Is Clarity's Ethics Language on a Knife's Edge?: DEX in the City

Transcript

I uh I've been involved in uh some of the this the discussions around Clarity um for several months. Um it's picked up uh last couple weeks. I've been on the hill uh several days over the last couple weeks meeting with uh members and and different offices on on both sides. Um I would say uh you know, the the sentiment is um generally uh positive, but there's a lot of concerns that political factors um may be affecting this legislation um that go well beyond, I think, the gaps on policy um which do seem more surmountable. Um

But yeah, uh I caught up with some lobbyist friends. Uh shout out to Keith Castaldo uh this morning to get the the the absolute latest. Um so you may have seen this morning uh in Morning Money, um Ruben Gallego promised that he's working on ethics language with Tom Tillis. Tom Tillis being uh a Republican senator that's fallen out of disfavor with the president that's publicly, you know, called out uh some of the uh you know, shady dealings of uh of him and his family around crypto and other areas. Um so he's seen as a a credible go-between uh Republicans and Democrats.

Um Gallego um has promised uh Gallego's a a Democrat, by the way, um from from New Mexico. Or from Arizona, I'm sorry. Um and he is uh he's been very pro-crypto um since he got elected a couple years ago. Um and he he really sees himself as the the one of the leads. He's the ranking on the Digital Assets Subcommittee um at at Senate Banking. Um and he's promising ethics language in the next couple days. Um my understanding is that a uh one of the red lines for Democrats is having some kind of state AG authority as a check on a Department of Justice that may or may

not actually enforce the ethics provisions. So that's that's a red line and I think we're going to see some language there where the state AGs could have some authority in enforcing the ethics provisions. I think that's what Democrats would like to see. There's precedent for this. Um, the CFPB's the statute extends state enforcement authority to state AGs as well as the federal government. So there is precedent for this kind of thing. Um, >> I definitely want to get into the ethics provision deeper, but I have a question about something you talked about which I know is obvious to you and maybe some of our listeners, but you talked about the

difference between policy and politics, right? And how politics might get in the way. I think it might be useful to like dive into what you mean by that a little bit more because it's easy to sort of glaze over those comments and to people that don't know those words or don't work on the hill like you do. It's sort of difficult to know where the winds are taking each part. >> Yeah, so it's really a matter of calculus, right? And goals. So when it comes to a political issue, it's the kind of issue that a member has to take back to their district or to their state and have to be able to defend themselves not just from, you know, losing you know, potential support in the general electorate, but probably

even more importantly these days it's the primary electorate. And so taking, you know, a position for example for Democratic Senator that could be seen as giving in to Trump could put them in danger with primarily a primary electorate. And so that's something that a lot of these members are very sensitive to. Given the dynamics, you know, there's been a number of, uh, you know, upsets in in different, um, primary races this year. Um, that's a trend that's likely to continue.

So, if that's that's the that's what I call a political calculation is like, what is the, um, cost-benefit in terms of electoral politics? Um, and then there are policy differences. So, policy a policy difference would be on a matter of public policy. So, for example, um, a lot of senators are very concerned about illicit finance. Um, and the potential of if we bring digital assets into the mainstream, does this facilitate, um, illicit activity, sanctions evasion, uh, money laundering, human trafficking, et cetera?

And so, that is uh, that's something that reflects the senators', uh, policy preferences. Democrats have some tendencies, you know, some some some priorities. Republicans have some priorities. Often times they might agree on the outcome, but they may not agree on the mechanics, um, and the specifics of how to get there. Um, and so that's that's that's that's a policy question. So, one of the policy questions that's front and center is the extent to which DeFi and DeFi-related intermediaries, um, come under, uh, the Bank Secrecy Act. So, you know, the the US's anti-money laundering statute.

And so, that's one of the policy, um, you know, debates that's that's happening. But this political issue around ethics has really overtaken most of the negotiations. >> Okay. A question on the ethics part, and be I mean to cut you off, but if I was an alien coming down to Earth looking at this, I would sort of think like, yeah, why shouldn't everybody agree that you shouldn't be, you know, enriched based on this, right? And there's obviously different dynamics to it, but from the outside it seems like this should maybe be the easiest part of the bill because it's less technical and trying to understand how to protect DeFi and stop illicit finance and much

more political, I guess. Um so, I think it it would be helpful to understand what the two sides are going for. Um I think some of us have a sense of what it is, but if you could lay it out like being on the ground rather than just getting the rumor mill. >> Yeah, so um I think the, you know, the Trump Trump and the Trump family have, uh you know, engaged in different types of business activities, um you know, since [clears throat] uh the president took office. I think his net value has gone up um by what is it? Two two billion. And I think a large amount of that um came out of the the meme coin issuance that came the weekend before he uh he was inaugurated.

Um that's really something new. That's not something we've ever seen before. Um and the use of a meme coin as a way of, you know, making money um by a political official um or as a mechanism to to curry favor with with the president is really unprecedented. Um And so, Democrats' view is that that should not be allowed. We should not have these these situations at at at at best it creates a an appearance of a conflict and at worst it's a mechanism to curry favor with the president and get favorable policy uh based on, you know, your holdings of meme coins um that benefit the the president's, you know, direct bottom line.

And so, that's really been the focus of this uh this ethics language. Then there's just general, you know, business dealings, you know, including World Liberty Financial which involves members of the Trump family and senior members of the administration's family. Um and there the concern is probably more general as in it's a business. Um it could be used as uh you know, doing doing business with that business could, you know, curry favor with senior administration officials. Um, but that that that's been done, you know, um, previously and the the ethics restrictions um, that are currently on the books do not extend well into um, the family of uh, a president or a senior administration official. And so,

that's a broader question um, and that really isn't touched by the current ethics negotiations, but I suspect it will become a a focus for oversight, particularly if Democrats take over one or both chambers um, next year. >> Yeah. And then, what about the BRCA? Is that issue pretty settled or you still seeing back and forth on that? >> I I still see back and forth on that. What I'm hearing from a lot of Democratic senators and their staff is they want to see where law enforcement lands on this. If it ends up being a net positive for the broader law enforcement community, um, you know, the the way this bill, for example, extends the regulatory perimeter to cover

um, a lot of DeFi, including illicit finance, um, you know, wallet screening at the at the uh, interface level of the DeFi messaging system protocol level, um, in the bill, um, you know, that that is seen as a net positive um there there is some concern that car- the BRCA carving out DeFi developers from having to register as money transmitters, um, could, you know, hamstring law enforcement efforts. There's been a mixed public record, um, among um, you know uh people in this administration, people in the last administration, as well as different law enforcement groups. Um, it's notable that a couple key law enforcement groups have come out in favor

um, of this bill as a net positive. Um, that includes the Fraternal Order of Police, which gave a statement, I think it was a couple days ago, um, saying that they support the bill, um, as well as the National uh Organization of Black Law Enforcement, um which uh came out I think it was last week in support of the bill as well. So, um there seems to be an emerging consensus among these law enforcement groups that this bill is a net positive. Um and so that that could um you know, give cover to these Democratic senators that hey, this this bill, at least on the BRCA Act re regulation front, is a net positive and something that, you know, they can they can they can work with and and and potentially support.

>> Okay. Awesome. And do you expect to see a lot of action this week? Like a lot of movement? I guess the what is it? The August 4th? Is it August 4th or August 7th? >> Um yeah, so I think uh the the goal um is to get a vote on cloture. This is uh the the biggest hurdle cuz you got to get 60 votes. Um there are two Republican senators that seem to not support this bill. Um and one that is incapacitated. So, that would require just doing the math, I think that's 10 Democratic senators to support.

Um and we're really on the knife's edge as to whether we can get 10. Um and I think it's really going to depend on this ethics language um that gets negotiated. And this ethics language has three key stakeholders. Um there are the Democratic senators that are leading the negotiations, so that's Ruben Gallego from Arizona, uh Kirsten Gillibrand from New York, and then Adam Schiff from California. Um it's possible we could get something that um Gillibrand and Gallego could support, but maybe we don't get Schiff. Um if we get Schiff, uh then I think that unlocks a lot of senators. Um Schiff has been, you know, very uh principled and has a strong reputation on issues relating to government ethics.

Um and so him lending his support would would would would actually bring a lot of credibility and and you could see above 60 votes potentially. Um >> Yeah. >> I I say, you know, there's probably about a third maybe half of the Democratic caucus that is probably not going to support this bill almost no matter what. Um so the question is whether we can get above that that 10 Democratic vote threshold or not. >> That was a clip from Decks in the City where the wallets are cold and the takes are hot. And we've got a lot more in the full episode. Links in the show notes. I'm host Jessie Brooks. Subscribe and join us on the live stream every Tuesday [music] at noon Eastern.

>> If you hold crypto on your phone, your biggest vulnerability isn't your wallet. It's your carrier. AT&T, Verizon, and T-Mobile have been breached again and again. And SIM swaps are still one of the easiest ways for attackers to drain accounts. That's where Cape comes in, America's privacy-first mobile carrier. Same premium service, but Cape rotates the identifier on your SIM every 24 hours, deletes your call and text metadata after a day, and protects against SIM swaps with a 24-word recovery phrase that only you control.

You also get two middle-to-end encrypted secondary numbers for banking and sign-ups. So you stop handing your real number to every app that asks. Go to cape.co/unchained and use code unchained for 33% off your first 6 months.