ep 20 – Crypto Policy & Regulation: What's Going On?

Transcript

[Music] welcome to web 3 with A6 and z a show about building the next generation of the internet from the team at Asics and Z crypto that includes me your host sonal choxie this show is for anyone whether entrepreneur business leader developer Creator or policy maker and speaking of policy today's episode is for anyone seeking to understand what's going on in the space at a very high level in terms of Regulation sharing Frameworks for policy makers as well as some quick guidance and overview of how things work for Builders our expert guests today include miles Jennings general counsel at Asics and Z crypto he was also previously at Latham and Watkins where he co-chaired his Global blockchain and cryptocurrency task force miles has written a lot for us here including developing legal Frameworks

for Dao's IP and Licensing nfts a guide to decentralization for Builders a series on regulating apps not protocols and more we also have Brian quintense now head of policy at Asics and Z crypto previously he was a commissioner of the commodity Futures Trading commissioner FTC where he had led the agency's technology advisory committee and during that period the cftc also oversaw the listing of the first U.S regulated crypto Futures contracts on derivatives exchanges and finally we have Colin McCune who joined as head of government Affairs just a couple months ago he had spent a decade on Capitol Hill and most recently was Deputy staff director of the house Financial Services committee I asked Colin to join us to jump in for

wherever we cover navigating Congress and the legislative process as a reminder none of the following is investment business legal or tax advice please see a6nc.com disclosures for more important information including a link to a list of our investments we begin with a quick overview of the broad Strokes in the first few minutes a pulse check on policy and sentiment why now then we dig into specifics including mids debates and more and we end on a quick lightning round about what to expect for regulation ahead including across specific domains anyway the first voice you'll hear after mine is Brian followed by Miles and then Colin we're talking about policy which is a pretty big meaty topic there's actually a lot you can say on many many different threads and of course we will cover many

of those threads on this podcast both this episode and future ones with ourselves and with others but honestly just maybe a good place to start would be a lay of the land because if I were in the crypto space you know I'm here to build I hear a lot of the news what's going on what's not going on it's really hard to tell what signal what's noise what to pay attention to what not to what's going on what's the pulse check so I think we're actually in a fortunate spot because we've had enough time for Founders and Builders to come into this space and use their Vision to show us what that future can look like but those things often get overlooked or

overshadowed by fraudulent actors hurting people and innocent customers that's always going to draw more attention than the benefits and we've seen can also play out where folks that may be somewhat crypto skeptical but also open to conversation and education may have veered a little bit more towards the skepticism tent and then on the other end of the spectrum those that have been completely antagonistic to The Innovation are using this to reinforce those views But ultimately what we need is to embrace the promise of crypto and web 3 while also protecting customers from either new risks or where they are

still present Legacy rests either way new regulation or new legislation has to be calibrated to both achieving the full potential of the technology while protecting consumers and the focus on policy is really coming into the foreground now because people are starting to recognize that this industry is going to continue to exist it's going to be around the technology is real and so I think those of us that are in the industry are very focused on trying to provide Clarity via a regulation because it's become very clear that the lack of clarity has led to a very unlevel playing field between you know good actors and Bad actors what do you mean by that when you say unlevel playing field so essentially what happens when you have a lack of clarity in the regulatory space is that the actors that

are willing to take on the most risk and that are willing to operate in the gray zone or even across the line in the red are the ones that take advantage of the fact that people don't know what the rules are meanwhile you'll have good faith actors that are doing their best to try and comply but that then places a lot of pressure on their ultimate competitive positioning and so constantly we're discussing with entrepreneurs in the space around whether or not they can do X Y and Z and one of the things that they'll regularly say is well why can't I do that so and so is doing it and unfortunately the ineffectiveness of being able to curtail those Bad actors really does put unfortunate stress on the good actors I mean this happens at the lowest levels of companies that are just getting started feel this competitive pressure

but it also happens all the way at the top the best example being coinbase versus FTX FTX was offshore it's very clear now that their internal controls and their Regulatory Compliance was nowhere to be found and then coinbase on the other side of it was very compliant has significant internal controls and runs at Great expense and if you talk to the executives of that company they will say the same thing that entrepreneurs that are just getting started say because their competitors were basically cutting Corners at every opportunity that led to competitive advantages and that is a reality driven by the lack of certainty within the regulatory area and the result of that is ultimately damaging for the space in the United States and is one that could lead to more development offshore which then

compounds the risk to users and we hear all the time in DC this idea of unintended consequences that an unintended consequence of this policy or this regulation or this law really harmed these people or these consumers or this Innovation I mean that phrase It's like a linguistic fig leaf for bad decision making it really is it's bad decision making to not understand the consequences of your action is to legislate or regulate poorly and our job and I think the job of the community in trying to educate is to ensure that the consequences of any proposal any potential Bill any potential regulation are well understood so that there aren't unintended

consequences and that they can be calibrated to allow for the benefits of the Innovation to actually come to fruition transitioning regulations that might have been well intentioned or fit for purpose at one point to recognizing where Innovation is occurring and what the promise that Innovation can be is critical and in fact miles and I wrote about this in our second piece of regulate apps not protocols where we referenced the red flag law the locomotive act in the UK in the 1800s where the UK passed a law that said any self-powered carriage had to be preceded by 60 yards with a pedestrian waving a red flag to allow people to get out of the way of it moving now if that law

stayed on the books for long enough it would have precluded the legitimate advancement of automobiles it would have precluded new protocol Frameworks from coming into law that better governed Transportation ecosystems that would have precluded the Innovations of Transportation networks that actually save time and create efficiencies and in fact increase safety I have to ask why is it so damn hard then I'm hearing you talk I'm like this all sounds so perfectly reasonable why are people disagreeing like why is this so hard it's a really good question sonal I think what the crypto industry finds themselves in is sort of a once in every 20-year fight with policy makers there have only been so many times that we have walked the line of such an

influential and groundbreaking technology as I think what we're facing here on web3 so I think first and foremost what we are always trying to do in a situation like this is educate as many lawmakers as we possibly can it is a race to educate as many folks as we possibly can in this case there are 535 members of Congress you're never going to be able to get to every single one of them in a meaningful way so what happens is you have to pick and choose based on sort of background or individual position that they're sitting in or in the basic interests of Technology right to answer your question the problem is you can't necessarily expect people to understand things in a relatively short

amount of time for the purposes of a policy maker and lawmakers the issue of web3 and crypto has only really been on their radar for the last year and a half or two years and it was sort of the offset that came in the infrastructure bill in August of 2021 that ended up taking 28 billion dollars from a broker fix a definitional fix that ended up sort of really sparking and igniting the advocacy effort here in DC and I think from there there has been a lot of unification I think there's been a lot of really really good work done but part of this is just a time frame and then the other part of this is some core fundamental philosophies that have dated back many many years for

individual lawmakers what we found ourselves in is a situation where some of this really sounds very simple and not all that complex but when you peel back the onion some of this is digging itself into historical battles that have come not only in a partisan perspective but also among individual Regulators to individual members of Congress and the way that they sort of view things like consumer protection advancement of Technology Innovation and then even more fundamental pieces of the idea that they believe that government are the only people that should be able to regulate and or have say over how the American people are receiving their money or their financials and things like that so there are a lot of historical situations

that I think are also coming to play yeah some of it can come down to control and who is best positioned to control people's access to financialized products Control Data control the ability of innovators to create new things that may Escape traditional regulatory Frameworks bound technology to kind of conform to existing norms and unfortunately you see that throughout at least my experience in DC and my awareness of DC I mean I still remember when I came to DC a long time ago and I attended a class at the library at Congress around procedure and the instructor said something that always stuck with me she said you know a

lot of people complain about gridlock in Congress but what they fail to recognize is that Congress was not created to enact laws Congress was created to ensure that bad ideas did not become law it's a really good point there are a lot of checks and balances that are put in place before any idea can actually pass Congress and because of how many important issues they have to deal with I mean it's not surprising to me that something only comes up to their attention when everyone's writing about it or when something really bad has happened that they feel needs a response and it's usually that negative event whether it's a financial crisis or International conflict or something else that catalyzes the interest the energy the momentum the consensus in order to

actually put pen to paper and get something through Congress so it's against that backdrop that I think we all find ourselves now where a number of Unfortunate Events and outright fraud has been committed that have put policy man Acres who aren't that familiar who haven't spent that much time with the technology in the place of having to try to decide things or take stances on the issues and so we need to show the positive benefits so that laws and regulations aren't calibrated to the negatives of today but rather to the benefits of tomorrow I think that the industry is also a bit of a roar anyone that looks at what's going on in the industry can basically come to their own conclusions about what the industry and the technology represents so for those that are fearful of you know consumer harm being done or of governments losing

control they see crypto as delivering on both of those things and then for those that see that this is a way to protect our freedoms and a way to deliver new technological benefits that people can't even think of they'll see that and so you get this kind of feedback loop where whatever you're really looking for in the industry you can find and that can drive people to be quite emotional and charge about what their perspective is because there's ample evidence that they are correct yeah that's funny because what Brian said earlier about the system I actually did not even know that was the purpose of Congress and arguably that's a system working but to your point miles it's funny because then it does create that effect where people kind of already have these preconceived notions and in fact the danger of only looking at something when there comes to

be a problem is it only focuses on the local Minima and not the bigger opportunity particularly for a nascent technology like crypto which is where that's a really dangerous thing like we use the analogy all the time but imagine if people tried regulating the internet in the very early days we would not have what we have today which I think is a bit of a trade analogy but it seems like a very useful one when you think about how much and how ubiquitous people use the internet on that note where do you guys think this notion of permissionless innovation and the analogy of the internet does work and apply and where it breaks down because I think sometimes because it is such an overused analogy that we often forget that there are things that are very unique about crypto yeah I mean I think that the most

obvious answer is the hyper financialization of the industry is a significant departure from the historical internet right and as a result of that that introduces all sorts of types of risks and one of the things that we talk about a lot internally is that if you look at the people that are trying to build the World Casino versus the people that are trying to build a world computer the emphasis is by far too much on the World Casino because that's what gets the most headlines right it turns into a speculative bubble people Rush In And all of these tools the the technology naturally lends itself to building Financial products and so that's kind of the first use case and as a result of that it's very hard to now separate that view of the industry from what the technology actually is which is a new computational

paradigm that will enable all sorts of trustless computation and interaction between parties and so I think that the hardest thing with the internet analogy in my mind is just separating the parts of the industry that really look more like financialized instruments rather than actual technological products right I was just going to take that maybe one step lower which is that one of the wonderful benefits and I think one of the foundings of the technology was the creation of unique digital items which therefore has the value that someone can ascribe to it and when you have value that exists that value wants to be exchanged and then Financial products and services are created or can be applied to maximize either that transfer

of value the risk management of that value or the leveraging of that value but then those things start to look a lot like traditional Financial activities with which we have a long history of Regulation it gets to the same activity same risk same rules concept wait say more about that Brian so we've heard this Mantra over and over again in the U.S in the EU of same activities same risks same rules unfortunately it depends on what that phrase means right are those first two phrases questions like is it the same activity are there the same risks therefore there should be the same rules but I think unfortunately a lot of people think that it's only the first phrase that's a question is the last two that are declaratory statements that the

same activities means there are the same risks therefore there need to be the same rules and I think decentralization the lack of intermediaries the lack of conflicts of interest the transparent nature of protocols open source code and blockchains solves for a lot of the Legacy risks that Financial regulations were intended to address and so part of this is where can it go wrong it's the confusion around how risks are actually managed or addressed through the new technology even if the activities do look like to some degree or capacity or traditional activities yeah by the way it's funny when you said the same activities same rules Etc that reminds

me of the looks like a duck walks like a duck quacks like a duck it's a duck kind of thinking which can be very dangerous meanwhile there is a frog that actually quack that makes a noise that sounds like a duck so if someone is just saying quacks like a duck that's right you know you got to do kind of a full part test there so I mean and make make sure that they're looking at all aspects heck in this day and age it could be like you know AI voice thing that's making like a duck sound and it's actually not at all it's like a piece of computer code one thing to keep in mind is the saying in DC is the original sin from the crypto industries that it tried to disrupt the financial services industry right I mean it is one of the most highly regulated

and highly sought after industries from a lawmaker perspective one of the things that complicates this even further is the fact that there were only so many people in DC that spend their time and effort living and breathing the nuances of the financial services space in totality when you're trying to draw lines between how this technology is different and what is in existence and you're trying to make this case to someone who doesn't really have a good foundation it becomes that much more difficult it's almost like trying to teach Algebra 2 to someone who skipped algebra one and there are different aspects of the technology that I think have been easier entry points for folks but it has been a serious challenge based on the nature of trying to disrupt Financial Services in the first place

right and just for greater Precision in terms of what we mean I want to make sure I underscore that there's a big difference between when we talk about financialization Miles when you mention that there's obviously the financial applications aspect call in which you just referenced like defy and decentralized finance and financial applications fintech like services but there is also the underlying financialization associated with some of the mechanisms in crypto that have nothing to do with the financial application and that are just mechanisms for aligning people for aligning incentives that are about people who work on something getting rewarded for what they do versus like say putting money in and getting money out so I just want to make sure we clarify that no that's exactly right I think there's

Ryan's point I mean like what this technology allows you to do is describe unique values to digital assets and those digital assets can be artwork or they can just be you know the tokens of a given protocol and as a result of that because everything has a price those prices are going to change and that then leads to you know of speculation within those assets it's really hard to figure out a way to disassociate the price and the speculation with the core technology itself and so there's always going to be this level of noise that is focused on the parts of the industry that aren't necessarily interesting from a technological perspective but that are interesting to people because it is another Avenue for them to practice

speculation I think the myth that really gets at me is the idea that all crypto is a Ponzi scheme that's a good one yeah let's talk about that and I think where that gets confused is the idea that things can have speculative value and that can be set by a Marketplace that don't necessarily in the traditional investment sense produce cash flow they're used and their use dictates their value diamonds are used for much more than just engagement rings right they're used in industrial Machinery they're used in saws and cutting the proliferation of diamonds industrial use and in you know their Everyday Use has created a significant amount of value

for that is it somewhat speculative yeah I mean I guess depending on how you define it but at the same time there are definite widespread use cases of those things and to the extent that web 3 empowered by crypto represents individuals intellectual property they're a Content creation their digital identity their participation in a network is that the holistic sense of that from a value perspective is going to be significant and it's going to represent something in the real world and it's going to be hard to put a price on or there's going to be a price that people disagree about but that doesn't make it a Ponzi scheme it actually does

represent something that Israel that is tangible that is value and that does have that yeah episode one of our podcast methods to the madness actually goes into some of the description of how this is actually right now maybe a bit of a blunt instrument and that over time we'll kind of learn the refinement of flying this balloon with like maybe like the early days of flight will do a lot better with some of the refinement that's involved so definitely check out that episode if you haven't but I would just add that it's also not just an advantage as you mentioned Brian but this is hugely unprecedented in human history like I think we have to take a moment to actually pause and reflect on the huge significance of that like what that can enable it is a complete economic and social remodel yep I mean

web one was really crystallized by the ability to take things we're traditionally offline from the internet put them online so we saw the basis of HTT SMTP these core base layer protocols that allowed things like AOL and Netscape to build on top of and then seamlessly access the protocol and then in web 2 that's the error I like to think of it in a very very simple term the area of social media the ability to sort of interact on the internet in a very very significant way and then in web 3 this is sort of the ability to read write and own so now we've changed the model on ownership structures on the internet and also who can control and access specific areas right so from a lawmaker's perspective web 3 makes a ton

of sense and it solves a lot of the problems that are facing the Congress in a meaningful way right privacy China competitiveness are among the top two things and certainly the section 230 debate that's going on with the internet all of this stuff is front and center web 3 seeks to help push this along in a meaningful way without having to have overburden some Crackdown event regulation all these different areas that's great Colin I would only add two refinements to your web one Web Two web three which is when I think of web one I would probably add more Commerce than that as well like Amazon's and whatnot and then maybe web 2 also content like uploading of user generated media more interaction two-way and then web3 obviously being all of what you said as ways to address this but I would also

add something pretty powerful in web3 which is enabling the Creator economy which is pretty phenomenal like that small and medium-sized businesses all across the board those are great ads okay so to recap so far we shared a quick snapshot of the lay of the land what's going on in policy in terms of why now and some of the mindsets and also nuances like demystifying some of these myths in the space let's now switch gears and go into more specific Frameworks and I'll also ask more real quickly about specific pulse checks on specific domains but first let's dig into some of the details and debates around the regulate apps not protocols concept and for the listeners this is a series of ongoing posts we put out to help develop Frameworks for regulating crypto which you can find on

our website at asicsnzcrypto.com ramp part one miles wrote proposing the general idea part two he wrote with you Brian to develop it further do you want to just kick it off from there yeah so the basis of the regulate apps not protocols approach is trying to focus legislation or regulation on where entities exist hose risks and can comply and to compare that and contrast that with software and protocols regulate businesses not software regulate apps and not protocols protocols and technology and software cannot make distinctions between

different entities it's uncertain as to how a protocol could even Implement those things whereas a business that is providing access to something that is serving customers potentially for a fee reintroduces a lot of those Legacy Financial risks of centralization of conflicts of interest of the ability to potentially defraud customers that we have seen throughout Financial history where there is a huge centralized intermediary sitting in between people and their money the opportunity exists for fraud and theft and misappropriation in self-benefit which is one of the bases for the regulatory system that we have and so to the extent that a

business is operating in the space it likely can comply with rules it likely should comply if it reintroduces those risks and that regulation can be structured in a way that actually helps to provide Integrity to the defy system through things like code audits or providing things that don't necessarily exist right now in the regulatory scheme to me the important thing out of any of all this is that whatever legislation and regulation is ultimately passed in applying to something it has to be well tailored well-calibrated appropriate for the entities the activities the risks and the ability to comply is it the same activities are there the same risks and

what should the rules be around the answers to those questions yeah no that's great just to add on to it two things that we regularly get asked when we put this stuff out is well what about the potential for people to just circumvent app-based regulation by interacting with these if we don't regulate the protocols people can use the protocols and misuse them and ultimately go against policy objectives but that's really not a problem that regulation should be intended to address right with every new technology that's invented there is the potential for misuse so email was invented and people can now send phishing emails but the only way to eliminate phishing emails would be to eliminate email so it doesn't make sense for there to be a law that basically said well we can't have

email because someone could potentially misuse it I mean we can't have access we can't have fire we can't have anything at that point and so as a result of that the intention of the framework is not to say this can eliminate all possibility of misuse but it's about eliminating or providing a pathway to apply regulation to take out the substantial amount of misuse to remove incentives that could encourage misuse and we have at least another piece on this that closes one significant potential loophole which is the use of dows and one of the things that we saw in the cftc versus Okie case was that there is this potential to misuse protocols to misuse apps by Dows to try and hide behind decentralization in order to circumvent regulation and what we show is how that kind of

loophole and construct can be dealt with in a way that would make that activity impermissible without jeopardizing the principles of protocols that we are trying to protect with the framework at some point people need to be responsible and bear liability for their own decisions as opposed to you know as Miles said regulate something out of existence just for the sake of trying to prevent one bad thing from happening is a cost-benefit analysis and and Regulators have to do that oh yeah there's a big difference between caretaking versus like nanny stating the whole thing for sure okay one thing you guys didn't answer I see them so obvious we never actually said what is a protocol like what do you actually how do you define that yeah sure so there's a lot of complications around kind of

naming within the industry but when we refer to protocols right we're trying to draw an analogy to protocols like email SMTP HTTP that were established with web one in web 3 those protocols would be made up of the blockchains and smart contracts that are deployed to blockchains to basically result in some transaction being affected on a blockchain so for instance a decentralized exchange smart contract protocol like uniswap enables people to exchange assets in liquidity pools to exchange eat for Bitcoin if they want it and ultimately that functioning the smart contracts and the execution of the smart contracts and the blockchain are the protocol whereas the app through which you engage in that transaction so for instance if you went to unisoft.org

that would be the application the website is hosted by the team that developed uniswap protocol but there's also a number of different applications like instadapt D5 saver that all enable people to interact with the uniswap protocol and so the front-end website access points are the application whereas the underlying software that executes the transactions on chain is the protocol so this is a good segue then let's talk about public goods and the aspect of public goods that comes into play here so a couple of things first when we were just talking about like the speculation associated with some of these incentives that's one aspect of it but one argument people would make when I think of the history and evolution of Open Source which I've long tracked one of the biggest conflicts is getting things to remain to

have services that continue to operate that get maintained without having a centralized entity like a big ass Corporation in the middle taking care of all the operating costs and server costs and services and code and everything that needs to be done and the beauty of Open Source is that it's essentially a public good where different people you know resource it now the problem is in the history of Open Source that hasn't always worked because things would go into neglect and in our world we have a centralized model for this like government pays for roads to be maintained Etc our taxes take care of that and in the Digital model we have companies doing this so I think it's worth addressing the point of public goods here because this is something very unique about what a lot of these projects are doing so I think you're

exactly right the way that I look at a lot of the protocols that are being developed is that they are kind of public infrastructure if you think about the way that email functions now how many millions of businesses have been built on top of email and utilized email as their primary communication the success of that as a protocol is kind of unimaginable if you had gone back 35 years and one of the things that is most exciting is just watching how a lot of the protocols that are being developed now are building Baseline functionality into the internet so web one was all about information based protocols and web3 is about you know protocols that allow you to transfer value at the speed of the internet and so that results in all this new functionality like like lending and exchanging but it also enables you to create these more

sophisticated protocols like social media or like a gig economy protocol and you end up with this system where there should be stakeholders of those systems because there will be people that own tokens within those systems those systems are being set up with their own treasuries to facilitate ongoing development work to the extent that it's necessary but because you've now taken those tools and resources out from the centralizing cloud systems of the web 2 companies you're going to be able to empower people to build their own businesses on top of them just like people have built their own businesses on top of email and as a result of that you can imagine a world where there are decentralized social media Services decentralized Ubers decentralized you know doordashes and what that really enables you to do because there's not a

significantly large monolithic company behind those Services that's you know taking a massive take rate the stakeholder capitalism that's enabled by them is more equitable distribution of value to stakeholders of a system is made possible and one of the things that we've worked a lot on is the concept of dows and legal entity structures for Dows and one of the things that we see within the web 2 world and the corporate world generally is that c Corps are set up to maximize the value for one stakeholder and it's the shareholder right and as a result it's a fundamentally incompatible entity structure for the organizations that oversee these protocols because if we just ended up using C Corp all value would again accrue to shareholders and you wouldn't actually have the

possibility of stakeholder capitalism and so what is exciting about Dao is what's exciting about the legal entity structures that we're pursuing for them is that it would give the ability to kind of flip the script there and actually ensure that more value accrues to a larger number of stakeholders so that would include the people that are operating the cars in Uber or doordash or the people that are content producers that are hosting the most of social media you know give them a real stake and real value accrual as compared to what the current system affords yeah the way I like to think about this in a very simplified way is it's not just the rich getting rich richer with existing like you buy your way in but it's people who do hard work that get rewarded so for instance the builders like of Open Source someone who's an early adopter an

early Builder could get rewarded by having more Stakes to your point if that's one type of stakeholder or it could be like you said a Content producer or it could be just a very active user who took a bet on the space early and contributed a lot and documented how to do things and helped other people and onboarded people I mean there's so many different ways to essentially reward all that work and make sure that those stakeholders are rewarded versus just shareholders yeah that's right and if you continue in the public infrastructure analogy in that context you can really look at the Dows that oversee them and that are charged with using resources to keep them up as being like City governments right although to kind of take that analogy in a different direction in a negative Direction go for it I love it one of the

things that we're focused on is keeping protocols globally accessible protocols cannot make subjective determinations between between one jurisdiction's laws on the status of a product of a security if it's a commodity versus another or all kinds of subjective you know legal determinations and if different countries were to do that it would kind of be like trying to build a national railroad system where every state or city decided on how wide they wanted to make the tracks so it just doesn't work right it just breaks yeah you can't use it between different jurisdictions it creates enormous amount of cost and friction and it doesn't realize the full benefits but yet what we're trying to describe is that if you have businesses

that are providing access to those things those protocols or those public infrastructure number one maybe in some instances they reintroduce some of the risks that were associated with Legacy Financial Services constructs and companies like conflicts of interest standards custody in some cases maybe not in all where applications should comply with certain rules and can comply with certain rules so that if you were going to focus regulations in that space you're not going to break up the railroad system you're just going to dictate what the individual ticket prices are so Brian that's a great segue because I love the analogy of the different states having different sizes or parameters for the railroads because you think it's not a problem if people

aren't moving between States but if you want your world to be interoperable functional you know maximably usable for everybody to benefit and build a top it makes sense that you want that protocol substrate to not be regulated in that way but when you guys make the argument to regulate apps not protocols I have to admit I got a little pissy when I heard that the first time because in my head I'm thinking why are we even asking anyone to regulate the apps like that doesn't make any sense to me either so at its Baseline the regulate apps not protocols framework is totally regulation agnostic and is not ideological right the whole idea of it is basically setting up a framework for how you would go about regulating these

things is not to say any regulation is good or bad is to just say yeah if you are going to apply regulation to the industry this is how it should be applied and we make the case for exactly how to do that where you can minimize the potential for the technology to use for illicit purposes you can remove incentives that might otherwise increase the amount of illicit use and therefore set you up to achieve the policy objectives that the regulation is intended to achieve but it's not saying right that we should apply X regulation to why company and obviously the big focus of a lot of people right now is on how we're going to end up regulating defy but this framework is not restricted to justify it can be applied to you know social media applications

and protocols when we get there and anything else that can come up in web 3. so as a starting point yes it is a agnostic framework and not one where we've actually taken an opinion on what regulation should apply yeah and let me put an example on that let's say the US has a law or passed a law that made spam emails illegal and that it was unlawful to send spam imagine if they were to try to apply that to SMTP I don't know how that that could be updated or how that protocol would be able to comply with that but a centralized entity providing an app that can facilitate email services like a Gmail or Outlook some other kind of email service provider probably could so this framework is not to say that all Spam should be illegal

it's to say that if the government decides that all Spam should be illegal this is the way that that can be effectuated by focusing on for-profit and app focused centralized businesses I mean I think what we've seen over the last you know couple months and years because that some aspects certainly of crypto token trading activities should be regulated and likely will be regulated and if that were to happen and were defy to come under the microscope or be targeted we want to be prepared for that and this is a starting point to do that yeah look I think history of this is pretty simple probably five or six years ago it was understood that there needed to be some sort of additional regulation put on the industry writ large right obviously that

depends on either the activity or how an individual application or protocol is operated so there's definitely need for specification down to the individual specifics of that but what I will say is I think there was a general consensus among lawmakers in DC that The Regulators probably had enough authority to try and handle this either through a rule making or coming up with with something that the quote-unquote experts in these individual agencies would be able to come up with that conversation I think has shifted and is now no longer the case there has been widely seen over the last two years that legislation is definitely needed in fact I would go as

far as it is almost a certainty to happen when that happens is the biggest question but that was the background for the Rayleigh apps not protocols there is an inevitability coming and we want to be prepared for it right if you're going to regulate here's how to do it or where to do it obviously there is a strong contingent within the industry that doesn't think that there should be any regulation and they think that any type of negotiation or conversation about potential regulation is inherently negative but I think that that's not a very pragmatic approach it is one that is likely to ultimately lead to worse regulations so I got a good anecdote for you oh yeah I do share so my dad used to work in city government and he would

regularly get attacked for being pro-development in the city where he worked he tried to be pragmatic he's a lawyer but the citizens the general populace was very very anti-development and so what would happen you would get members of the city council that would be elected who were very anti-development and developers would then come to the city and they would provide a proposal to develop a piece of land that was very reasonable they would have large lot sizes single family homes things that generally you know aren't too controversial but the anti-development city council members would say no we're not having any development now the problem with that approach is that if you don't have the power to actually restrict someone from being able to use their land at all then

they're going to sue you and so invariably people would sue the city would lose because you can't set the terms of the way that it did and the developers would begin win those lawsuits and as a result of that they would then be untethered by the demands of the city and would develop condos now the real perverse the real perverse thing about that right is now the city council members that oppose the development in the first place can come out and say well we were opposed to it and the general population of the city is up in an uproar they're even more anti-development now because now they've got a bunch of condos and it's just a vicious cycle of this like unprincipled extremism that basically people pursue at now end and it's something within this industry there are many people

within the industry that do not think that the US government should be able to sanction countries there are people that think that the First Amendment and the Fourth Amendment will ensure that no matter what happens blockchain technology is going to be permitted in the United States and ultimately those arguments forego engaging in the policy debate on the basis that we might be one day able to rely on a constitutional argument is just nonsensical right I mean it is the anti-development people in a city that are just unwilling to compromise at all because they think they can get something better but they'll ultimately get something much worse yeah so I think really that was where the ramp framework came out of trying to establish that there is a pathway here where we can keep the

benefits of the technology but also address the concerns of regulators and policy makers and so yeah sure city government is not the thing that you want to go build a wildly Innovative new tech product but it is the thing that you want to oversee a piece of infrastructure that is being built on top of by hundreds of millions of people right miles even One Step Beyond that though the legislation that came out in the early 90s that sort of became the infrastructure for how we regulate the internet had that same thing in mind it was really regulate the apps do not regulate at the protocol level that's right so let me push back on a couple of threads so one what would you say to the people that argue that well now you're getting really dangerous because you're

asking people to regulate user interfaces and front ends and that's no better than asking people not to regulate a protocol what would your defense be to that camp of people I mean as Brian said earlier an application that's run as a business right means that that business has the ability to comply with the regulation you know a lot of people like to point out that these interfaces are you know in a lot of cases just providing messages so just sending messages from the user to the actual blockchain but if they're actually purpose built to facilitate an activity that is regulated then it doesn't really matter what the actual characteristics or the specific kind of functioning of the application are if it's facilitating regulated activity

then it's likely a business that should be regulated and have to comply otherwise you would be giving a significant loophole to decentralized businesses that centralized businesses is don't get the benefit of Without Really any justification for doing so now compare and contrast that to a law around custody now obviously a user interface that takes no custody where there are no conflicts of interest where it's not making a profit right in those cases there's very good reasons why regulation shouldn't apply to that type of interface but again where it's purpose built to accomplish the thing that the regulation is meant to prevent it's hard to argue that it should be able to certain about that regulation yeah there are some principles around illicit activity and those that help to

Foster it that may not have conducted it themselves it's kind of aiding and abetting principles right and so were you aware of the illicit activity did you profit from the illicit activity did you facilitate the illicit activity did you Market the illicit activity I mean those are all things that are well established in law that Regulators pay attention to and if there is going to be something that regulates some aspect of crypto Financial activity it's untenable to think that someone could profit from it Market it facilitate it and not be regulated in any capacity so is there a freedom to publish software absolutely and there should be but to the extent you start to financialize it commercialize the change

incentives around it and benefit from it you're going to Bear liability yeah and I'd encourage people who are new to the show who haven't heard it they should listen to episode 10 where we go into great detail breaking down the worlds of illicit Finance the lay of the land how to comply as a startup what compliance and certain laws from AML compliance to sanctions like the whole range of everything related to illicit Finance we really break it down in episode 10 so definitely check that out if you want to go into more detail and then just really quickly like you guys kind of probably self-defined it because purpose built seems kind of obvious what that is but is there anything more to add on defining what purpose built means in this context so let's say that the regulated activity was that you cannot

facilitate the trading of derivatives if I built an application and a protocol that specifically facilitated the trading of derivatives and that was all it did then why shouldn't I be subject to regulation and I think that that's really the point that the cftc was making when they brought their action against the okigao because they basically said you're trying to facilitate regulated activity but hide behind the moniker of decentralization to do so and that's not really going to work okay and then the other quick kind of counter you guys make this case in your recent op-ed series and I've actually done this a lot with a lot of the policy work I've done in my career in terms of op-eds but it's this argument about there are many cases where existing regulations actually apply this is kind of a funny catch-20 too because on one hand we're saying in

some places existing regulations can apply on the other hand we're saying this is a very new and different area of Technology it has to be treated differently where does that line work and where doesn't it yeah I can take a shot at it so just looking at the economic reality of transactions that these protocols and interfaces enable people to engage in there are for instance regulations around exchanges and whether or not they can facilitate the exchange of Securities however whether or not a D5 protocol constitutes an exchange as defined in the Securities act or exchange Act is unclear and so whether or not the regulations apply is debatable there are regulations though under the cftc's regime that are I think broader and give this cftc more

authority to go after the economic reality of transactions and as a result of that I think it's pretty hard to make a case that facilitating the trade of derivatives is something that is permissible in the United States yeah so let me give you two examples one is building off miles headset which is that if you're offering a derivative on a commodity it has to be traded on a regulated cftc exchange and a commodity is basically anything that can be transferred in interstate commerce right so it's not necessarily defined the agency doesn't have to make an affirmered decision on something that's a commodity it's basically very very Broad and if you are offering for the future sale of a commodity using margin leverage or financing and there's this thing called delivery you don't take

delivery of that commodity within a certain period of time then it's basically a Futures Contract and that has to be traded on a regulated exchange so the rules that exist the laws that exist now mean that any commodity derivative including on crypto tokens that are Commodities have to be traded on regulated cftc exchanges so the extent that that activity is happening it needs to happen on a regulated exchange or it is illegal in the United States from being offered to U.S persons another example of that are event contracts events are considered Commodities there's a provision in the statute where the occurrence or externative occurrence that has Financial commercial or economic consequence that is a commodity and a option on a future event a yes or no

binary option on a future event is a swap so anything that is a yes or no contract on a future event that's traded across state lines becomes a regulated commodity doesn't matter if it's done through crypto or done over the phone to some extent if it's being offered and entered into traditional regulations apply but to the extent that there are not rules and there is not Clarity that's going to be up to Congress to step in and provide that and do it in a way that both protects consumers and respects the Innovation ends promise and Brian correct me if I'm wrong but thus far in the cftc's actions in the space they do appear to somewhat already have this idea of regulating apps and not

protocols in mind right the only kind of actions that they've really brought in the space are when businesses are facilitating activity in the United States for U.S persons so they haven't kind of gone after protocols that basically restrict any U.S person from ever using them even if that activity would be restricted in the US but where Pro protocols have utilized apps that facilitate activity in the United States they've gone after the providers of those apps and said that this was impermissible that's absolutely right it's U.S persons entering into those contracts that they'll allow for the cftc to have jurisdiction and it has shown in the cases and the complaints that it has filed that at least some of the participants in those contracts were

U.S persons and in those complaints they have also referenced websites that have facilitated that conduct right so they do have that as a component in their mind is it the primary component or the only component I'm not sure yet but they do have that facilitation in mind of allowing U.S customers to access that kind of trading that's great you guys okay so last nuanced threads to pull this one is I'm going to take this either Regulators on this one if there is a side or maybe like an argument that they may make does that mean as a former regulator I'm taking the anti-regulator argument you're in the hospital yeah whoever wants to take this one which is one of the arguments I've heard you guys make and it's very valid it makes a lot of

sense like the analogy of spam and Gmail and SMTP is like a protocol Gmail as an application or any email provider as a company creating an email client on top of a protocol you don't want to have a law that says spam but there are useful laws like the can spam act for instance which is a law that makes sure you can actually unsubscribe from getting unsolicited messages that's very helpful what's really interesting in the case of Gmail or any other email provider is if you actually go into your tab that shows all the spam you get to see how much junk is being filtered on the client Side by Gmail by Google and it's really great because you actually see that as a company it's trying to help you as a user and that's a great way to win without having to regulate it it's

actually winning on the competitive Marketplace of this is a good email app that doesn't have junk email in it however on the flip side if I were to take the policy makers maybe question here I would wonder why can't we solve things at the technology level like what if the solution is in the technology itself like a filter is a technology solution for instance and so I'm trying to get to the other side of this I mean this may be dangerous because of the same kind of argument people try to do with encryption where they try to say like well can't you have it solved at the technology level I want to see if there's any argument that you would make for the other side of this yeah there's two components that Brian spoke to a bit earlier I think that really address it but first what constitutes spam is

fairly subjective so whether or not we could Define what spam is in an objective manner I think is is a very difficult problem but let's just say that you could Define what spam is from an objective perspective then there's two things that could happen right first if you were to install that at the protocol level it would happen on chain and therefore people would see what you were defining as spam as a result of that people would then just reverse engineer it so that their spam was not counted as spam so they would easily circumvent your restriction then on top of that even if the United United States came up with an objective definition of what spam is the UK France may not agree with what that characterization of spam

is and so they would say no actually we think this is what spam is and now all of a sudden you have however many countries there are all coming up with their own competing definitions of spam obviously they're going to conflict with one another and so you come up with this unworkable framework where you can't possibly comply and then also email like their standards right and you don't want them to be constantly changing and if you're trying to compete with hundreds of different Regulatory regimes and coming up with the definition for everyone you're going to be constantly updating the protocol and therefore it's going to have more issues so as a result of that yeah it's just it's just totally unworkable even if it was technologically feasible it's just not workable actually that goes to Brian's earlier point of the railroad being different sizes right correct yeah well

the other thing I was going to say is that it's different if you hard code something into statute or in regulations as opposed to make something more principles based I mean at least from from my experience the cftc which I can only speak for given my experience is a very principles-based regulator especially when it comes to things like system safeguards or cyber security standards those aren't meant to be brightline point in time tests those are meant to evolve with best practices and new technology and new Innovations over time and there is the same perverse aspect to hard coding something in to a law or to regulation that precludes Innovation from continuing to evolve to address those threats as they continue to evolve right if someone's meeting

their legal obligations but the threats continue to evolve in different ways you have to take on more responsibility as opposed to the public Marketplace and The Innovation cycle to address that and so there is some very positive benefit of allowing a competitive Marketplace to continue to evolve and address these things and just to drive that point home we're obviously talking about spam but if you turn that into the context of whether or not a DEX can allow a token to trade based on whether or not that token's a security whether or not it is a security is right now a very subjective test established by the Supreme Court over 80 years ago and turning that test into an objective one would be very difficult and it wouldn't allow for any nuances Brian was just saying and so it's really really

difficult to imagine ourselves in a world where you can regulate based on objective tests that never need to change great great answer okay last one then what do you make of the argument about code as free speech and where does that play into all of this like how does that sort of play out here I mean I kind of relate it back to the conversation we're having before around aiding and abetting issues correct me if I'm wrong or misremembering this but I thought there was some book called like the bomb Maker's guide or something like this that instructed people how to build a bomb and you know is that free speech is that publishing if they're making money off of that is that okay or do they need to be more involved in how that book is being used you know to do something that

is illegal and threatening yeah and if you think about that kind of spectrum there are First Amendment speech protections right they to some extent Encompass publishing software but where that line starts to blur is what is that software tailored to and then how does someone profit from the illicit use of that software are they Market getting the illicit use of that software are they facilitating the access to illicit activity and so that Spectrum then starts to shift into more of that aiding and abetting philosophy or bearing the liability of that activity themselves by the way I think you're thinking of the Anarchist Cookbook ah the Anarchist Cookbook that was it yes there's another

analog is the instructions for 3D printing guns right those that are litigated over and the courts have decided that that is not Free Speech but goes back to what I was saying earlier is relying on constitutional protections as a legislative strategy doesn't make any sense and obviously we want to negotiate from the perspective of not being confident that those protections will actually manifest and be there to save us hopefully they will be and we can litigate it at the time but that's not a proactive strategy it's really one that's based on Hope cool so let's shift now into talking a little bit about how Builders should navigate so we started this episode with like my God if I were in the space I wouldn't know what type was real but right now let's start with simply what can and can't Builders do in the space like maybe we can actually

start by even just saying how does this all work like earlier you said it's up to Congress to then figure out maybe Colin you can start us off with giving us the primer on navigating Congress absolutely so I I actually had a boss that used to describe the Congress as the country's board of directors the CEO of the country is the president sort of the Congress becomes the board of directors here maybe for the purpose of this conversation it's an apt analogy but I don't think it's perfect I think from a very fundamental perspective it's important to understand how I feel like I'm going back into how a bill becomes the law like the little graphic that shows sort of how a bill forms in an individual office and then eventually passes his way through not only House Representatives but also Senate and it

has to be signed by the president to actually become a public law and I'll get a little bit more in depth on that in a second here but if we take the example of an individual Bill and how it tracks its way and sort of all the little politics or the political landmines that it follows along its way to eventually becoming law I think it's important to understand that 435 members in the house 100 senators in the Senate all of those folks need to interact with each other at some point along the way right whether that be a public vote in the Full House or public vote in the Senate but initially speaking any member of the house or the Senate can introduce a bill if let's just say for instance there's a member that comes along and says hey I want to have a crypto Bill

and they introduced in the house that Bill generally speaking is worked on among a very very small group of Staff in an individual office that represents a very very small part of the country right once that bill has been introduced it gets referred to a committee and that committee has jurisdiction over an individual topic so in this case if it's crypto it might go to the house agriculture committee it might go to the house Financial Services committee they might have what's called dual jurisdiction over the contents of that bill the individual member will spend time either on the staff level or the member level to interact with the subject matter experts that exist on either of those committees once they've come to

some sort of agreement on the path forward of this individual bill they go through the committee process whether that be the financial services committee or the agriculture committee and it will eventually come up either in some public hearings where they will bring in experts to discuss the topics that are relevant to the individual Bill and then eventually what's called a markup and a markup is basically just an opportunity for individual lawmakers to debate the contents of a bill offer amendments and then eventually vote on it the committee process is incredibly incredibly important when trying to understand how something might actually get done here actually could you spell that way that's so important from your Vantage Point it probably seems obvious to you but most of our audience is likely less familiar with the inside the Beltway mechanics

yeah it's incredibly important for a number of different reasons but I think first and foremost it'll be the first time that the quote expert members on a given topic and the expert staff are all collaborating together to try and move a bill forward in the process of eventually becoming law or passing an individual body in the Congress and in that context that's where not only do the subject matter experts get involved from their individual positions within the house or the Senate it is also the opportunity for the stakeholders on the outside to get involved in a meaningful way and that is both in this case the pro crypto people and the anti-crypto people Everyone is hearing for stakeholders in any given Direction and I think that that is for as many people

that are crypto Advocates and they're probably listening to this or very crypto Advocates there's an equal number of crypto opponents out there that are trying to either raise money off the backs of trying to ensure that crypto doesn't get involved or have legitimate concerns with its existence so I think that run about way of answering your question but for Builders perspective trying to get involved in a bill before it actually reaches the committee process or during the committee process is very very critical to his success eventually becoming law and I would say you know just as a matter of principle get involved you do not need some sort of Insider to get involved in the Congress to Advocate on this you don't need to be like a lobbyist or anything

or hire a lobbyist you do not need to be a lobbyist you don't need to be a lobbyist all you need to do is figure out who your representative is it's an easy Google and then call and interact with that office just pick up the phone call say Hey listen this is what I'm interested in here's the good story that I have to tell that all gets sort of individually logged in individual offices and they can tell everyone who's called and talked about a specific topic so I think it's a really really important place to start yeah and can anyone also do a reply to a request for comments because when we file a comment letter like a response I know we do that on behalf of the ecosystem smaller players may not be able to do a lot of the things that bigger entities might

but that's something anyone could technically do yes or no so that's more on the regulatory side although it's kind of the same principle everyone has a member of Congress and everyone to some degree has a stake in a regulatory decision and because a certain process and law governs agency decision-making processes they do have to accept public comments and anyone can do that and it can be short it can be very detailed it can be full of legal analysis it can be full of anecdotes either way if it's designed to address the questions or convey a perspective the stronger it is the more it will be considered that's great well I know Michelle and others are also really involved in the regulation here but could you just say a

bit more about that to help explain the process really quickly to listeners yeah I jumped ahead of myself a little bit there with the administrative procedures act in the public comment process but there are federal agencies that exist to implement to write the rules that govern how a law should apply to individuals entities or activity so let me give a quick example of that like in the big Dodd-Frank bill that was passed in response to the financial crisis that gave this cfdc the commodity Futures Trading commission which regulates the derivatives markets new authority over the swaps Market which had not been regulated but the Futures Market had for a long time been regulated you know there was a provision in there that basically said if you trade quote unquote a de minimis amount of swaps you

didn't have to register as a swap dealer so the agency spent a lot of time with multiple studies and a proposed rule trying to figure out what that meant an agency before finalizing a rule has to propose it has to accept public comments for it and then has to finalize it while considering the costs and benefits of that rule as well as the public comments that were filed on aspects of The Proposal so why does that all happen it happens because the Constitution is very clear that legislation belongs in article one and in Congress and to the extent that agencies which are to some degree part of the administration right

they're part of the executive branch they're somewhat precluded from legislating and so this structure was developed 100 years ago or so where a quote unquote independent agencies could exist that had pseudo-legislative powers I.E to be able to enter corporate and write rules around and put more meat on the bones of those higher level principles like what is a de minimis amount of anything that could govern activity but the way they achieve their independence from the executive branch was that they were governed by a commission so they in some instances they have a five-member commission they have rules around bipartisanship so no more than three members can be from any political party the way it usually works

is the chair is appointed by the president's party and then you have two members from the president's party and two members from the minority party or the party opposite the president so there are minority views that are considered and they vote and they need three votes out of five if it's a five-member commission to pass something and Congress passed the administrative procedures act the APA to allow for a public comment process a cost and benefits analysis to ensure that there were some checks and balances around unelected officials from legislating and having too much control and Authority and so the agency has to consider public comments when it proposes something it has to consider costs and benefits when

it proposes something and ultimately when it finalizes a rule that rule becomes part of the code of federal regulations that implements the statute or the law that Congress has passed and that then the agency can enforce govern oversee create rules for entities through and it's that basis by which an agency can bring an enforcement case against someone that is violating those regulations that's great that's a super helpful eye level overview I have to ask you this you mentioned Dodd-Frank which was a reaction to like the financial crisis and I couldn't help but remember sarbanes-oxley and how that was reaction to like high profile crises like Enron and which is kind of ironic given that former Enron person is like working on FTX now in the end there were some

really important things that came out of it like separating auditing versus accounting you know which used to be done in the same entity Etc but on the flip side there was this argument that it was kind of an overreaction in some ways because it created a lot of socks compliance requirements that became very prohibitive for smaller players to do which is I think what people would be afraid of happening in something like crypto where it's very small startup focused bottom up it just seems like these things come in waves and you have to wonder if we're about to see another wave of that coming in the wake of what recently went down with like very bad entities like a single bad entity ruining it for the rest of us so to speak yeah when I first joined Congress in addition to going to this Library of

Congress you know Symposium on procedure there was someone that came into the office that came in regularly from the outside and he took me aside and said Brian I want you to remember that Congress is good at doing two things nothing and overreacting and and it gets and and so I didn't say that right somebody else said that it gets back to that idea of something really bad having to happen in order to force the attention the energy the consensus to pass something through and so unfortunately I think there is an overreaction that's kind of built in to the process and there are very bad examples that I think one of the most famous examples is the Siemens act back in the thing 1915 that was a reaction to the Titanic that made it a law that all

seaworthy vessels carrying passengers had to have retrofitted lifeboats that could accommodate every single passenger on their ship and as soon as that act came into existence all of these little sea fairies that would take people out on day cruises into you know the Great Lakes had to put all these very heavy lifeboats on them and one of them capsized and tip over in the Chicago River and killed more people than the entire Titanic did right so it gets back to that idea of what is an unintended consequence what is the effect of the law is it well-intentioned but what will the result be and we have to be very careful especially with the pace that this Innovation is occurring and the flexibility that it has and how many people are interested in developing things in a very honest and transparent

way to address Legacy risks that we don't put something on the books that precludes that development because it's always hard if not impossible to show what was precluded from happening as opposed to trying to say okay well we've at least prevented this bad thing from happening yeah it's a far too overused term but the old saying is Congress never lets a good crisis go to waste and I think that that's true here one of the good things about the Congress is it lets things go until there's a problem and I think that's somewhat of a double-edged sword right certainly there should have been regulation far before the FTX situation but we are where we are we are now in a world in which I know of reaction is almost certainly

going to come in some way shape or form it will certainly be our job to try and make sure that that is minimized as much as possible but the silver lining of this whole situation is it is finally forced the conversation in a real meaningful way I think members that previously weren't willing to come to the table are now willing to come to table and have a conversation now some of those from a negative light but from a positive perspective I think it's important to recognize the moment that we're in and that we might actually be able to finally get something done I think just one critical thing to remember is that like FTX is not crypto yeah right the risk involved with FTX are the same as any intermediary collecting the funds of other persons where there is trust involved like that

is a situation that time and again that's what resulted in people taking other people's money and the overreaction here would be approaching the industry and treating it all as this monolithic area of risk where if you actually attack defy you are basically taking out the cure to FTX right yes millions of people can use uniswap without ever having anyone custody their assets or without ever having to trust anyone and so if we get rid of decentralized exchanges because a centralized exchange stole people's money it's just nonsensical the case for a decentralization I mean look one of the true powers of this technology right is decentralization and ultimately what this new computational paradigm allows

for is trustless Computing that is decentralized if you get rid of the decentralization if you have private blockchains or if you have trust and people controlling these systems then you end up with all of the same trust issues that are prevalent in web 2 and that are prevalent in traditional Industries and so without the decentralization you really just have a slower computational resource and as a result of that the technology isn't all that interesting but when you add decentralization in and all of the facets of it that are empowered by this technology you actually create this world where we don't need to have monolithic centralized and very powerful institutions that are controlling everything we can have a more Equitable and better framework for having these

Technologies and so again the FTX is the perfect example of that right where that is the exact opposite of what this computational Paradigm allows for it is the World Casino not the world computer and as a result of that we shouldn't be regulating the world computer the same as the World Casino and we should really be protecting the computer from the casino that's fantastic the way I think about it is that irresponsible regulation irresponsible legislation is going to push things offshore and lead to irresponsible Innovation and irresponsible Innovation whether it's through C5 like FTX or some aspects of D5 that try to take advantage of customers in a pseudo defy way is going to result in irresponsible legislation and regulation okay so really quickly I need lightning round style answers we're

gonna do a quick lightning style list of the Leia the land of the domains that are coming ahead space to watch let's take the most obvious one which is a regulatory environment for trading the questions on the table I believe are like whether it's Central exchanges versus decentralized exchanges do you want to give a quick lightning round answer for what to look for as people try to track what's happening in the news and commentary here centralized exchanges will likely face regulation in some aspects of D5 will likely be scoped in great next one stable coins this one obviously big Hot Topic miles actually wrote an op-ed on this in the financial times I'll link to it in the show notes obviously there's a lot to say for different types of stable coins but what is there to be said here at a super high level when you think of the lay of land

of stable coins I mean I think that there is a lot of ground to still be explored with respect to stable coins there are significant policy considerations that advocate for greater amounts of stable coins including the potential dollarization of the world I think any framework really does need to take into account what the potential risks are and as I wrote about in Ft I think that that really should focus on the collateralization of stable coins with riskier assets requiring more significant regulation so it comes down to collateralization versus necessarily even the type of stable coin and is this really what's backing it up that's a key question correct yeah I would just add for a long time we've thought that stable coins could be a bipartisan entry point to further legislation maybe around a market structure bill or something like that I think that Still

Remains ultimately though I think in the Congress the stable coin legislation takes a back seat to Market structure because of the events or the last six months either way I think a stablecoin Bill gets done over the next couple years or at least in this Congress it just won't be the first great okay last quick ones can Banks custody crypto I know there are some fed Reserve guidance that comes out or has come out what is there to say here anything quick on this one huge reluctance on the part of financial Regulators globally to allow Banks to freely participate in the crypto ecosystem so if they do it's going to be significantly constrained for this foreseeable future yeah yeah say on that one yeah I mean there I

think look if we're talking about a technology that is going to enable people to transfer value at the speed of light if we start putting up unnecessary Gatekeepers at every single stop along the way that obviously greatly reduces the value of the technology so we need to be smart about where we apply those Gatekeepers and be very careful because otherwise we're destroying the value that entrepreneurs are trying to create yeah and we can't really put this entire Community back in the box I mean we are beyond the moment where regulation isn't going to come it's going to come it's here on our doorstep you know we can choose to be a part of that conversation or not and that's a great point because there's no putting this technology back in the back right after the internet was invented the ability to transfer information at the speed of light you're

not putting that back and the ability to transfer value these people you're not putting that back either so we can either create a framework where it could be developed here and can influence it responsibly or it's going to be developed elsewhere where we'll have no control it should be pretty obvious what the right answer is there yeah and by the way I want to make sure it's not just losing control it's also losing Innovation jobs like just to make it very obvious absolutely and along those lines and I hope you've heard it from us there is a version of legislation and appropriate regulation that will result in a significant amount of Market Integrity that will benefit the ecosystem that will protect customers while respecting The Innovation and its potential and in order to address those Legacy risks and to at least keep at Bay

the World Casino aspect from dominating crypto for the future the future of web 3 is going to need DC and there is a version of that that is highly successful that accomplishes almost everybody's goals except for those on the complete extremes and if we can get the balance of this right it's going to be very successful fantastic you guys thank you so much for joining this episode of webview with A6 and Z the first of many to come in our policy Series this year that is Miles Jennings Brian quintense and Colin McCune thank you thanks so much Donald yeah I just want to say thank you for having us oh my God we covered so much yeah thank you for listening to web3 with A6 and Z you can find show notes with links

to resources books or papers discussed transcripts and more at asicsncccrypto.com this episode was produced and edited by sonal choxi that's me the episode was technically edited by our audio editor Justin golden credit also to moonshot design for the art and all thanks to support from Asics and Z crypto to follow more of our work and get updates resources from us and from others be sure to subscribe to our web 3 Weekly Newsletter you can find it on our website at asicsnzcrypto.com thank you for listening and for subscribing let's go [Music]