone's talking about that today.
Speaker 2: You were so early twenty seventeen. I don't think I
Speaker 2: heard the word tokenization. I heard ico, I heard about
Speaker 2: this coin and that coin, but the concept of tokenization
Speaker 2: was not as prominent as it is now.
Speaker 1: Yeah, So it's interesting because everyone has a different touch
Speaker 1: depending where they sit. So because I work at a
Speaker 1: large law firm, the clients that were coming to us
Speaker 1: were the clients that were institutional backed, and they were
Speaker 1: thinking of tokeniza chain as a way to fractionalize real
Speaker 1: world assets, and so I thought that was super interesting.
Speaker 1: Or people were saying, Okay, if I have a private placement,
Speaker 1: and usually if a private placement it's really illiquid, but
Speaker 1: I can tokenize it and I can have a secondary
Speaker 1: market immediately, And so thinking about giving people access and
Speaker 1: being able to have more people get like, you know,
Speaker 1: being able to trade in art or wine or other
Speaker 1: types of assets and normally or only reserve for certain
Speaker 1: types of people who have certain types of money. And
Speaker 1: so I thought that was super fascinating.
Speaker 2: So fast forward to twenty twenty six, Tiffany, what a
Speaker 2: journey that tradfy. The major bangs and institutions are here,
Speaker 2: and to your point, they're looking to put all these
Speaker 2: assets on chain. They're now starting with stocks and other
Speaker 2: equities like money market funds and then commodities, gold as well.
Speaker 2: Are you blown away by the you know, growth that
Speaker 2: we've seen.
Speaker 1: Absolutely, it's super exciting to see. It's super exciting to
Speaker 1: see it. Sort of it's interesting it was sort of
Speaker 1: small mentor backed companies that were experimenting back in twenty seventeen.
Speaker 1: You know, I was early, really too early, and a
Speaker 1: lot of the companies that are around that time didn't
Speaker 1: make it. And so now it's sort of you have
Speaker 1: both the institutional clients, institutional traditional entities thinking about tokenization
Speaker 1: as well as the traditional crypto protocols and clients. So
Speaker 1: everything is sort of coming together and it's kind of
Speaker 1: all leading into this term called a super app and really,
Speaker 1: instead of having segmented markets where you have crypto, you know,
Speaker 1: with one intermedia or one company and then securities with
Speaker 1: another company. It's really going to this place where we
Speaker 1: have everything all together. And so you have both traditional
Speaker 1: companies and crypto companies offering these products, and I think
Speaker 1: that is super exciting.
Speaker 2: So speaking of traditional companies, you and I were speaking
Speaker 2: before we started recording. You were just a consensus Miami.
Speaker 2: You mentioned some of the biggest institutions had setups there.
Speaker 2: Tell us about who you saw there.
Speaker 1: I saw everyone there. There's a lot of suits. So
Speaker 1: first off, it was very crowded, right, you know, I've
Speaker 1: been going to consensus. I know, maybe this is my
Speaker 1: sixth or so consensus and sort of like depending on
Speaker 1: the price of crypto assets kind of depends on like
Speaker 1: the vibe at the conference. So there were you know,
Speaker 1: super crowded. There were both like institutional participants there as
Speaker 1: well as the crypto native companies there. The sides of
Speaker 1: the boost kind of show the investment, right, So like
Speaker 1: we talked about like one of the large banks having
Speaker 1: a huge installation, there's other you know crypto protocols that
Speaker 1: had their own stages.
Speaker 4: So it's a really good mix.
Speaker 1: And I saw like other clients that I know who
Speaker 1: have been in crypto for years and don't really have
Speaker 1: like a low profile, but because their major institutions, who
Speaker 1: are who had people or they didn't have signage because
Speaker 1: they kind of move sort of under the radar, but
Speaker 1: they were there.
Speaker 4: So the first time I've seen.
Speaker 1: Them ever at consensus, So I thought that was pretty fascinating.
Speaker 2: That's pretty significant because at one point, Tiffany, this was
Speaker 2: all taboo, like, don't talk about it, it's a scam.
Speaker 3: I will fire anyone who.
Speaker 2: Touches this many we may recalled that famous code from
Speaker 2: Jamie Diamond. But now they've got employees there, they've got
Speaker 2: people out, they're talking about crypto, blockchain tech, how can
Speaker 2: we use it in different ways, how can we innovate it.
Speaker 3: It's fascinating.
Speaker 4: Yeah, so it's it's fascinating.
Speaker 1: I think it's also as a result of all of
Speaker 1: the regulatory clarity that we have, you know clarity. The
Speaker 1: bill is still pending before Congress, but the SEC and
Speaker 1: other agencies have done a great job providing clarity with
Speaker 1: their existing authorities. And so now I sort of think
Speaker 1: we think of crypto, I kind of think of four
Speaker 1: different buckets, and so you have you know, assets, like Bitcoin.
Speaker 1: Then you have like other types of crypto assets like
Speaker 1: solana ethereum. We can like build on them and actually
Speaker 1: like you know, have tokenization other types of unlocks that
Speaker 1: you have stable coin, and then you have token is
Speaker 1: securities and sometimes you know, particularly when we had regulatory uncertainty,
Speaker 1: we sort of thought.
Speaker 4: About all of those assets all together.
Speaker 1: And now that we have clarity, you have different institutions
Speaker 1: who were interested in different parts of that taxonomy I
Speaker 1: laid out right, And so it could be that some
Speaker 1: of the large institutions still don't think, still don't want
Speaker 1: to touch a bit Kanye still don't want to touch crypto assets,
Speaker 1: but they really believe in tokenization, right. And so because
Speaker 1: we have this clarity, we have this unlock in different
Speaker 1: aspects of the industry. And I think that's why you
Speaker 1: can have a major conference and have so many different
Speaker 1: types of participants because people are all going there the
Speaker 1: different interests and different segments of the economy or the
Speaker 1: you know, the different aspects of crypto.
Speaker 2: I should say, pardon the interruption. Hi, I'm Tony. I'm
Speaker 2: the host of the Thinking Crypto podcast. I wanted to
Speaker 2: ask you if you can please support the podcast by
Speaker 2: hitting the like button subscribing. If you haven't as yet,
Speaker 2: you can leave a comment below as well well. And
Speaker 2: if you're listening on a podcast platform such as Spotify,
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Speaker 3: Thank you so much. You made a.
Speaker 2: Pretty profound point there where you highlighted at somebody's institutions.
Speaker 2: They may not care to hold bigcoin or even have
Speaker 2: a bigcoin product. However, the blockchain rails they're interested in
Speaker 2: that the actual networks that they can go build on
Speaker 2: which benefits the tokens, but they don't necessarily have to
Speaker 2: participate with the token at.
Speaker 1: All, exactly exactly. And that's like, you know, sort of
Speaker 1: going back to my origins in the space. It wasn't
Speaker 1: that folks were doing icos, at least my clients. It
Speaker 1: was really using the rails, using tokenization to fractionalize, using
Speaker 1: tokenization to be able to have quicker settlement, using tokenization
Speaker 1: or tokenization to enable distribution.
Speaker 4: And so it's all of those.
Speaker 1: Elements of the technology that firms are looking at using
Speaker 1: that I think results in a broad subsection.
Speaker 4: Of firms who were interested in it.
Speaker 2: Now, you testified last year before Congress the Subcommittee on
Speaker 2: Digital Assets. Tell us about that and what was the conversation.
Speaker 2: These were the early days in trying to get the clarity.
Speaker 1: Active Assue going, yeah, so this is super early. So
Speaker 1: to kind of set the stage. That was back in
Speaker 1: April of last year. That was before the House had.
Speaker 4: Actually came out with Clarity.
Speaker 1: So they were sort of working a little bit around
Speaker 1: Fit twenty one, taking us way back. And so this
Speaker 1: was the first hearing on market structure that sort of
Speaker 1: set the stage for that Congress to introduce what became Clarity.
Speaker 1: And so in my testimony, I talked about the need
Speaker 1: for legislation for digital assets, how they were distinct and
Speaker 1: different from you know, typical securities, which resulted in the
Speaker 1: rules for securities not being a perfect fit. I talked
Speaker 1: about the consequences of not having regulatory clarity and so
Speaker 1: in the need for really why we need legislation. And
Speaker 1: so that was just over a year ago. A few
Speaker 1: weeks later, maybe a month or so later, we actually
Speaker 1: had the first draft of what became Clarity introduced by
Speaker 1: the House. History like that they passed it.
Speaker 4: Now it's sitting before Senate banking.
Speaker 2: So we owe you thank you because you are certainly
Speaker 2: one of the folks to help get this.
Speaker 4: Small small thank you, small thank you, small thank you.
Speaker 2: Obviously, the draft of the bill came out today, everybody's
Speaker 2: still going through the you know, with a fine tooth comb.
Speaker 3: We're recording this on Tuesday, May.
Speaker 2: Twelfth, and the markup is going to happen in two
Speaker 2: days on Thursday, May fourteenth.
Speaker 3: So what are you anticipating with this process?
Speaker 2: Maybe can tell us about the sausage making here, like,
Speaker 2: is it going to be a lot of back and forth?
Speaker 2: Remove this line, put this line in that type of thing.
Speaker 4: Yeah.
Speaker 1: So during during a markup, both sides have the ability
Speaker 1: to introduce the amendments, and so we need there to
Speaker 1: be bipartis and support, Like, you know, the version of
Speaker 1: the bill that passed Senate ag pass on a parison basis,
Speaker 1: and in order for the bill to actually pass Senate,
Speaker 1: we bipartis and support. So I imagine that there's going
Speaker 1: to be some amendments made by the Democrats to make
Speaker 1: sure that they have whatever compromise language they need in
Speaker 1: there that's not already there. So they feel comfortable passing it,
Speaker 1: so you can get out of committee, because we still
Speaker 1: have a couple more steps to go. And so where
Speaker 1: we're at now is because market structure touches both the
Speaker 1: SEC and a CFTC. There's two separate Senate committees of jurisdiction.
Speaker 1: So the Senate agg which has already passed their version
Speaker 1: right now, Senate Banking, they're going to have their mark
Speaker 1: up on Thursday. Once it passes out of Senate Banking,
Speaker 1: we need to go down to the Senate floor, and
Speaker 1: once the full Senate votes on it, then the bills
Speaker 1: that are passed by Senate would need to be reconciled
Speaker 1: by what was passed by the House last year. So
Speaker 1: we're still a few steps removed. And President Trump has
Speaker 1: called for the bill to be passed by July fourth,
Speaker 1: So there's a lot of work to be done that's
Speaker 1: going to actually happen.
Speaker 3: Fingers crossed, Tiffany, they can get this done.
Speaker 2: It would be so amazing, especially if you get it
Speaker 2: done by I know July fourth is the two hundred
Speaker 2: and fiftieth year anniversary of the United States and celebration
Speaker 2: and all that. All that's going to happen if they
Speaker 2: can get it done, it'd be pretty momentous.
Speaker 4: Yeah, yeah, absolutely.
Speaker 1: Another thing I think that not everyone fully appreciates is
Speaker 1: that getting a bill is really.
Speaker 4: Just the first step.
Speaker 1: Once you have legislation, then you actually need to go
Speaker 1: into the rule making phase, and that can be quite significant.
Speaker 1: For example, Genius, which is really only about payment stable
Speaker 1: cliwings so much much more narrow had over fourteen rule
Speaker 1: makings that were required by that legislation, and some of
Speaker 1: the rule makings that came out were like over three
Speaker 1: hundred questions, and so if you think about the Senate
Speaker 1: Banking version, which is over three hundred pages, I can
Speaker 1: only imagine them or rule makings are going to be required.
Speaker 1: So it's really imperative that we get legislation passed so
Speaker 1: the rule making can process, can get started, so the
Speaker 1: bill can actually be enacted by the agencies.
Speaker 2: So, Tiffany, as it relates to rule making, the SEC
Speaker 2: seems to be getting ahead of curve here. They put
Speaker 2: out a lot of guidance and this is very much
Speaker 2: in your lane because you have a plethor.
Speaker 3: Experience with securities laws.
Speaker 2: I would love to start with the SEC's recent guidance
Speaker 2: on crypto securities with the four categories they put out.
Speaker 3: What is your take on that?
Speaker 1: So, first, I think the SEC did a wonderful job.
Speaker 1: It was a huge undertaking to provide that clarity, and
Speaker 1: I think it's helpful and we're already starting to see
Speaker 1: the market react to that. And so that is commission
Speaker 1: level guidance. There's a different there's a number of different
Speaker 1: types of guidance that can be put out by the SEC.
Speaker 1: You have staff level guidance. There's been a lot of
Speaker 1: staff level statements. Sort of the highest level of guidance
Speaker 1: you can provide without a rule is commission level guidance.
Speaker 1: And so there it has five different categories. So you
Speaker 1: have digital digital tokens like the like you know, ether, salon,
Speaker 1: et cetera. There's fourteen different assets identify there, digital collectibles
Speaker 1: such as n FT's digital IDs, payment stable coins. And
Speaker 1: then the last categories token is securities. And so the
Speaker 1: first three that I mentioned are presumptively not securities, which
Speaker 1: is helpful because it lets the industry know that they're
Speaker 1: kind of fall outside the jurisdiction of the feraoh securities laws.
Speaker 1: It does where it gets a little bit complicated, is
Speaker 1: it talks about how pursuance to how you can be
Speaker 1: a non security crypto asset and still be so pursuant
Speaker 1: to an investment contract. And so it sort of has
Speaker 1: like the analysis as to when you're an investment contract
Speaker 1: versus not. But it's helpful to have that guidance because
Speaker 1: once you sort of have something to you have the
Speaker 1: Commission's views. It allows companies to build, to react or
Speaker 1: when necessary, seek additional guidance.
Speaker 2: Do you think this is comprehensive or there needs to
Speaker 2: be any additional items or it filled in all the gaps.
Speaker 1: I think it's a good start, and so that's why
Speaker 1: I started to buy applauding them.
Speaker 4: It's much more difficult.
Speaker 1: To start with something even though that's not going to
Speaker 1: be perfect. And so because they did, like you know,
Speaker 1: sort of setting the stage, and Crypto Task Force was
Speaker 1: started over a year ago and they have been taking
Speaker 1: tons of meetings. They've provided a foundation for industry to
Speaker 1: provide input and they kind of took all of that
Speaker 1: and that result culminated in the in the Commission level guidance,
Speaker 1: and so I think it's a great start. I think
Speaker 1: there are still questions, right, I think, for example, folks
Speaker 1: still have questions about when a NASA is subject to
Speaker 1: an investment contract versus when it separates and some of
Speaker 1: the statements made there.
Speaker 4: But I think because we have the.
Speaker 1: Commissions the Commission's interpretation as of March, it gives firms
Speaker 1: the ability when they have additional questions to go in
Speaker 1: and seek additional guidance.
Speaker 3: Yeah, it helps out.
Speaker 2: They're more friendly and open to dialogue versus you come
Speaker 2: in and you get a hit with a law suiter
Speaker 2: a Wells notice.
Speaker 4: Yeah, Like I think.
Speaker 1: So you know, during those times, we you know, defended
Speaker 1: a number of clients Buith publicly and you.
Speaker 4: Know, non publicly.
Speaker 1: And I think when you're trying to run a company
Speaker 1: based on looking at a complaint or a settlement, it's
Speaker 1: very difficult because when you read a complaint, you're trying
Speaker 1: to compare sort of what that company did to what
Speaker 1: you did. And it's like, okay, well they mentioned in
Speaker 1: this complaint against X company that you know this particular
Speaker 1: asset is a security. Does that automatically mean that I
Speaker 1: have to delist the asset?
Speaker 3: Right?
Speaker 1: Or you know this staking program is an investment contract,
Speaker 1: does that mean mine is?
Speaker 2: Like? Right?
Speaker 1: And so I think any type of guidance is super
Speaker 1: helpful because it gives firms some direction and sort of
Speaker 1: something like a type of north star to sort of
Speaker 1: aim for. And because the SEC's willing to engage, they've
Speaker 1: asked for comments even with that interpretation, So it really
Speaker 1: provides an industry and ability to provide more feedback to
Speaker 1: kind of get to the right place.
Speaker 3: Yeah, that makes sense and that's really great to hear.
Speaker 2: Now, Prior to this guidance, pretty much securities lawyers and
Speaker 2: everybody in industry have to look to how we test.
Speaker 3: So how does this fit with the how we test?
Speaker 3: Or doesn't have to fit.
Speaker 2: It could just be this is for digital assets specifically,
Speaker 2: while it takes some of the how how we test
Speaker 2: LINGO for token I securities and things.
Speaker 1: Like that, so that so I kind of I would
Speaker 1: separate out token I securities. When I think of token
Speaker 1: I securities, I think of you know, take you know
Speaker 1: X ticker which is on uh, this is on the
Speaker 1: stock exchange, and just having a digital version of that.
Speaker 1: I think where the how we test comes into play
Speaker 1: is when you have a new asset that is like,
Speaker 1: you know, not a security that's being so pursuant to
Speaker 1: an investment contract, and the guidance interpretation talks about instances
Speaker 1: where an issuer issues a new asset and makes promises
Speaker 1: and the purchasers of that asset rely on those promises,
Speaker 1: and it kind of talks about how you can have
Speaker 1: an asset that's not a security, but it's so pursuant
Speaker 1: to an issue, we're making promises, and how until those
Speaker 1: promises are fulfilled or abandoned, it's still considered a security.
Speaker 1: And so that's what and that's something that the industry.
Speaker 1: There was twenty nineteen guidance which was less clear, and
Speaker 1: then it was a lot of confusion during the intervening times,
Speaker 1: particularly because there were various court cases in different courts
Speaker 1: that had different versions of this theory. And so that's
Speaker 1: the kind of the clearest guidance we have. But I
Speaker 1: think it's super important that you had the Commission saying
Speaker 1: very firmly that a non security crypto asset can be
Speaker 1: sold pursuant to an investment contract, and then talking about
Speaker 1: when that investment contract no longer exists.
Speaker 2: And I know the SECI, I think I recall Chair
Speaker 2: Atkins said they still have to release guidance or rulemaking
Speaker 2: on tokenization itself, right, I think that's still to come,
Speaker 2: and they may be in the process working on it.
Speaker 1: So there's a couple of different I think types of
Speaker 1: guidance we're waiting for. So the staff has shoot guidance
Speaker 1: about tokenization several different models, whether it's issuers driven or
Speaker 1: third party or synthetic, and then the commission level interpretation
Speaker 1: sort of reference that guidance to bring that staff level
Speaker 1: guidance up to the commission level. There are still I
Speaker 1: think some questions about you know, what additional guidance has
Speaker 1: needed for tokenization. But unlike you know other assets, other
Speaker 1: crypto assets, we are when it comes to tokenization, there
Speaker 1: are one hundred percent emphatically securities. It's just a matter
Speaker 1: of how the securities laws fit with a digitally native asset.
Speaker 4: So I do that it's different.
Speaker 1: The other thing that we're waiting for is guidance on
Speaker 1: it's called like reg crypto, which sort of provides a
Speaker 1: safe harbor for issuers of new crypto assets to be
Speaker 1: able to offer that asset, you know, with like limited
Speaker 1: I'll say, like some type of exemption from the feral
Speaker 1: securities laws. And then the other type of guidance that
Speaker 1: has been teased, and the industry is anxiously awaiting the
Speaker 1: innovation exemption, and that provides a way for on chain
Speaker 1: liquidity providers to provide liquidity to trade assets on chain
Speaker 1: without having to comply with the full registration requirements.
Speaker 2: Let's double click on the reg because that one's interesting.
Speaker 2: Is that kind of what people were waiting for in
Speaker 2: twenty seventeen for icos that if I want to launch
Speaker 2: a network, a layer one with its own token that
Speaker 2: takes handles that type of situation.
Speaker 1: Yes, that's my understanding. It's sort of like the safe
Speaker 1: harbor that Commissioner Purse had been had proposed and reproposed
Speaker 1: a couple of years ago. So it talks about instances
Speaker 1: where you're issuing a token to raise capital, the types
Speaker 1: of disclosures you need to make, and I'm understanding, but
Speaker 1: have some type of tests that determines when you're no
Speaker 1: longer essentially a security and required to make those disclosures
Speaker 1: versus when you're like fully decentralized.
Speaker 3: Interesting.
Speaker 2: I'm really fascinated by that because that goes back to
Speaker 2: lawsuits that happened even under.
Speaker 3: Jay Clayton yeh, when he was chair.
Speaker 2: So that's going to be a big one, and I
Speaker 2: wonder if you know, I'll just give an example. I'm
Speaker 2: not picking on them in any way, but Circle just
Speaker 2: did a pre sale on their arc blockchain token, and
Speaker 2: black Rock was a participant, Apollo and some big names,
Speaker 2: So I wonder if folks are going to try to
Speaker 2: get ahead of this and launch share tokens before that
Speaker 2: comes out.
Speaker 1: So I think the interesting distinction between what's happening now
Speaker 1: versus twenty seventeen twenty seventeen prior to the Dow report,
Speaker 1: I don't think firms or projects either they didn't realize
Speaker 1: they were issuing securities or they took the view that
Speaker 1: they weren't going to comply with the feral securities laws,
Speaker 1: like right one of the two things here after you know,
Speaker 1: years of enforcement in all of the ICO cases, I
Speaker 1: think it's pretty clear to most projects that offering a
Speaker 1: token is a securities transaction, and so they typically comply
Speaker 1: most of the time because it's easier. They comply with
Speaker 1: the with the reg D or some type of offering
Speaker 1: exemption and only sell to credit investors. So to me,
Speaker 1: I think the most powerful part of reg crypto would
Speaker 1: be the potential to offer the token in the US
Speaker 1: to retail investors, right because right now, if you think
Speaker 1: about some of the I'm not going to name names
Speaker 1: because you know lots of clients, but some of the
Speaker 1: larger crypto projects who have issued tokens, some of them
Speaker 1: indeed did either did it offshore or they only only
Speaker 1: sold them to credit investors because of the securitious law issue.
Speaker 1: And so that's why I think that having reg crypto
Speaker 1: and allowing these tokens to be issued directly to retail
Speaker 1: investors who want to participate is a big unlock. I'm
Speaker 1: not providing securious advice. I'm not saying that everyone should
Speaker 1: go out and buy them, but I think just having
Speaker 1: the ability to access these markets.
Speaker 4: Because we because they have it in the past, would
Speaker 4: be it's going to be a big unlock.
Speaker 2: Yeah, because that was certainly a challenge in the years
Speaker 2: prior twenty seventeen onward with the icos, where people would
Speaker 2: send money to their cousin in Germany, Hey buy this
Speaker 2: coin and then send it back to me via thiss wallet,
Speaker 2: right because they couldn't access it here.
Speaker 3: But how does that dynamic play out?
Speaker 2: Do you think where these tokens are on the globally
Speaker 2: distributing network. The supply can be in different parts of
Speaker 2: the world, so to speak.
Speaker 3: And if people.
Speaker 2: Overseas don't have to comply with the US laws and
Speaker 2: they can have the token, but I can send my uncle, Like,
Speaker 2: how does that? I don't understand how the SEC would
Speaker 2: even manage that.
Speaker 3: It's tough.
Speaker 4: It is tough.
Speaker 1: The SEC has very broad jurisdiction when it comes to
Speaker 1: US persons, and so I think that if you know,
Speaker 1: there's limited instances where people send money to their cousins
Speaker 1: and participate in offering, I think that's one thing that's
Speaker 1: really hard to police. I think it's another thing if
Speaker 1: it's happening on full scale, that's sort of part of
Speaker 1: the distribution plan, because then it's like the project or
Speaker 1: the token issuer is avoiding is like kind of avoiding
Speaker 1: complying with.
Speaker 4: The US securities laws.
Speaker 2: Right.
Speaker 1: But I think we sort of we want to get
Speaker 1: past that, right And I think that, as a lot
Speaker 1: of folks have said, the US has the most liquid
Speaker 1: capital markets, and so I think that once the SEC
Speaker 1: provides guidance about how to issue tokens in the US,
Speaker 1: people are going to sort of around the globe will
Speaker 1: come here and we're seeing this now, even with respect
Speaker 1: to crypto projects. Right before, when everyone's sort of looking
Speaker 1: offshore because of regultory uncertainty, now they're all sort of
Speaker 1: coming back. You see every week you see a new
Speaker 1: project or protocol who previously only did offshore offerings is
Speaker 1: now coming to the US and setting up shop.
Speaker 3: Right.
Speaker 1: And so I agree that crypto assets are global, but
Speaker 1: I think because everyone wants to be in the US,
Speaker 1: once standards are set here that allow people to participate
Speaker 1: and not just institutions, I think that the you know,
Speaker 1: people will comply with whatever the standards are and they'll
Speaker 1: and there'll be lots of token offerings here.
Speaker 3: That's a great point.
Speaker 2: We have the largest capital markets mostly good as you mentioned,
Speaker 2: and you know, once the rules are clear, I could
Speaker 2: see more people coming back because at one point they
Speaker 2: were like, you know what, screw to US. I don't
Speaker 2: want to get in trouble there. I'm gonna go do
Speaker 2: it overseas. But once the rules of the road are clear,
Speaker 2: it will be a lot easier for them.
Speaker 1: Absolutely, And even like air drops like right, that's a
Speaker 1: great example. Like back in the twenty nineteen SEC guidance,
Speaker 1: there was language indicating that air drops could even be
Speaker 1: security as offerings. And with this Commission guidance, we were
Speaker 1: just talking about you know, there's instances where air drop
Speaker 1: you can give air drops to us persons like right,
Speaker 1: So there's just all of these little unlocks that we
Speaker 1: have as a result of this clarity.
Speaker 2: Boy, I can't wait for air drops to come back.
Speaker 2: Make make air drops it great again. That would be
Speaker 2: really good. So that's a big one that I think
Speaker 2: I'm really looking forward to the other thing that the
Speaker 2: SEC provided was guidance on user interfaces. SEC staff issues
Speaker 2: broker dealer registration guidance on certain user interfaces tell us
Speaker 2: about the significance of this.
Speaker 4: So it's actually really huge.
Speaker 1: So, as I mentioned, I grew up as a broker
Speaker 1: dealer attorney, and it's sort of you know, you're ingrained
Speaker 1: as a broker dealer attorney that someone's engaging in a
Speaker 1: security transaction and they received transaction based compensation that they're
Speaker 1: a broker, and that's sort of how a lot of
Speaker 1: the guidance that has been issued over the last couple
Speaker 1: of years, really twenty thirty years has indicated. And so
Speaker 1: this guidance basically says that if you provide a wallet
Speaker 1: or user interface that allows a user to direct transactions
Speaker 1: to a liquidity provider, whether centralizer decentralized. If you follow
Speaker 1: certain standards or certain conditions, that interface doesn't need to
Speaker 1: register as a broker dealer, even though that interface is
Speaker 1: allowed to get transaction based compensation. So from a broker dealer,
Speaker 1: you know history perspective, it's quite significant, and you know,
Speaker 1: the thing that it leaves open is the destinations to
Speaker 1: which the order are routed, whether it's decentralized or centralized.
Speaker 1: It doesn't talk about the status of those destinations, so
Speaker 1: it's a little bit disjointed.
Speaker 3: Right.
Speaker 4: You're allowed to have a wallet that.
Speaker 1: Allows a user to direct or messages to a liquidity pool,
Speaker 1: but it doesn't talk about the status of that liquidity pool,
Speaker 1: and that's what the innovation exemption is supposed to cover.
Speaker 2: So I'm assuming this is very big for self hosted
Speaker 2: crypto wallets crypto walts in general.
Speaker 4: Correct, Yeah, absolutely, yeah.
Speaker 1: So if you think back to some of the cases
Speaker 1: that were brought under the prior administration, I can think
Speaker 1: of at least two where crypto wallets were alleged to
Speaker 1: be unregistered brokers. This essentially provides clarity that under these conditions,
Speaker 1: a crypto wallet is not acting as a broker dealer.
Speaker 3: There's something the CFDC also did recently.
Speaker 2: I don't know if you're more on the security side,
Speaker 2: but I don't know if you're aware of this, and
Speaker 2: I it's escaping my mind right now, but I interviewed
Speaker 2: that one of the folks from Phantom, the crypto wallet company,
Speaker 2: and it was pretty big and it was something related
Speaker 2: to broker dealer as well. So you got both the
Speaker 2: SEC and CFDC providing the clearance.
Speaker 1: Yeah, that one's a little bit different. It talks about
Speaker 1: introducing brokers and it provided a way for introducing brokers
Speaker 1: wallet providers essentially to send orders to introducing brokers.
Speaker 4: On the CFTC side.
Speaker 1: It's a little bit different because, as I mentioned, the
Speaker 1: SEC guidance permitted orders to be sent to centralized or
Speaker 1: decentralized protocol that allows it to be sent to centralize
Speaker 1: and it's on the CFTC side, So it's distinct.
Speaker 4: But I think.
Speaker 1: Overall, anytime there's guidance that sort of talks about the
Speaker 1: parameters of when you can comply with the laws, you
Speaker 1: don't have to comply with the laws that are applicable.
Speaker 1: I think that's helpful for the industry and for builders
Speaker 1: because I know they have standards that they can build towards.
Speaker 2: I love that these agencies are providing the guidance, and
Speaker 2: it's like a breath of fresh heir to have them
Speaker 2: just working together closely.
Speaker 3: The Mike c like cheer Atkins.
Speaker 2: They had to I remember a joint hearing together and
Speaker 2: much more saying Hey, we're gonna do this, We're gonna
Speaker 2: work together Project Crypto and all that jazz.
Speaker 3: So it's really great.
Speaker 4: Yeah, and it's great for a number of different ways.
Speaker 4: It's it's great for firms who are in.
Speaker 1: The crypto spaces, especially because, as I kind of laid
Speaker 1: out before, you know, certain crypto assets are digital commodities,
Speaker 1: certain of them could be securities, and so having the
Speaker 1: agencies work together is helpful because it allows firms to
Speaker 1: go in and request one meeting and talk to both
Speaker 1: agencies at the same time and talk about how their
Speaker 1: products should be categorized, what registrations they need. We haven't
Speaker 1: got into it yet, but Chair Atkins and Chair saleg
Speaker 1: have teased the ability for you know, a company to
Speaker 1: be registered with one agency and sort of like have
Speaker 1: lighter registration by the other entity, by the other agency,
Speaker 1: which is significant because today a lot of entities are
Speaker 1: duly registered and so that really helps from the perspective
Speaker 1: of competitiveness. In the US, Unlike a lot of other jurisdictions,
Speaker 1: we have a number of different regulators, right, and so
Speaker 1: you can be one one company and you're registered with
Speaker 1: the CFDC, the SEC, the banking regulators, right, whereas and
Speaker 1: another jurisdiction you might only be registered with one with
Speaker 1: one agency. And so as the SEC is sort of sorry,
Speaker 1: the SECCFDC has of thinking about competitiveness and how this
Speaker 1: global asset is going to impact the markets. They sort
Speaker 1: of have that hat on that type of thinking to
Speaker 1: think about how US firms can stay competitive and how
Speaker 1: the US shouldn't be kind of falling behind from an
Speaker 1: investment perspective because it's too burdensome to be regulated here.
Speaker 3: Absolutely, it's twenty twenty six.
Speaker 2: You should make this so easy, right, Digital and these
Speaker 2: agencies should have some interoperability where they can share information
Speaker 2: and it could be one platform that they pull the
Speaker 2: same data from that I don't have to go register
Speaker 2: here with this guy and that guy. And especially with
Speaker 2: AI and plus blockchain technology.
Speaker 1: Come on, guys, Yeah, no, absolutely, I think that like
Speaker 1: understanding that you have to be regulated and being regulated
Speaker 1: should be the easy part, right, because the point of
Speaker 1: regulation is to protect investors, make sure that people get
Speaker 1: their right disclosures right. And so if you spend all
Speaker 1: of this time and energy trying to figure out which
Speaker 1: regulator to go to, what the requirements are are, that
Speaker 1: is not actually helping the bottom line and helping investors,
Speaker 1: like right, And so I agree regulation should be easy,
Speaker 1: like regulation is burdensome, like once you're regulated, it's not
Speaker 1: supposed to be easy, But the process of getting registered
Speaker 1: and regulated and understanding you know which agency need to
Speaker 1: be regulated with like that should be easy so that
Speaker 1: you can get to the bottom line and protect investors.
Speaker 2: Absolutely, tell us a bit about as much as you can,
Speaker 2: because we know there's NDAs and privacy and so forth.
Speaker 2: With your clients, you probably can't give names. Well, what
Speaker 2: type of clients are you working with? How are are
Speaker 2: they viewing the change in the landscape under the Trump
Speaker 2: administration as well as the guidance from the SEC.
Speaker 1: So I have a very broad client base, So I
Speaker 1: work with a lot of crypto data firms, from centralized
Speaker 1: platforms to infrastructure providers, to wallets, to venture capital firms
Speaker 1: to trade associations, also work with a number of the
Speaker 1: traditional firms, including you know, the ones who are ogs
Speaker 1: who have been kind of experimenting with crypto for years,
Speaker 1: as well as the ones who are sort of newer
Speaker 1: to crypto, are not even like publicly on the radar,
Speaker 1: So very very broad client base. I think at bottom,
Speaker 1: each firm wants to understand which rules apply to them
Speaker 1: and wants a path to comply with the applicable rules.
Speaker 1: And so for some of my crypto native firms matricularly
Speaker 1: ones that really provide software, is trying to figure out
Speaker 1: under what circumstances they need to be registered. And then
Speaker 1: for my traditional firms, which were already registered and regulated,
Speaker 1: is figuring out okay, because you know, on chain assets
Speaker 1: behave differently, what types of you know, how should their
Speaker 1: regulations be modified so that they can continue to meet
Speaker 1: their regulatory requirements for a different type of assets. So
Speaker 1: I think at bottom, everyone wants clarity. And we're talking
Speaker 1: earlier about about my testimony lest year, and that's essentially
Speaker 1: what I said, Like you have clarity, it helps both
Speaker 1: crypto native and traditional firms. And it's also super important
Speaker 1: from a competitive perspective because once we start, once we
Speaker 1: had genius, for example, you see all of these firms,
Speaker 1: both crypto native and traditional, sort of getting into the
Speaker 1: stable coin space from different perspectives, whether it's getting an
Speaker 1: OCC charter, whether it's partnering with a stable coin provider,
Speaker 1: whether it's like figuring out how to use stable coins
Speaker 1: in the back for like payment settlement purposes. So it's
Speaker 1: really that clarity that really drives innovation and drives competition.
Speaker 2: Yeah, so do you imagine that you know, once clarity
Speaker 2: is past, President Trump signs it that we're going to
Speaker 2: see a kickoff of innovation and these companies, especially trad
Speaker 2: fin institutions, building out their divisions, hiring people, creating jobs,
Speaker 2: coming up with things we didn't even think of before
Speaker 2: for blockchain innovation and applications.
Speaker 1: Absolutely, I think for so, I think the traditional firms
Speaker 1: they really need legislation and you know, in some respects
Speaker 1: like affirmative, the affirmative ability to engage in this this
Speaker 1: asset class before they invest. And so if I think
Speaker 1: back twenty twenty twenty twenty twenty twenty one, there were
Speaker 1: a number of large traditional institutions who sort of came
Speaker 1: to us. They were investing in crypto, they wanted help
Speaker 1: trying to figure out, you know, getting.
Speaker 4: How to get into this industry.
Speaker 1: And then once the price after like you know, various
Speaker 1: scandals and bankruptcies and then we had the enforcement cloud,
Speaker 1: they all sort of deinvested. They got rid of those teams, right,
Speaker 1: And so I think everyone is looking back at history
Speaker 1: and being very cautious about investing until we have enough
Speaker 1: like regulatory clarity and really regulatory durability.
Speaker 4: So that's why. And this is like.
Speaker 1: Cha Atkins has mentioned that, so clarity the bill is
Speaker 1: important not just be because it provides guidance about the
Speaker 1: status of assets, but it's important because it provides a
Speaker 1: regulatory durability. And that's why even though the sec let
Speaker 1: the Commission and staff have done a great job in
Speaker 1: providing guidance about how different products and services can comply
Speaker 1: with the laws of other their jurisdiction, that's not they
Speaker 1: need to engage in rule making so you actually have
Speaker 1: durability so that the next administration can't sort of reverse
Speaker 1: what has been done.
Speaker 2: Yeah, that's the key, right, Even if the SEC does
Speaker 2: all this great work. Another administration can come and say,
Speaker 2: you know what, Nope, change it, throw it all out yep.
Speaker 1: Yeah, and they're super you know, both in public discussions
Speaker 1: and private discussions. The SEC and staff are fully aware
Speaker 1: of that. And so just last Friday, Chair Atkins made
Speaker 1: a speech talking about how the staff and the Commission
Speaker 1: has put out guidance and statements, but in order to
Speaker 1: have durability, they need to start engaging in rulemaking.
Speaker 2: Oh absolutely, I know this is kind of taking a
Speaker 2: backseat because all eyes are on the Clarity Act right now,
Speaker 2: but defiant tax legislation.
Speaker 3: Are you in talks with anybody you are you hearing
Speaker 3: anything there?
Speaker 2: Are your client saying, hey, okay, we need clarity, but
Speaker 2: what about tax?
Speaker 4: Yeah?
Speaker 1: So tax is I think the next big thing that
Speaker 1: folks are thinking about just a consensus. Last week, Representative
Speaker 1: horse For from Nevada was talking about the Parity Act,
Speaker 1: So I know that there's a draft, there's draft legislation
Speaker 1: out there.
Speaker 4: We just help a.
Speaker 1: Group of clients submitted an amicus brief on the Garret case,
Speaker 1: which is a crypto tax case. So I think people
Speaker 1: are definitely thinking about it. It's sort of like not
Speaker 1: the most, not not at the top of the list
Speaker 1: right now because of all of the back and forth
Speaker 1: with clarity. But in order for crypto to really meet
Speaker 1: its full potential, you sort of need to have the
Speaker 1: assets tax at the proper way, right, And I think
Speaker 1: even I'm not a tax lawyersoever, but just you know
Speaker 1: my recent work, you know, getting into the jerokees, just
Speaker 1: really understanding how the mistreatments of a monastic can have
Speaker 1: like really fundamental consequences. It really made me realize just
Speaker 1: how important tax law for crypto is.
Speaker 2: Yeah, I think the keyword you mentioned there, it's so
Speaker 2: important for adoption because yes, I'll have clarity, but if
Speaker 2: I don't know what I can do with my staking
Speaker 2: rewards or how it can spend my crypto if want
Speaker 2: to buy something or whatever, uh, it's going to.
Speaker 4: Hold me back from exactly exactly.
Speaker 3: Boy. So we got to get this Clarity Act done.
Speaker 4: Tiffany clarity and then parody then parody.
Speaker 2: Right, it's exciting, but you know, look, we got genius done.
Speaker 2: And that's often to racist, even though some of the
Speaker 2: banks are pushing back on stable corn yield, but you know,
Speaker 2: it's it is law. So if we get Clarity done,
Speaker 2: that would be so impactful for this industry and I
Speaker 2: can't wait to see the innovation posts that becoming law.
Speaker 1: Yeah, and I think that using Genius as an example,
Speaker 1: that's why we saw all the really innovative products that
Speaker 1: I've sort of mentioned like right, and so I'm just
Speaker 1: really excited, Like based on Genius and you're talking about
Speaker 1: just payment stable coins and all of the innovation and
Speaker 1: all of the new market participants in entering there, It's
Speaker 1: been like dramatic because Clarity is so much more broad
Speaker 1: and captures so much more of the market. I'm excited
Speaker 1: to see having that legislation, what it unlocks.
Speaker 2: What do you have on your road map? Are you
Speaker 2: going to any end of the conferences? Are you testifying
Speaker 2: before the Congress again?
Speaker 1: So no plans to testify. This week, I'm going to
Speaker 1: be speaking at the Kansas City FEDS Innovation Conference. It's
Speaker 1: a group of community bankers, so that's going to be
Speaker 1: super interesting and just you know, a lot of travel,
Speaker 1: a lot a lot of conferences. I think, you know
Speaker 1: my road map. A lot of my clients are looking
Speaker 1: forward to making and making sure that all of the
Speaker 1: great guidance of the SEC put out is durable, and
Speaker 1: so there's been a lot of guidance out there for
Speaker 1: like different aspects of the Exchange Act. There's been less
Speaker 1: about what it means to be a clearing agency, and
Speaker 1: so that's something that Commissioner Akins or Chair Akins mentioned
Speaker 1: on Friday. So that's sort of like some of the
Speaker 1: stuff that we're working on exciting.
Speaker 2: Well, tell the folks of the FED, you know, we
Speaker 2: need their help as well. All right, get these banks
Speaker 2: on board. I got some wrap up questions here for you, Tiffany,
Speaker 2: the rapid Fire, favorite food, seafood, favorite musician.
Speaker 1: Or band Beyonce of course, favorite movie? Don't have one really,
Speaker 1: not movie person?
Speaker 3: Okay, okay, how about favorite book?
Speaker 4: That's a hard one too.
Speaker 1: The last book I've read was Let Them by Mel Robbins.
Speaker 4: But don't really have a favorite book either.
Speaker 3: And when you're not working, what do you do for fun?
Speaker 4: I like to travel, like to travel, I like to work.
Speaker 2: At nice Tiffany, we're gonna have to do a round two,
Speaker 2: especially when ray crypto guidance comes from the SEC.
Speaker 3: You've got a lot of knowledge. But thank you so.
Speaker 4: Much for joining me today, thank you for having me.
Speaker 2: Thank you so much for tuning in, Please hit the
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Speaker 3: Thank you so much,