Empire Cross-Post: DC Crypto Week Takeaways With Rebecca Rettig & Alexander Grieve

Transcript

the fact that the administration and Congress is not embracing crypto in terms of, oh, we love it and it's but understanding that it's just going to be an important part of the American economy going forward, I think is a huge deal. >> Quick shout out to today's sponsor, Katana. We'll hear more about Katana's 1 billion CAT campaign later today, but for now, let's get into the episode. Hey everyone, quick disclaimer before we get into today's episode. Nothing said on Bell Curve is a recommendation to buy or sell securities or tokens. This podcast is forformational purposes only, and the views expressed by anyone on the show are solely our opinions, not financial advice. Our guests and I may hold positions in the companies, funds, or projects discussed. Today's episode is a crossost from Empire. Jason sat down

with Rebecca Reig and Alex Grieve to unpack the successful crypto week and the three pieces of legislation that have passed and will now impact the way stable coins and crypto move forward in the US landscape. Enjoy. All right, everyone. Welcome back to Empire. Very excited to do this episode. We have Rebecca Reddig. Uh now the chief legal officer at Jetto. Um back on the show for the teenth time, I think. Um and also newcomer to Empire, Alex Greie, who is the uh VP of government affairs. I've also heard behind the scenes that he is the most based uh government affairs uh person operating right now.

So Rebecca, welcome back. Alex, welcome to the show. >> Thanks so much. Uh >> great to be here and thanks for the the kind words. I can certainly not take credit for those. >> Is is that true, Alex? >> It's true. Yeah. >> Thanks, Rebecca. Rebecca, speak for me. >> All right. Nice. Nice. Um, so the the goal of this episode we had, so last week um we're recording this on Friday, episode goes out on Monday, so people will be hearing it on Monday. Um, the last week was crypto week in DC and uh DC was voting on three three big bills, right? Genius Act, Clarity Act, Anti-CBDC Surveillance Act. I wanted to have you on because I see the headlines, right? I I read Block Works. to see the crypto Twitter headlines, but I really don't know the behind the scenes. I

don't know the the second order impacts of this. I don't know what it means for founders and investors 6 months from now. So, I would love for actually one of you to just kind of tee up this conversation. Um, what what was happening this week and and why why was it such a monumental week? >> Yeah. So, Jason, I' I'd uh first off wanted to introduce myself to our listeners. Rebecca is I think known and and beloved by by many. Um, >> yes. But I I've worked in in DC for the last 15 odd years. I worked on Capitol Hill for speaker of the house John Boehner and I've worked in financial policy for the better part of the past decade at DTCC in their uh government affairs unit and then at a multi-client lobbying firm where I was fortunate enough to have Rebecca as one of my my

crypto clients um and now at Paradigm where I lead our government affairs engagement. And uh I was just thinking this morning, Rebecca, back in 2022, uh you and I were going around the hill and we we I think literally demoed the UNIS swap protocol to a hill staffer. >> And just this past Friday, last week, that hill staffer, that house staffer is now over on the Senate side. And I was having a conversation with him about why it's important in market structure to protect DeFi. And he knew exactly what I was talking about. He knew the difference between a front end and a protocol. And uh I think yesterday's result in the House is the culmination of thousands of just those types of meetings. Um huge kind of monumental

milestone, huge bipartisan result. Uh three bills, one going to be law today at the at the White House. Um and and two headed over to the Senate for for further consideration. So the the three bills as you as you mentioned Jason are the Genius Act which creates a regime for the issuance of dollar pegged stable coins, the the Clarity Act which is a market structure bill which divies up the jurisdictions of the SEC and the CFTC and gives clarity uh hence the name to founders on on whether the tokens are are securities or commodities um and how trading intermediaries like the big centralized exchanges should register and which reg which regulator they

should register. with and the third is the anti-CVDC act which would ban the US government from ever issuing a CBDC. >> But but before I think we should break down where each of these bills Alex gave a good overview but sort of what happened this week and what everybody should expect and sort of how to work going forward. But I I think we can't underscore the importance of it being crypto week in DC enough. Uh as we were sort of just talking about before we hopped on like this is on every major news outlet. I was listening to the news early this morning before we all got on bright and early and like everybody is talking about these bills. New York Times, NPR, like everybody. uh some more positively versus negatively. But you know, I would say certainly that nine months ago, if not a year ago, we were

kind of paras in DC as Alex was talking about like we were literally sitting in small staffer offices with computers like showing them the unis swap protocol or the unis swap front end and trying to explain it and like there was a lot of work over the last four to six years when we really were not welcome in DC where people were pounding the pavement and taking a lot of arrows not just on the regulatory side but even on the hill. And so the fact that the administration and Congress is um not embracing crypto in terms of oh we love it and it's but understanding that it's just going to be an important part of the American economy going forward I think is a huge deal.

>> So thank you to everyone who put in the time including Alex. >> Yeah definitely. So let's go bill by bill. I think and my understanding is that there was actually an expectation that these bills would pass um or at least that genius and clarity would pass. I I'm not sure if people knew what would happen with the anti-CBDC one, but G gen Genius and Clarity would pass, but I don't think people understood how how good it would go, I would say. So, um, tell me, I don't know, Rebecca or Alex, either of you can take this. Gen G gen Genius um passed I think it was 308 to 122 if I got those numbers correct. Um, over overwhelmingly, you know, passed very supportive. Um, talk talk to us about the Genius Act.

So, the Genius Act, I think, is a slightly easier uh concept for members of Congress to wrap their heads around, I think, as as a baseline. Um, digital dollars are are pretty pretty easy concept. You also have uh I think taking a step back, there is a bit the legislating process in DC is kind of like a a big game of tugof-war. and every different kind of interest, every different pocket of of kind of members of Congress on the Hill, they all have these kind of competing interests and they're all pulling in one or different directions. And every uh bill crafting process, you see these kinds of tradeoffs and some people are

happy and some people are sad. And Genius is, I think, a pretty extraordinary product in that it seems like somehow everyone is happy aside from possibly Elizabeth Warren. Um, and and but by possibly I mean definitely. >> Uh, I thought I I did see a Yeah, go ahead. Go ahead. >> The cryptonato firms are are happy. The the the banks are happy. Um, I think that's something that we're going to have to to look ahead to is how uh traditional financial services actors entering into this ecosystem are going to I think what's that what that's going to mean for for our industry. Um, but as a result, I mean, when when it came over to the House, the House just needs a simple majority to pass something that the Senate's already

cleared. And so, this just needed like a basic majority, and instead you had a super majority and then some. Um so I I think it was a very firm uh endorsement not only of uh upgrading our financial rails, upgrading our payment rails, uh but also of the dollar's role in in the global economy, the importance of of uh creating new uh debt demand for for our our treasuries. Um it's it's a huge endorsement of of crypto and it's I think disruptive and I think pretty transformational impact. Yeah, I think that genius was so once the administration changed, you could see that everyone wanted stable coins,

right? Like yes, traditional financial players, of course, all of us in the industry, but also you're seeing people like Walmart and um Shopify and all of these other types of not even fintexs like but just traditional businesses recognizing how much this is going to change their business. I had a call with somebody earlier this week, uh, huge player in the space, like very very traditional, very consumer oriented, who was basically like being able to use stable coins cuts all of our fees down. Like we make more money if we start taking stable coins. And so I think that just like the actual practical reality pushed this forward and stable coins is going to be the way that like my mom or you know your grandmother or whomever ends up touching crypto without even

knowing it. I think the other piece that's really important is for, you know, lobbying about stable coins on the hill in the past few years, we sort of had to fight over this being important for national security and there wasn't either an acceptance or recognition of it. I even had uh meetings with embassies abroad and um you know, national security folks in the government who like no, I think it's fine and no, China's not a threat on the you know, stable coin side and things like that. And even that narrative is flipped around where people understand that dollar preeminence is really important. Uh and so I think the vote really reflects that and how this is going to be not just transformational to the American economy but the way markets

and regulation have always worked. We're talking back in like the 1930s and the passage of the securities act is like the market was built and then the regulation was built around it and mostly put guardrails around it. This is the same thing. Stable coins are out there. They are being used fine. Maybe not as ubiquitously as they will be, but this is the same. Stable coins are out there and the regulation has been built around it. So, we're in we're in that phase now. >> Yeah, exactly. I mean, crypto data firms have used stable coins for the past however many years they've been in existence. But, Genius Passing gives those traditional firms the confidence that they need in order to integrate this into their payment flows. I mean, Rebecca, to your retailer point, I think one of the unsung heroes of the the genius lobbying fight was a very uh

plucky group of KFC franchises who blanketed the hill and talked about how stable coins can drive down the cost of of payments and interchange. And so, I think ultimately the the beneficiary here is going to be the American consumer who sees uh lower costs uh when they go to check out because stable coins are the backend that's underpinning all of their their payment stack. Can you uh can one of you walk me through the actual details? I'm reading this Blockworks article right now and it says things like the bill requires stable coin issuers to maintain fully backed reserves of US dollars or similarly liquid government issued assets. There's also the law also affords more authority to state regulators. So, can we get into some of the details of what Genius actually

means? >> Yeah. Alex, do you want to do details and then I'll talk about like actually practically what people are doing to start complying with Genius because that that started even in our past. Okay. >> Yeah. So, so Genius basically creates a federal regime uh at the credential regulators, specifically the OC for stable coin issuers like your your circles of the world uh to go and acquire a charter. So, the OC will have to create this chartering regime. They actually have 180 days to to stand this thing up, which is super fast in in DC uh time frame. And uh it creates requirements around the types of liquid assets that you must have in your reserves. Uh stuff around bankruptcy and

and ultimately it's it's just create a federal framework for issuance where currently you have a couple states that have state issuance frameworks, but most stable coin issuers are just regulated state-bystate as money transmitters. um state regulators who also want to have issuance regimes will have to have that regime be substantially similar to the federal regime. And then um any issuer who has $10 billion or less in asks and issuance uh can go for a state charter. If you uh clear that $10 billion assets and issuance threshold, you get kicked upstairs to the federal regulators.

And the interesting part of this, I think there was such um certainty that Genius would pass no matter the footfalls or whatever that happened this week that there's already a line at the OC for a charter. Um people already started filing not just a week or two ago, but a month or two ago. Um and so and and the frenzy around getting the OC charter is probably at all-time highs and uh you know good luck to the SEC to the OC in terms of both standing this up but also I think there is just a a huge onslaught I think in terms of what traditional retailers are thinking about doing is they are looking at white label solutions.

>> So not it's it's very expensive to set up an OC. Um yeah go ahead. The only crypto company with an OC charter right now is Anchorage. Is that right? That's right. >> Okay. So, Anchorage has had this kind of regulatory monopoly on the OC um charter for the last four years. I think it is roughly four and a half. Um but now that changes right? >> Yes. But they're a bank. This be a bank to be a stable coin issuer. It's a special type of charter. >> I see. Interesting. >> Yeah. So, they're creating an entirely new charter now because of Genius where previously you have the trust chart.

>> Yeah. And so it it also the Genius Act also allows banks to uh issue their own stable coins. And so while they will get uh their kind of permit from the OC and we'll have kind of a separate subsidiary that is chartered there, the Federal Reserve is still going to be their primary regulator because that's the primary regulator for all all Gibs. So you you've seen a lot of conversations, I think, in in earnings calls this week around City and Bank of America talking about how they they might enter the chat or not. >> Got it. Um, I'm going to uh quote Marjorie Taylor Green for hopefully the first and last time on on Empire Here.

Um, so there are a couple concerns uh with with Genius. Um, one is around CBDC, one is around um like anti-inovation, and one is around that it like gives the banks more power and whatever whatever. So maybe we can walk through some of those. And uh so I'm I'm reading Marjorie Taylor Green's post right here and she said, "Remember when Canada froze the truckers bank accounts in crypto when they protested against vaccine mandates? Uh Congress is passing a bill today genius act that opens the back door to a CBDC. The ultimate goal is to move us to a cashless society, etc., etc. Um why are we passing bills to lay the groundwork for a CBDC that can be used against us in the future by another authoritarian regime?" Um, so

anyways, should have picked someone else to read their their tweet, but yeah, talk talk to me about how maybe why this is correct or incorrect. >> I mean, I I I think that there are elements that could be correct, but it's I would say largely a mischaracterization of Genius. There's actually provision in Genius that uh allows the Fed or basically prevents the Fed from expanding their authority further. And almost every single Fed chair who has been asked about a CBDC has said expressly that they think that they need congressional approval in order to issue one. I think the the fundamental basis here is um our dollars are going to get upgraded into digital ones. And so the question is do you want those to be privately issued ones or do

you want those to be issued by the central government and be subject to all sorts of nefarious whims. Um, I I do think that that MTG uh hits on a few kind of key points though in in maybe not necessarily that tweet, some of her others this week where individual privacy and and financial self- sovereignty are incredibly important and key cores of crypto. And when we talk about the Clarity Act, there's a a self-custody provision in there that protects individuals right to self- custody their own assets. >> Yeah. The one thing about CBDC's just so everybody understands what the problem is right a CBDC is a stable coin issued by the government and for long long periods of time and this has been explored I would say around the world

China has issued its own CBDC. The UK explored it for a really long time. Uh Jim Heimmes actually put out a paper maybe a year or 18 months ago about should there be a CBDC. Um Jim He's a Democrat uh rep from Connecticut. And the real reason it's not just privacy is important in crypto. Privacy is important in all our financial transactions, right? Like we talk about it so much in crypto because of everything that goes on here and because there's so much transparency, but like it is not a controversial topic to be able to have privacy around your personal finances, right? Like life, liberty, property, all of those types of things. And the reason we actually have the bank secrecy act is so that there is a very clear regime over what to do with

your personal private financial information. So a CBDC would blow that open and that's why there is a lot of push back on it. Also you're never going to get it off the ground but we should have something that like so many um different countries have tried to get it off the ground. China is a special example but like the UK has tried, France has tried all of those types of things. You just can't do it. It's too hard and to put the privacy protections in at the government level is way too hard from a practical perspective. >> Yeah. What do you think to the people who say um uh this bill is actually very anti-inovation only circle and tether benefit from it?

>> I don't think it's anti-inovation, but I think what people are referring to there is that there was concerns over the Libra type of stable coin, right? like a meta or um you know these large web 2 giants issuing their own stable coins and offending things and so there's a provision in there that I think prevents that. I can't remember the exact language. >> Did I go through I remember people were talking about this making it so okay so if you're non-financially regulated business you can't so Walmart can't actually issue a stable coin or Facebook or Meta can't issue a stable coin. Is that correct?

>> Yeah that's why there's so much white label but go ahead Alex. Yeah, that they there's a provision that says if you're a a public company where um >> basically financial services yeah financial services isn't the core to your business then you cannot be an issuer. >> Um and so I think if if those types of companies want to do anything in this space they're going to leverage stuff that others have already built. And so you'll still have that kind of segregation between the customer and and the issuer themselves. >> They can't be an issuer. You got to you got to imagine there's a workound here, right? Like you could work with a like agora could be the issuer or something and then it could go to >> there. Yeah. Building out tons of white label solutions

>> like that's I mean that is happening on mass and you talked to all the VCs the last couple weeks are like we are only getting stable coin pedes. >> Yeah. Interesting. >> 100%. And and the other thing that I would say is um to your anti-inovation point, I mean earlier versions of stable coin legislation uh over the course of the past few years, there were many that were just a federal charter. There was no state pathway whatsoever. And so one of the key things that I think a lot of us pushed for was to ensure that there is that state pathway because I mean people talk about how states are the laboratories of democracy. Well, I think they're also in some ways the laboratories of financial innovation just as crypto in many ways I think is is kind of the the test kitchen for the

broader financial system. Um, and so you can go get a a state charter, work with your state banking regulator if you're a startup, which is going to be way easier than going and getting an OC charter. And some may decide the OC route is better for them, but ultimately there's choice and founders benefit from that. >> Yeah. What about the last push back which is that the banks really benefit from this? um the banks will end up being the biggest beneficiaries. >> I think it remains to be seen what the what the banks end up doing. I think a lot of them have talked about tokenizing their deposit base and obviously they have pretty pretty significant distribution. They have huge customer bases already. Um but I I think it it really remains to be seen how much they choose to leverage this technology for

for their benefit. >> Okay. But I'm going to be a a lawyer for a minute and say tokenized deposits and stable coins are very very different and they operate very differently. Uh so banks have been talking about tokenizing their deposits for a very long time. I was in uh like an innovation round table with a bunch of central bankers two years ago maybe and city and JP Morgan and Goldman all were in there talking about tokenizing deposits but that's not like dollars in the same way right with like a certain onetoone backing the way that uh genius requires it. This is truly like taking their deposits, right, and being able to move them bank to bank. I don't think it'll be able to move in the same way that stable coins do.

>> So, it in uh yeah, it'll be harder to move between stable coins, but there or way that st Yeah, but but there there is a provision in the backing reserve piece in in Genius that says demand deposits are one of those backing items that they can use. So whether they decide to tokenize their deposits, whether they decide to issue stable coins and create some sort of payments consortium the way that like a zel would um it it really remains to be seen. And I think the other question will be uh is company going to want to use the the stable coin product that has been battle tested that's already out there? Are they going to want to use something new with uh maybe an issuer who has has less experience in the market? I think

ultimately the market will decide. >> Yeah. Why do they say you can't get interest on stable coins? >> So that was a very fun lobbying fight. Um so so the the tug-of-war analogy that I I made earlier, there was a a very bitter tugof-war over the the interest piece and and ultimately um the banks don't win in this bill. Um their their kind of primary priority was to make sure that they also didn't lose. And so one things that banks really closely guard is their ability to offer interest to customers who um have deposits with them.

>> It's just funny. They really don't give much interest anymore, but it >> Yeah. Yeah. >> Well, think about it this way. Like would you rather go get 5% on on your USDC? Would you rather go get a fraction of a of a cent at at your high yield savings account? um if I'm a bank, I'm probably pretty scared about u what crypto native yields can can offer. So there there are ways to um still pass th those rewards on to customers. Um it's just you can't natively offer yield on the token itself.

>> Yeah, I think there will still be these third party arrangements like what you see between Circle and Coinbase, uh where you're holding your USDC at Coinbase and getting interest on that. Um and >> you just can't have it native yield bearing inside of my my wallet. It's just acrewing or something like that. >> Yeah. Okay. >> Yeah. Yeah. Like if it was like rebasing or something like that there there's going to be a lot of I think very creative lawyering over the next few years. >> Can you do passroughs though? So like in in the coin in your Coinbase account if you hold USDC you get four or 5% or whatever it is and we we know how that works. Could you see could that happen?

I think the dream was like if I'm holding a token, a yield bearing stable in my MetaMask account or Phantom account or something like that, I could automatically get it. Um, but could you see the same type of circle uh Coinbased relationships with the wallets? >> Oh. Oh, the wallets. >> Yeah, I'm not sure. >> I think that's I think that's harder to say. Um, I think one of the other things here too is um this the bill doesn't in any way, shape or form limit your ability to in your wallet hold any asset no matter where that asset is issued. So whereas a US registered centralized exchange might have limitations on the type of stable coins that it can list, a DeFi platform is permissionless and

borderless and any uh user can deposit any asset pair whether that is a US stable coin or or something else. and uh your your self-custody wallet. I mean, ultimately, it's it's everywhere and nowhere if you're in in DC or if you're you're traveling to London. Um it doesn't really matter. And so, ultimately, you should be able to hold whatever type of of token or or unit of value in there that you want. And Genius protects your ability to do that. Sorry, you just you talking about moving and your wallet reminded me I was on the hill I'd say last administration but like maybe nine months ago and there was a very senior member who was asking me about bringing crypto into the US and I

was like you don't bring it in and out like he's like yeah but like what if you once you bring it in then you have to register it and I was like >> when I take my bar of Bitcoin what does it I scan it through the the metal machine and what um >> yeah so from there to this. We've seen a very long ride. >> Yeah. Yeah. That's good. All right, let's round out this. Um, Alex, I guess just a closing question on genius. The house view at paradigm. One being, oh my god, this was the worst. This was horrible. 10 being like we got every single thing that we wanted. Uh, where do you guys fall?

>> I mean, look, I I think paradigm as a general matter of practice isn't in the business of endorsing any legislation. Um, and no bill uh to that end is is perfect. There's stuff that would have been really great to be in here like native yields like like you mentioned before. That said, Genius is is a pretty good bill >> and it defends DeFi in the process which is one of our our red lines. Um there should be in no way, shape or form any infringement of the ability to permissionlessly list stable coins on DeFi protocols or D5 protocols having to register. And um the fact that that isn't ingenious and DeFi is protected is to us a win. This episode is sponsored by Katana. Katana is a DeFi first chain

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layer. As always, investments in blockchain technology involve risk terms and conditions apply. Do your own research. >> Let's talk clarity. So another another bill passed was the crypto market structure bill. Um uh the h the house on Thursday passed the clarity act. Um and this was the yeah the the big market structure bill. So talk to us about I think most importantly like what what was in this? So genius was the much I put quotes around the simpler bill. I would say market structure gets a little hairier, a little more complex. I've I've heard a lot more lobbying, a lot more uh even infighting inside of the crypto industry. like what uh maybe one of you could walk us through just what was what was being debated here.

>> Yeah, the I'll let Alex do that. But one thing that we should talk about is like what happens next with Genius is that it goes to the president's desk this afternoon to get signed into law. Yes. And there are industry members that are coming. So like this is a big deal like by today Genius will be law and there will be implementation. Cryp uh clarity is in a different spot. It passed the House and now it moves to the Senate. But we'll talk about the procedure in a second. Alex, do you want to go through sort of what Clarity does and does not do? >> Sure. And I I'll be there at the White House, so it's going to be a pretty awesome capstone to many, many years of of hard work and >> a pretty extraordinary event to have a president who will sign a piece of

transformational crypto legislation into law. >> So, so Clarity uh divvies up the responsibilities between the two market regulators, the SEC and the CFTC. Um, one of the kind of hallmarks of the last four years was the fact that not only were both of these agencies suing crypto companies uh, constantly, but they couldn't decide the best way to do it and they couldn't decide who had the jurisdiction to do it. So, you had conflicting lawsuits that were saying that like an asset was a security or an asset was a commodity and then you had poor founders stuck in between getting like absolutely hammered from from both sides. So, uh, this market structure bill is not so much a a deregulatory, um, action as I think some critics of it

might might say. It's it is a regulatory clarity exercise that defines the lanes the regulators have to swim in. So, effectively, they can't make up their own rules in the future in the absence of any clarity. >> I don't know if I actually think that's true. I think there is a huge set of rule making that comes in through clarity. Let let me let me let me clarify that they can't make up their own rules through enforcement in the same way they did the last four years. So this is supposed to constrain the kind of confines of of their their activity.

>> And there's importantly there's also a provision in the bill that allows for pre-sales of tokens under the securities law. It creates a new exemption. So for all of these years we've heard about like selling to re uh selling to accredited investors only regggd reggga a you know 506. So you've heard all of those securities exemptions that people have used to do pre-sales of tokens and ICOs whatever. This creates a whole new exemption under the securities laws to be able to to do token pre-sales as well. Um so I think that's an important part for founders. does have pretty as in the draft that came out of the house has pretty restrictive lockups for insiders for pre-sales of tokens. So for a lot of your listeners that is probably

the most important thing that they will care about. Um but it also impacts teams like it's not just like the VCs who are restricted but teams who get tokens uh will not be able to sell until what they call maturity uh and for a period of time after that. So it creates a lot of different parts of market structure for tokens too. Wait, it's super important. You because you put quotes around maturity. What? There's a there's a definition. Let's get into that word maturity. What What does that mean? >> So, in Fit 21, because I think you can you can rightfully view clarity as the kind of next updated version of of Fit 21. Fit 21 as your kind of project decentralizes, it moves from the SEC to the CFTC. Um, Clarity takes a more straightforward approach, which is the

fundraising kind of contract is the SEC's purview. The token itself is the CFTC. And so everything that's happening with the token, unless it's literally like Apple stock on a blockchain, is going to be happening over at the CFTC. And so there's then now instead of a decentralization test there's this kind of maturity test where over the course of four years projects will kind of decentralize ownership thresholds will will decrease and ultimately you'll reach this point where you can be deemed to be a mature ecosystem or mature network or mature maybe not ecosystem or or mature um protocol and um there are fewer disclosures required on the

initial issuing uh entity or kind of related or associated persons. So after that 4-year threshold, those those kind of restrictions relax and the idea is that a project has uh reached a state of literal and regulatory maturity by that point. >> Can I say it back to you and make sure I understand? So you a token can transition from a security to a commodity. >> That was the old bill. The new bill different. >> Yeah. >> Yeah. So the the idea is to make this as simple as possible. It's still pretty complicated to to be blunt. Um and and ultimately like the Senate is going to kind of do its thing and is going to decide whether this is too complicated.

They want to simplify it even further. But the idea was that all secondary market trading of digital asset tokens should happen over at the CFTC and should be under their regulatory purview. >> Yeah. So the sale, the pre-sale of tokens, it's not that the tokens are securities. It's this concept of like the token and all the promises and stuff around it, right? To just hearken back to all the things we used to talk about. So that's a securities transaction because it's a pre-sale. You're saying we don't have anything yet. We're going to build and so what we've sold you is going to appreciate in value. So okay, fine. Howie, investment contract, stuff like that. But once the tokens are out into the market on the secondary uh market, then all of that is in the CFTC's perview. So the token does not

>> the second you get the token live, it's a commodity. >> Yeah. But that doesn't take away your disclosure obligations. It's so this is okay. The SEC is really a disclosure regulator in many ways because it's the >> Oh, the disclosure regulations go away once it becomes a mature status or they're they're reduced. They they mature status is like no single entity holds 20% and open source code or >> some of these things >> a few other things. Okay. Okay.

>> Yeah. >> It's kind of there or control test but honestly it's the flip side of decentralization like they just have rebranded it because many people in the industry were like we cannot codify decentralization in law that doesn't even make sense. like we can't talk about like GitHub commits in a bill which they did and fit and things like that. So um >> what about app tokens or yeah what about app tokens that trade on mature blockchains? So I could see how things like ETH would benefit and other mature L1's and L2s and stuff like that. What about a and uni?

>> Um I don't know how. So we'd have to go through it. A might I don't know of anything any I don't even think the Dow holds 20% of the A tokens. Um so I think maybe um >> so they can become mature too. It's uh like the the app. >> Yeah, it's for project. >> Yeah, the the idea is it's not just for for L1's and L2s. It's also for protocols for app tokens. I I do think that one thing the Senate's going to have to think through is whether those hard-coded percentages like that 20% threshold are make sense as kind of a one-sizefits-all. So like for instance infrastructure projects or or deepen uh generally speaking in deepin you do have

some sort of central entity that is controlling a large number of tokens or is I don't know putting out hotspots or or whatever it is that the deepen project is doing and the kind of token holders are are less involved in in the same way that they might be or less decentralized than they might be with like an L1. And so creating more flexibility, whether that is kicking that to the regulators for notice and comment so they can have bespoke kind of regimes for different styles of projects is something the Senate's going to have to contemplate.

>> Yeah. But if you think even about like general foundations, foundations on Palm Launch frequently have 20 maybe 25% of the total token supply. So I agree with you there. So just to so Genius goes to the White House. Now Clarity goes to the Senate. And in full disclosure for the behind the-scenes stuff, this is not it's not that clarity is going to the Senate and they're going to consider it as it is. There are a lot of efforts in the Senate now in terms of either taking clarity and uh as Alex suggested simplifying it, bringing back in Lis Gillibrand elements and thinking about which was an old draft that came out of the Senate also dealing with market structure. So they're trying to reconcile all the different approaches that people have taken to crypto market

structure legislation now in the Senate before. So it'll have to go back through the Senate and then maybe back through the House before it ever gets to the president's desk. So whereas Genius is going and everyone should be off and running to the OC, we are not close to getting crypto market structure passed in the next I'd say month or so. >> Yeah. Yeah. Rebecca makes a very good point. In the same way that uh clarity was kind of a derivation of FIT 21 and had similar authors in in the Senate, you have uh a lot of efforts like the responsible financial innovation act which was commonly known as Lumus Gillibrand. It has this construct called ancillary assets where kind of similar if you um have an investment contract the object of the investment contract is not in itself a security. It's a ancillary asset or a digital commodity.

U they have they have opinions. the the Senate is its own body. It likes to do its own work. Um and we're expecting them to release their the Senate Banking's discussion draft I think in in the next couple of weeks. The Senate Agriculture Committee is going to do their own work as well. You have to run these kind of parallel tracks just like you did in the House because the SEC is under Senate Banking and the CFTC is under Senate A. Um, and so it's it's going to be a similarly complex kind of uh orchestration with a lot of folks that have worked just as long on these issues and have very I think concrete and well thoughtout uh approaches to how they want to deal with them.

>> So there's this kind of revival of ICOs happening right now. Um there's these platforms like you know Echo and Legion and things like that. And then you know obviously Pumped Fun just did their big one which we've been talking about a lot here. What does this do for the you know I'm not alone I I'm mostly tracking what you guys are saying I think um and my one of my thoughts is this could kind of legitimize ICO style fundraising again um but I'm curious to get your take. I mean it it will um I don't know if we'll call them ICOs but the I mean at least what is in clarity now is you can sell 75 million of uh tokens um pre-sale and it has a number of different pieces to it but it will

allow for that. >> Yeah. I mean, ICOs, right, back in the they sort of have this odd historical negative connotation, but there's nothing wrong with them as long as you do it correctly and then actually build something, right? ICOs were just so bad back in the day on the scam side of it, but like there's nothing wrong with pre-sale of tokens. >> Yeah. >> Yeah. I I think it's it's honestly been been pretty incredible to watch just the pace and uh how efficient some of these sales are. I mean, crypto is an extraordinary capital formation tool and um back in the day when crowdfunding first came out, that's like a very rudimentary version of what crypto has made extremely efficient. So, um a lot

of tools, not just for crypto companies, but I think for traditional companies to find ways to raise capital, again, you need regulatory kind of guard rails around that. You can't just be willy-nilly raising money and then not not abiding by the terms under which you raised it. But um it shows just how efficient crypto capital markets can be. >> Yeah, we just put out this dashboard on the pumped up fund ICO actually. And you can see here this is um minutes post uh how much money was raised each minute. $275 million raised in minute number one of the pumped up fund ICO. and you know you know minute number two 53 million 35 million 19 million so it's it seems like

this is where capital markets are are trending towards >> it it it also um I think is is a a great endorsement of just why stable coins are important I mean that's all in USDC and USDT and to the same thing that we said to all of these members of Congress you can send stable dollar uh denominated value instantaneously anywhere in the world with like immediate finality. And that's that's awesome. >> Yeah. A >> and not a $40 fee off of whatever you're paying, right? And then the bank saying, "Oh, we don't know this person. We're not going to send it to you." You having to call your bank, all of that stuff.

Like obviously there are things that can go wrong on um you know, when you're transferring stable coins if you don't know the wallet and stuff like that. But if you know how to do it, it is the easiest thing. I just did an angel investment. It took me, I don't know, five minutes to send it across, you know, in USDC for my Coinbase account and it was it was amazing. The one thing I'll say about the Pump ICO, I don't know if you guys talked about it, too. It's a little different than what we think of as old ICOs. Like they build a product that people like and use and then they did their Yeah. Right. Crazy. What are we doing? Um, >> and I think that may be why it was so successful, too, because you you already show product market fit. And I think I

think that's hopefully what we will see going forward a lot of too which is people actually trying to build something useful. >> Will this uh will this cause more more people to launch chain their own chains like more app basically more apps to launch chains or or no impact? >> That's a great question actually. I don't I wouldn't want to have to hit maturity because at least as it's written today because it is to you it's a little confusing. It's a little complex and it doesn't even fully reduce your disclosure um regimes, but I don't know if it'll launch your own change. If you're launching an app and you have a token, doesn't really matter if you have a, you know, you'll still have the same obligations.

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many other people how did we get other house members on board with this? Like why why are they pro this >> with with clarity or with DeFi? U because I I do I do think it's actually important to to touch on the DeFi piece. Um Emmer particularly deserves a lot of credit. So So right now Roman Storm is is his court case is happening this week >> and and he's being uh prosecuted by the federal governments for basically just publishing code. And so one of the things the blockchain regulatory certainty act that that uh whip emmer uh incorporated into clarity and we're optimistic will get incorporated into any senate product is it ensures that developers are not required to register as money transmitters and aren't held

liable for the actions of unrelated third parties on platforms they develop. So, it's super important to to I think uh rightfully recognize that developers publishing non-custodial platforms that don't take custody or control of user assets are very different than centralized custodial entities. And we're we're very I think focused at Paradigm particularly on making sure that any market structure legislation recognizes that. Yeah, I thought Brenshell's quote was, "Decentralized finance or DeFi developers do not take custody of user assets, nor do they control user assets. Therefore, we should not treat them in the same way that we treat centralized actors who do have custody and who do have control

over the assets." I think that's well said. >> Yeah. And GT Thompson, who is the chair of House A, who oversees the CFTC on the House level, also went to the floor and started off a statement saying DeFi is different, which is like, yeah, we've all been saying that for a long time. So to see the chairs of both um Yeah, exactly. Um is uh is just it's pretty amazing. I think the thing we have to watch out for in the Senate, and I know uh Alex has a has some things to say about this, is the the traditional financial actors are very um I would say afraid of DeFi, but let's just say wary of DeFi. They they

don't want to see anybody cutting into their market share. And so we are seeing lots of um new players coming out against DeFi because they think I still don't understand it because DeFi is still such a small part of even the crypto economy, let alone the larger economy, but there is this real fascination or obsession with what DeFi can do to traditional finance. I don't know if to take that love and do something with it. >> Yeah. Um, if if anyone's been paying attention to my Twitter profile the last two weeks, they've seen some some very spicy opinions on on this. So if if you look at the SEC crypto task force uh meeting log, SIFMA, which is the trade association that represents basically

the entire securities industry, um had a very pointed uh comment letter that basically said onchain securities uh kind of are bad and original securities are better and we don't like anyone kind of honing in on our action. Um on to Rebecca's point and this was I think what what was so important about GT Thompson uh the chair of the AD committee which oversees the CFTC and commodity derivatives market saying is right now the um the Clarity Act just protects spot DeFi and uh whether it's spot DeFi whether there are derivatives there are all sorts of permissionless non-custodial protocols out there whose

developers deserve protection And there are plenty of more traditional market actors. CME is I think probably the the biggest culprit here. CME, the Chicago Merkantile Exchange has something like 90% of global futures volume on its platform. So if I had that type of flow, I would also not want to share it. Um so it it'll be >> hyperlquid, by the way. >> Yeah. So, it it it will be, I think, a big fight in in the Senate to make sure that um these traditional actors don't get involved in they're already involved in these conversations, but don't do so in such a way that it purposefully disadvantages crypto companies. Um

because I I I think crypto provides uh the first real competition to a lot of these really entrenched market actors in in a very long time if if ever and competition ultimately is is good for the market. I think we also think that DeFi is kind of this grand unifying superructure across all of global finance. And so keeping that open and permissionless means that it's going to be able to reach its potential and ultimately all of these these kind of disperate uh disjointed markets in every nationality will will benefit from greater global liquidity and interoperability. Um, so we're optimistic that uh I think ranking member Clolobashar has has been I think

a fierce antitrust warrior over the years and uh I will be very interested to see whether um she picks up on these these incumbents uh who who aren't taking kindly to to new market entrance challenging their their longseated I think territories. >> That was some deep DC stuff to break it down for everybody who's not even DC. We're talking about Amy Klobashar who ran for president previously. She is now chairwoman uh she is chair of a now >> ranking member of Senate agriculture.

>> She's the the top Democrat on Senate A and so her staff is in charge of of the A part of the the Senate market structure bill. >> Yeah. So she'll get a lot of say in whatever draft of market structure that A's putting out. an antitrust for everybody on the legal side is where you can't have these huge huge conglomerates coming together and taking over a full share of the market. And it's actually what people have sort of for a long time were were so surprised why Elizabeth Warren didn't like crypto because she was so anti these huge financial services company taking over everything. And so we were like, "Oh, she'll love this because crypto is, you know, undercutting that." And um no, >> we'll see.

>> Alex, we need more we need we need more DCT. a little a little more gossip out of you. He knows >> there's so much. >> I The thing I feel like the thing people don't realize who haven't been in DC is um more than like any other you know even New York or SF or anything like that DC is a gossiprun city. It is >> and it's small like New York is like you have these like lots of little things going on. DC is like so small >> everyone knows everyone in DC. >> Everyone knows everybody. Yeah. Yeah. Yeah.

>> Yeah. It's it's I I think not just politics is kind of this small insular kind of ecosystem and and DC but also the the financial policy sector and then even a even smaller concentric circle than that is the crypto policy sector. So I mean for for years I would I would go to fundraisers with name member of Congress on financial services committee and see the same 15 lobbyists from CME CBOE Goldman Sachs and so on sitting around the table and be like hello I'm going to have the same conversation with you that I had yesterday when I saw you at lunch and and crypto is even an even smaller community than that which is

also I think one of the things that makes it really awesome because you've been fighting side by side with this same group of friends um in the trenches in some of like the darkest days over the past like decade and these are the people that you get to celebrate with when when things go right. So it's it's a pretty it's a pretty special >> thing to be a part of. >> But but I do think from an industry perspective look how to regulate the big centralized actors is pretty clear. Like I just don't think there's a lot of stuff to fight over except for maybe some jurisdictional turf wars over like can ATS's which are typically you know overseen by the SEC also just do like a notice registration to the CFTC and undercut all the CFTC registrants. But

the thing everybody should really pay attention to is what these bills do about DeFi because it is not regulation ready yet. Like it's just not. We don't know exactly all the ways it works. We have all these strange mechanisms holding admin keys. Sometimes they do a lot, sometimes they do a little. we have security councils like right DeFi is still emerging and so my my plug on this for the industry would be really pay attention there like we should want market structure regulation in many ways for these large players it's important for the Coinbases and the Robin Hoods and stuff like that but how we are going to regulate people who hold admin keys or software developers to Alex's point which like writing code should not be regulated at all like that is really the most important thing that's going to happen in any of these bills.

>> Yeah. the the last question on clarity that I didn't fully follow was I was trying to read this. It looks like Clarity Act applies the bank secrecy act and other like KYC AML rules to intermediaries but I'm not but I'm unsure what an intermediary is in in >> a normal financial institution like the Bank Secrecy Act already applies to Coinbase >> like an onboard like yeah an exchange or something like that >> on and off ramps >> on and off ramps. Okay. >> Yeah. So, so this this is a really key point making sure that we apply these types of uh controls that already exist.

Like Coinbase, for instance, is registered as like a money transmitter in like all 50 states. They're registered with Fininsen. And so they have to take identity information and validate their their customers. They have to know their customer. And um that is something that a centralized actor, a bank, Coinbase can do. a decentralized actor that is just self-executing code obviously cannot do that and they don't have the same type of customer relationship or or even any customer relationship because they're not taking control of their assets. So, uh requiring those um kind of intermediaries to those on and off ramps to be subject to these kind of anti-moneyaundering provisions and then

also safety and soundness provisions. Those are the types of things that Clarity is supposed to do focused on the the centralized intermediaries and the trading platforms. >> Got it. >> And this is why just to go back to the DeFi question, there's been so much push back about doing KYC on DeFi frontends and stuff like that because it's just a very different type of relationship with the user. >> This episode is sponsored by Catria. Catria is the first zero knowledge rollup to enhance the capabilities of Bitcoin block space, enabling Bitcoin applications and unlocking Bitcoin's full potential as a programmable financial platform. With Citria, developers can now tap into Bitcoin's liquidity to build scalable payment systems, privacy solutions, and more.

Citria is currently in its testnet phase and is approaching its mainet launch. To learn more about Citria, follow the link in today's show notes. As always, investments in blockchain technology involve risk. Terms and conditions apply. Do your own research. >> Let's talk about the AntiCBDC Surveillance Act, which is definitely the act I know least about and is the one that I feel like is least discussed. So, this passed uh by the lowest margin. I think it was 220 or 219 to 210. Um I I I actually don't really know what this bill does. I mean, it's kind of in the name I don't know if it's an anti-CBDC or anti-CBDC surveillance. Um but maybe Yeah.

>> Yes. Alex. Yeah. Can you walk us through what what this bill actually says? >> Sure. So, I I think that the name kind of says it all. And admittedly, I've spent less time on on this than the other two, which I've spent hours, if not days, if not weeks or years of my life. Um, this one basically says, full stop. The central bank of the US government cannot issue a a bank issued stable coin or or a central bank issued stable coin, a central bank digital currency. And the idea is that um like Rebecca said earlier, places like China have decided this is a really great thing that they want to do for their own purposes because they also uh like to collect information about their their citizens and keep tabs on them. And

that's not what we do here in the US. And so this isn't something that anyone has really been on board with. Uh particularly folks who are are particularly focused on on privacy. Um I think where this gets tricky is in how the language is crafted. Um generally speaking, uh Republicans say CBC bad. Uh I think and so that's where where you saw almost every single Republican voted for this. With Democrats, I think there's a a broader um kind of range of of of opinions. You've seen some like uh I think you had two Democrats vote for this uh uh Golden in Maine and Tanidar in in Michigan. Um you've seen folks

like Jake Oenclaus in Massachusetts who's young and pretty techsavvy who says, "I don't I don't like CBDC's. I don't think they're they're great, but I don't like this bill because it goes too far or it's not the right implementation of this." Um and then you there are some I think Democrats who who think that there are uh good that can come from CBDC's. Maybe you can uh get I don't know government aid to to kind of individuals who the more needy in in a faster way. This was something that really picked up uh speed dur during co but ultimately if if you get uh a bunch of Americans all with accounts at the Federal Reserve and receiving money from

the Federal Reserve then uh the the sends can always be the the kind of the control. And so, um, I think for the most part, folks in crypto who are focused on individual, I think financial liberty and self- sovereignty, uh, aren't particularly wild about CBDC's >> and you don't need a CBDC to do a lot of the things Alex said. The US government has already been using USDC for years to actually send aid out to Venezuela and things like that. So, I we don't need a CBDC. And you don't even need that. So what Alex is talking about is a retail CBDC which is like oh we'd be using cash that people have even thought about what are called wholesale CBDC's which are for central banks to transfer money to each other and even those haven't been

able to get off the ground. It's just not an effort that's going to work but it is important to I think make sure that we we tamp it down and as I said earlier in the pod like the only country that really has gotten a CBDC off the ground is China. >> Yeah. Yeah. Makes sense. Makes sense. um these three bills, what are the maybe second order impacts of these three that folks should be both founders and investors should be thinking about? I mean for genius like go to it. Uh start building, keep building. There are a million different um business ideas even that I have heard swirling about even between white labeling or building uh clearing houses or whatever.

Everybody is building something around stable coins. So good to go. make sure you know the provisions of the bill. Uh make sure you find a lawyer who can tell you how to do this practically uh and really understands all of this and has been working on it for years. So I would say that from a practical founder perspective for clarity sit tight. Um there we still have a ways to go. Yeah. >> If clarity does pass though, I guess there's so many changes that could come to it. I think there will be a lot of changes and so think about what you care about and um if you do have things you care about, call your representatives and tell them. I think that's really important or reach out to people in the space who can tell you how to, you know, make the biggest impact for things that

you care about. Anti-ZBDC, I don't think there's anything necessarily to do. Alex, different take. >> Uh I totally agree on clarity. Uh spend some time with the bill. uh find a good either use chat GBT to to give you a good rundown of it or find a good um of a good podcast perhaps like this one um or or a good summary and get comfortable with I think all of the different terms how it's constructed and so on. Decide if if that's something that works for your your company or your projects. Um, and if it isn't, uh, there's still time to to have your voice be heard and and make sure that Congress takes the time to get this right because ultimately the

more information they receive, the better policy they're going to be able to make. >> Yeah. >> Um, and and members of Congress love stories. If you're a founder who says, "This bill is great for me because XYZ," they want to hear that. If you say, "This bill doesn't work for me because XYZ," they want to hear that, too. on Genius. I'm actually really excited for what this does to I think the cost structures of a lot of um I think existing companies that will start to integrate stable coins into their back end. So like you you've seen a lot of costs driven down by the adoption of AI where uh entry level roles maybe you you can just use a a chat GPT again. um in in in the case of of stable coins, I mean, we've we're starting to see

countless fintexs um adopting stable coins as their back end. You're running global payroll, you're going to use stable coins. You're doing crossber payments, you're going to use stable coins. I think Stripe's been a really early adopter here. Uh Privy, which was one of our our portfolio companies they just acquired, um has has been working with a lot of these fintexs to to do just that. So starting to see some of these companies that have traditional cost structures have those cost structures compressed in in a really positive way by the adoption of stable coins into their backend and their operations. Uh I think it's going to be a really exciting trend to watch.

>> Nice. Um Alex, what was the biggest debate between the between the crypto incumbent the crypto folks about these three bills? I I think the changes to the D5 provisions maybe at the ve in clarity um at the very last week before it came to the house floor were probably some of the bigger debates. I don't know maybe Alex has other DCT. >> Yeah. >> Um yeah honestly a lot of stuff around getting DeFi definitions correct. Um, I think that's been the biggest thing.

like there there's I think broad agreement generally uh with maybe some wording tweaks about what you should do with centralized exchanges like that's that's less hard but defining the undefined in the case of DeFi is extremely difficult and so not only in clarity but if you look at the genius digital asset service provider definition which is I think in like title two um that was painstaking work to make sure that that was targeted just at centralized intermediaries that are lifting tokens or listing tokens or are offering them on a platform um as opposed to decentralized non-custodial ones. So, so that is the the one thing that every single bill that comes out you you parse it and you make sure that it it uh it it defines things correctly

and it doesn't inadvertently scope in things that shouldn't be scoped in. And I'm guessing on that on that line, it's like the centralized exchanges might have been fine with it, but folks who are investing in DeFi or building in DeFi are were gung-ho that this had to change. >> Yeah. >> Yeah. Yeah. Interesting. Alex, thanks for coming on Empire. Rebecca, thanks for coming back. Anything um anything that we should be talking about that we've not talked about? Anything that we missed? >> No, I think it was a pretty big week. I think Crypto Week lived up to the hype.

Yeah. >> Um, and I don't I think it'll be really interesting to see what happens with Clarity in the next month or so. Um, but I don't think anybody's losing steam and I think everybody wants to capitalize on the momentum from Genius. >> Do you think Clarity Act will change much? You you It sounds like you both think it will change a decent bit. >> I I I think it probably will. I mean, I think some would say that the the huge bipartisan vote mean that it shouldn't change at all. I think others say that when there's a huge bipartisan margin, it means that you gave up too much. Um, so I I think this the Senate has its own opinions. Uh, we just saw this with one big beautiful bill. The House had one package. The Senate did something entirely differently with it and they

sent it back. I think the one thing that I would also have folks pay attention to um is is the ongoing conversations around crypto tax. This has not gotten the same attention that uh Clarity and Genius obviously have. But ultimately, say we pass this market structure bill and we've already passed Genius. Um ensuring that digital assets are given correct or clarified tax treatment is going to be one of the really key unlocks to uh ensure that they can be integrated into our financial system into kind of our our day-to-day life and payments. So, House Ways and Means and Senate Finance are going to be working on this over the coming months. Um, Senator Lumis just introduced a a tax

title. Um, so this is going to be a big uh item that I think many are going to be working on too. >> Yeah. And I will say just coming from the Judo side of things, I think tax around staking is really really important to get clear. Um, and both on the direct staking and the liquid staking side and how uh staking rewards get treated. And there's also a big push behind the scenes to make sure that there can be staking in ETFs because yes, you need it to be cleared through the SEC, but the other big hurdle is to get how the tax treatment will be in the Grand Tour trust structure. So that's the structure around the ETF. Um, and how you'll be able to do staking within that. Um, and also via LSTs, which there

may be some exciting news on that on the GTO front next week, too. >> Wow. All right. A little alpha. Cool. Rebecca, thank you. Alex, thank you. >> Thanks, guys. >> Great, too. Thanks for having us.