After the failed CLARITY Act: SEC, CFTC and tokenization

Transcript

I also don't think it undercuts the momentum of the industry general. >> The Clarity Act has finally failed for now at least. But how does crypto move forward from here? What is the right and wrong way to do tokenization? And what does all this mean for crypto investors? Hello and welcome to Milk Road Crypto, the show that knows that although it would have been nice to have a bill pass into law, it will be nice to be able to stop talking about the Clarity Act. I'm your host, John Gill, and today is Tuesday, September 15th, and today we are joined by Ashley Eversol. Ashley is the co-founder and chief legal officer at TX, the tokenization platform born out of Solagentic and Cororeium and the merger that they just went through.

Before that, he was the general counselor at Zerox. But before any of that, he was actually inside at the SEC. He was in the enforcement division as I understand, which makes him an expert on crypto. So, if that sounds good to you, make sure you like and subscribe. Share this episode with somebody who's going to enjoy it. And as a reminder, our podcast today is free and that would not be possible without our wonderful sponsors at Nexo, the digital asset platform that lets you trade, earn, and borrow all in one place. Keep an ear out for more information on them later in the episode. But for now, welcome to the Milk Road Show. Ashley, sir, how are you today? >> I'm great, thanks, John. Uh, great to be here with you. Thanks so much for having me on.

>> I'm glad to talk to you. I I wanted to speak with somebody who had some inside information on or at least some experience, not information, um but some experience with the SEC. Um the Clarity Act has failed today. What's your reaction to this news out of Washington and sort of where do you see us going from here now that the bill seems to finally have been killed? I think clarity for, you know, the second half of this year has looked increasingly doubtful as we got farther and farther into the year. You start doing the dance that was done a few times over with Genius Act of you don't get it in the first six months

of the year and you say, "All right, well, maybe before the um the August recess that doesn't happen, then it's okay. Well, maybe in the fall um you know before uh before midterms. But the problem is people come back in the fall and if you're an elected official and you're running for reelection, even if you're not, if so many in your legislature are, that's going to draw a lot of uh the the necessary attention of of all those folks who would be needed to drive clarity forward. And then you know if if it fails again there then you've got the lame duck you know. So this happened for a few years with

genius before finally it got the momentum to be passed and to become law. Uh so this I don't view this as we'll never see these provisions again. We'll never see clarity again. I view this as this round may uh may be unsuccessful uh this year. But I would expect uh that it would be reintroduced. I mean especially or something with the major provisions that of clarity would be reintroduced in in the new session in the new year.

>> Okay. So another version of this may come back at some point. Let's talk about um the regulatory side of this as opposed to the legislative side. The SEC and the CFTC have been doing a joint initiative called Project Crypto to try to give some regulatory guidance to the industry. A lot of people are expecting them to sort of step up now that the the bill seems to be dead for the moment. Um, what are your thoughts on this? What are you expecting to hear from these agencies in the aftermath of this vote? And, you know, what do you think are the next steps here from the regulatory side? >> I think you s already saw the market regulators, the SEC and the CFTC, you know, to your point, making moves to take regulatory measures that for which they did not need clarity. the Clarity

Act. So, you know, I would just expect that to continue and to intensify even because I think, you know, you've got very forwardthinking leadership at both agencies and you've got leadership at both agencies that want to provide a lot of the it's hard because there's just no better word than clarity. A lot of the clarity that the Clarity Act would have provided, but you know, in terms of legislative measures. So, I think I would expect to see them continue to do what they can do without needing any additional legislation and push for, you know, finding that, you know, these assets are within their reg their um

regulatory mandate from their um authorizing statutes and that, you know, they're going to rule make around them to put in place uh various of the um provision isions that you would have seen if if clarity had been effective. It's just a question of, you know, if there had been legislation, they would have had to rule make to implement that legislation. Now, in the absence of legislation, they're rulemaking to fill that gap. >> Hey guys, it's LG jumping in here to let you know about an incredible interview that John did the other day with the legendary Raul Pal. It dropped on September 15th and they got into why crypto has struggled this year, what needs to happen for it to finally move and why Raul thinks crypto could become

the financial infrastructure for the entire AI economy. They also got into how Raul himself is actually investing for the cycle. We also recorded a Milk Road Pro after hours for this one, which is where we sit down after the fact to talk about how we're expressing some of Real's views in our own portfolios. So check your pod feed for the episode and head over to Milkroad Pro for the exclusive after hours at the link below. What do you want to see from them in terms of filling that gap? In other words, what are some of these pieces from the legislation that maybe isn't going to go through now that you would like to see prioritize from the regulators? And um yeah, what would be the top of your priority list there?

>> First, the agencies could agree on a more specific and delineated division between their various authorities. I mean, I I think if you're a lawyer, it is a little more clear where those lines fall, but you know, I think a lot of the complaints with um with regulation in this space is I shouldn't have to be a lawyer to be able to read and understand, you know, what how you need to do this. you know, I mean, there's there going to be a certain number of legal costs that are involved with with starting up a business anyways, but, you know, in order to discern whether or not

I'm an entrepreneur, is this even a viable business? um is this something I can do you know in the way I want to do it? It would be helpful to have a little more certainty around yes I think I can do it because that regulatory provision tells me I'll be under the SEC and so under the SEC I know what those uh regulatory measures look like or under the CFTC you know whatever it is. Um so I think that's probably one of the things and then I think you know some of the protective provisions around software engineers and validators and others who you know I don't think have refused to be active in this space but

you know have always had some concern of if there's not an obvious uh target and something goes wrong here am I going to be the one on the hook for this from a regulatory perspective or or otherwise. So I think clarifying that a little bit uh by regulation would be would be helpful and you know I think that that only gets a little more urgent uh in in in this current uh uh environment because you know you don't want the people who would be sort of building the infrastructure uh for this industry and standing up you know entities in this industry to

suddenly say h you know there there's too much risk. I'm going to step back. >> How much risk do you think there is from a perspective of say like the SEC rolls out some regulation, the CFTC rolls out some regulation, maybe in the future we get a different Congress, a different president that are less friendly to the industry. How much risk is there of them actually rolling back regulations once they're promulgated into the market in the United States versus like how much actual staying power do some of these regulatory bodies actually have? Um, and what's what's your like read of that landscape?

>> Well, that's one of the values of legislation is it has more permanence. I It can be undone also. It's just a question of how difficult is it to undo it. you know, if you get something passed by Congress now and the, you know, pro I guess you're talking about the Democratic party is able to advance in the legislature and, you know, flip Congress that, you know, probably easier, not probably easier said than done. Uh, you know, it's politics. Um, and it's just a it's it's turning an aircraft carrier in some ways to get movements made there. But, you know, you've got to go through that

process. You've got to change the political complexion um to want to o undo what was just done, you know, a few years ago. Then, you know, assuming you do that, you've got to draft legislation. You've got to get support for that legislation. you got through go through a whole long political process. The regulatory process, you know, and it's a double-edged sword, is easier and quicker to implement regulatory measures as as rules because it's really just you draft a rule, you put it out for uh comment and then, you know, you process the comments and you end up enacting what you're going to enact. There's

probably going to be some litigation against whatever you put out. It's [snorts] just the the nature of how these things go. But, you know, you would have a rule. But that is a lot quicker explanation than my explanation of legislation. And the problem or the the risk is that the subsequent administration at whatever the agency is that put out that rule can come into office and do the exact same thing and unring the bell that you rang, you know, however long ago with that new regulation, you know. So, it's it's really just a matter of how much staying power does it have in terms of how easy

is it to undo, >> right? Okay. So, it's it's something that'll help and it'll be difficult to change but not impossible and legislation would be a stronger a stronger vote for the market or a stronger bedrock for the market to build on rather. Um, I wanted to ask your thoughts on something that we saw recently out of the SEC around updates to the transfer agent rules. These are rules that haven't been updated in I think almost 40 years if not longer. Um, and it seems like they're trying to make these changes and updates to this specifically to allow for more things involving tokenization, tokenized assets, um, and and transfer agents, moving those around. What's your what's your read on this? What does this unlock and like how big of a change would this be for the digital assets industry and

for tokenization overall? >> It would be a a substantial change. It would be basically you would have you know the blockchain is a ledger uh you know fundamentally speaking and so it would allow that ledger to for the first time be the authoritative ledger uh on which you know transactions in crypto assets are recorded. You're seeing it you know initially in the in the context of securities issued on chain and that kind of thing. I mean, it's all going to be you're in the SEC context, so they're all going to be securities in some way, but I guess when I say securities, I mean equities and that kind of thing.

You know, it's it would seismically change the complexion of an industry, which to your point uh has has been a sleepier corner of uh the SEC regulated entity space, but you know, perhaps no more. Could you tell us a little bit more about your current role and what TX is? Because you went from, you know, being inside at the SEC to defending a lot of crypto companies during your time at Zerox and now you're building things and working with uh a platform uh called TX. Um but walk us through in plain English what this is. What was this merger of Solergentic and Cororeium?

What does that unlock? And you know, give us some some context for this. when you said I was defending crypto companies and I was I was I first led the crypto practice at a at a law firm called called Brian Cave for three years or so and then I went to to ZeroX. So I was defending more people at Brian Cave than at ZeroX but >> fighting the good fight in any capacity. [laughter] >> Yeah. And and yeah, exactly. I was, you know, it was I was I was uh entity agnostic but TX I I'd known the team for a while and or the team behind it and the these were the predecessor entities and they reached out and were very interested in

asset tokenization and thought that that was um you know a movement that was overdue and I I agreed. I mean, I have always thought that the more connections you can make between crypto markets and traditional finance, the more use cases you have, the more liquidity it creates. So, you know, I was interested and uh ended up joining them a little more than a year ago as to to lead this effort and get the entities stood up and work on stock tokenization alongside uh regulated entities and and

uh and other uh aspects including the marketplace for tokenized assets. uh that we're trying to that that we're standing up to reduce a lot of the siloing that has occurred in the asset tokenization industry in the past where you might know, oh, I can go to this entity if I want to transact and tokenized real estate. I can go to that entity if I want to transact and tokenize intellectual property rights. Another entity for tokenized commodities, that kind of thing. But each of those had their own liquidity, none of which was sort of interchangeable.

So the goal of TX is to provide this the TX app which spans every asset class. really we're just the technology layer, the neutral interface through which people reach regulated parties with whom they can transact in all of these various asset classes and that was what we wanted to bring on chain. Uh you referenced smart tokens earlier. That that was part of what got me interested in TX because the smart token is builds functionality into the token itself that you would usually see at the smart contract level such as you know

whitelisting blacklisting uh freezing, clawbacks, that kind of thing. And I think that functionality like that um as you're expanding the user base for crypto assets and the universe of entities issuing crypto assets and the geographies in which um these assets are permitted is immensely important because you know we met with uh we've met with regulators we've met with counterparties and that functionality they're like I didn't even know you could do that you know and so the ability to have all of that programmed in at the token level really struck me as transformative.

>> Gotcha. Okay. So, there's some things that are being unlocked here that are important. Could you talk to me about your thoughts on the right and wrong way for the industry to go about tokenization and what the view of that looks like from TX because there's been a lot of attention on Robin Hood chain, what they're doing, but the AMC CEO called it vile and it seems like everyone's debating this from different angles. What's your perspective on this? What would you like to see happening here? I don't have a strong view beyond the entire premise of all of this industry and of of financial industry generally and actually the US financial industry has been transparency is uh what breathes the greatest liquidity

is what attracts the most users and the most issuers because at the end of the day you know a transparent market is one that you can trust um and that users can trust and that purchasers can trust and issuers because everyone can see everything everyone else is doing. It's uh you know I don't want to say it's radical transparency but I mean you know the the SEC is a regulator of information you know on a on a basic level of what information you have to provide what information can you do you have to know what can you not know like that kind of thing. So, you know, I think that having disclosure and transparency as pillars of of to asset

tokenization is critical and you know in the United States they you know these assets are securities so [clears throat] that transparency comes with the asset. Abroad things can look different. um in the United States things can look different but as long as that transparency is being honored then there should be full information for purchasers as to what they're getting. you know, if they're getting uh a token that says this is a share of AMC and if you hold it, you're a shareholder of AMC, that's a different thing than this is a token that says that tracks the price of AMC and if you

buy it, you can put it in your digital wallet and see the price move up and down, but you don't have any shareholder rights or anything. um you know those are those are different but those are both assets for which the market has an appetite uh I think it's shown that so I don't think that one is right or wrong necessarily I think that uh you know each has has a user base who's interested in it >> okay so that's a I think a helpful perspective that it's a big market people want different kinds of exposure different kinds of products and and you know the market can figure out which they want and which ones find product market fit. Um, from your perspective, >> sorry.

>> Oh, sorry. Go ahead. >> I was just gonna say I mean that's that's a free market perspective, right? I mean some people you can have a more protectionist viewpoint of you know no like people shouldn't be allowed to buy these things because they might they have stock in the name and you know they they have a reference to the company and people are going to get misled or confused or whatever. Yes. I mean I I understand that perspective. I think the history of the US financial markets has been that greater liberty to with what you issue and then if there are problems with it that's addressed more on the back end of you know enforcement that kind of thing. You know that's the

approach that has proven uh most robust so far. >> You know one of the weird things about crypto is that the longer you're in it the more accounts you seem to end up with. You buy in one place, trade somewhere else, earn yield somewhere else, and if you actually need capital, you end up having to sell something that you probably wanted to keep. That's why we at Milk Road are partnering with Nexo. These guys keep the whole thing under one account. You can buy, trade crypto, earn interest on what you already hold, and even borrow against your capital without having to sell it all in one spot, all in one account, all on Nexo. So, if you need liquidity, but you don't want to give up your position, or you're already holding crypto and you want to be able to do more with it, I

think Nexo is worth your time. We love working with them. I think you will, too. Telemilk Road sent you. Appreciate the thoughts on that. Um, how big of a hurdle or let's say maybe a bottleneck do you think regulation or legislation is right now to tokenization overall, right? Like is this a a thing that is causing a lot of friction at TX that you would like to to see some help with? Is this something that needs to come but is not really like putting a choke point on things right now? Like how do you see that? Um, and what's your perspective there? >> It's not a huge barrier. I think what we're doing and what uh some others um have done versions of is uh you know are products that for which there's an

appetite but you know I do think as we talked about at the outset that for um folks who are looking to start businesses and want to know what they can do you know not having the I'm going to have to say it again. The clarity that the Clarity Act would provide uh you know can can forstall some people. I mean it I guess the way I would look at it is it's not necessarily going to block anything that TX is trying to do but you know that that's because I don't not I'm not don't want to sound like I'm taking too much credit but that's

because you know I'm my securities background like you know I I know this stuff. I've been doing it for a long time. But, you know, a founder should not have to have that background to be able to get a useful idea off the ground. And, you know, I think that that's where its value comes in. So, you know, I wouldn't say it's a blocker for the industry as a whole, but there's probably a set of founders ideas that are being stymied by the lack of uh legislation. And so, you know, we want to be the leader uh in this area and we want to unlock as much activity in this area as we can. And if you're going to

do that, then you've got to have everyone able to move forward, not just people who, you know, are deep into these issues. It's got to be that other area that is uh a little bit stymied at present, >> right? And I think that the SEC is particularly focused on trying to give some innovation exemptions to sort of help with that problem. Um I I want to get your thoughts on the intersection of tokenization and artificial intelligence cuz several of our guests recently have talked about this and um given some thoughts on how they're building for AI agents and how they think tokenization is like this super cycle that's just getting started. From your perspective at TX, how much are you thinking about the rise of AI agents, the agentic

economy, and how that impacts the the products that you're designing and offering at TX today? >> We assume that AI agents are going to be interacting with our products. Um, I think you know the I I think that's a given g where we are right now in the tech cycle, but what exactly that looks like from a legal perspective is a little bit of a different question because I don't think we built out a ton of specific legal mandates around uh around that technology. you know, we we have existing um mandates around, you know, the FTC, the CFTC, that sort of thing, but um we don't necessarily have

AI specific mandates. And so where these this technology is not interacting with financial instruments or something, you know, there may be a little bit of a der in terms of guard rails on on what can and can't be done. uh you know I think that's a lot of the discussion you're seeing right now but you know from our perspective it you know you've got to assume that an AI agent is going to um be used if not already uh in the near future uh to transact in your products. Do you think that from your perspective at TX that you have everything you need from the SEC and the CFTC in order to you know go about making these products um

accessible to AI agents in a way that is compliant or do you think that there is still more work that needs to be done and clarity sorry to come back to that word again but clarity that needs to be given there. I think we have what we need to move forward. But I think the role of autonomous agents in financial transactions is an open question that you know the US and and other countries haven't really began to answer. U maybe some others have but you know we don't have specific law on that. We have principal agent law which is pretty old law. Um, but you know, something like that is probably what what they would

use. But I do think we're going to build out regardless of what happens with the more seismic bigger questions of, you know, what if an agent, you know, blows up, you know, a city, you know, whatever it is, uh, you know, these sort of, uh, doomsday scenarios that were that have been floated in recent days. There's a lot more granular issue of, you know, if an agent does X while performing a financial transaction and something happens, you know, who's on the hook, you know, and and how do you address that? Not even who's on the hook, but yeah, how do you address that? How if someone's wronged, how did they recover from that agent? Or if the agent loses money that belongs to the developer

behind the you like, how does that all work? And so I I think that that there are gaps there that will be filled. Um they're not impeding TX's progress uh on moving forward, but I'll be interested to watch uh watch that play out. >> Ashley, this is kind of like a big headline marquee defeat for crypto, even if it's, you know, maybe not existential and we'll get regulatory clarity in other ways. The markets are down a little bit today. What would you say to people who are wondering is this going to hold up or stop or slow down like the the embrace of tokenization or digital assets in the United States? Do you think we continue on or do you think this is like a major wall or just a little speed bump? How would you frame

this? >> Well, it'll absolutely continue on. you know, the crypto goes through cycles, you know, and that's part of the price action you're seeing, but you know, obviously this was a legislative effort that had um momentum behind it and it was not successful in this instance. I think, you know, the most instructive scenario to look at is the Genius Act that took three years, I think, to to pass and it went through this cycle several times before it finally became law. So, I don't view Clarity's failure to be passed in, you know, this first year as at all determinative of what

will happen with the provisions in the Clarity Act, you know, overall. and then or on you know as some sort of uh koda on on the crypto industry more generally. U I think it was some and and and to be fair there was disagreement in the crypto industry of whether or not this was even you know something that was that desirable. You know there were folks who really wanted it and there were others who didn't. Um, and then there were folks who said, "I don't really like it that much, but I think it's important to have legislation, so I want it for that reason." Um, so, you know, not everyone will be will react the same way, but um I also don't think it's uh it's at all a uh undercuts the

momentum of the industry generally. Do you think that there's any I I've heard this suggested and I want to get your thoughts on this. Some people have said that rather than trying to pass all of these things in one big bill that now maybe there's a chance to break the Clarity Act down into smaller parts, compromise on different things along the way and maybe get a few smaller bills through that just like you said might actually be overall net better for the industry because they would be a little more nuanced and specific. Do you think that's likely to happen or do you think if this bill comes back it will still be one, you know, big act?

>> I think it depends on what happens in uh the midterm elections upcoming. And I would think it, you know, it's a lot of what do politicians think can can be passed. Uh and if they decide, you know what, a comprehensive bill would be great, but we tried that and we saw what happened and now with a reconstituted Congress, if you know that may have a dramatically different complexion, you or just just different, you know, we don't think that the uh the comprehensive bill is the way to go. So yeah, doing it more peacemeal may may be the way that that they choose, but I my

guess is that would be dictated by what's politically possible. >> Ashley, I really appreciate you coming on and giving some thoughts on all of this. I know you've been close to this industry and to its uh let's say touch points with legisl legislation and regulation for a long time. So your wisdom is greatly appreciated. Thank you for being on Milk Road Crypto. Where can we send people to find more of you and your work online? follow me on uh on LinkedIn uh on on Twitter um is where I tend to write and uh you know it's been great being with you. So, you know, hopefully I'll see you again and uh and this will be a place they can go too.

>> Well, I hope we can catch up later on. I hope we'll be in a better place from a regulatory and legislative perspective then. Ashley, thanks for being here. Really enjoyed the conversation. Thank you all for joining us. I hope you all learned something today. So until next time, stay safe, stay educated, stay bullish, and we will see you all on the next episode of the Milk Road Show. Thanks for being here everyone. Bye. >> Thanks for listening to Milk Road. If you enjoyed the show, make sure you like and subscribe. And if you're struggling to find winners in the market, that's exactly what Milkroad Pro is built [music] for. Our analysts have called some of the biggest winners early and Pro lets you see what they're buying next, every trade they make, and the research behind every position. Check out Milkroad Pro at the link below.

Everything you hear on Milkroad is forformational purposes only. These are our personal opinions, not financial advice, and we may own some of the investments we talk about. Always do your own research and make the decisions that are right for you.