If Your AI Agent Falls Victim to Fraud, Who Pays? - DEX in the City

Transcript

Hi all, and welcome to Dux in the City, where the wallets are cold and the takes are hot. Before we get going, remember we're lawyers, but we're not your lawyers. Nothing you hear on Dux in the City is legal or financial advice, and it doesn't create an attorney-client relationship. For the fine print, check unchainedcrypto.com. Luckily, I have the ability to speak very fast in in times like this. So, first we have Jesse, Web3 prosecutor turned Web3 protector at Rivet Capital. And I'm your host, Katherine KK, fluent in TradFi and conversant in deep tech over at StarkWare. V is out today in beautiful Paris at the Proof of Talk conference. Very exciting, have heard great things about this conference. Um >> V really knows how to travel, let me

tell you. Oh my gosh, she sent us a picture of like the beautiful rain coming [laughter] down in Paris. I love What are we doing with our lives? But I'm glad it's just us today so that we can rant about everything. I mean, there is so much happening this week. I know you're going to sort of lay out the land here, but to me, like, the story of this week is finance is officially becoming autonomous, and we're finding different ways into that path. >> Yes, there's so much to talk about, as usual. I love how it's all relative to a slow news week in crypto means actually there's thousands of things happening every day all around the world, but but nothing

earth-shattering, like no new law or no new lawsuit. I mean, TV, knock on wood. Um yes, so much to talk about. We are going to dive right in with something very big that happened um in my personal area of fun, commodities, with the CFTC. One of the things I love about this pod is I have been de facto our CFTC commodities person. Jesse, you are our DOJ person, and SEC and V is our SEC person. So, this is a this is a perfect makeup up full regulatory sphere in the United States. But so everyone wants to hear about this. Everyone needs to hear about this. You have probably seen a lot of talk about perps on crypto Twitter for the past few days. And I can tell

you probably 90% of those tweets have been inaccurate in some form because no one understands perps. No one understands derivatives. So I'm going to give you a breakdown of what happened and why it's important. And hopefully that I'll be speaking in English so Jesse and all of our listeners can truly understand. So first what happened on Friday is the CFTC approved Kalshi X's application to list a perpetual Bitcoin futures contract. And I'm going to start there. When someone says perps or a perp, they mean a perpetual futures contract. And I'll also mention Kalshi X is a designated contract market. They're a CFTC regulated DCM. DCMs are so hot right now because prediction markets in

the United States list on DCMs and perps now list on DCMs. And also to explain, you have the full stack of CFTC licenses when we're talking about derivatives. So there's the DCM, which is the designated contract market that's the exchange. There's the derivatives clearing organization, the DCO. That's the entity that does the clearing of these contracts. And then there's futures commission merchants, FCMs, which are basically the brokers for commodities. So those are all the participants that we're talking about. There's also introducing brokers which we'll talk about in another episode. We've referenced that in the Phantom wallet case. That's kind of entities that can connect to this universe.

>> AK, something that's been helpful for me in trying to understand this space even after you give these great explanations is comparing the different entities since they have different acronyms. There's maybe too many acronyms to entities in the security space. So like which one is more like the exchange? You just mentioned the broker. So, to me that is really helpful in sort of framing this cuz I feel like a lot more people are familiar with securities law or at least the entities associated with it. >> Totally. Kalshi X is the DCM is the DCM is the exchange. Then the DCO >> My dog is um really good at barking.

>> I love your dog. >> I'll mute for a second. >> The DCO is the clearinghouse and the FCM is the broker. So, you get that lay of the land and all the DCMs you've heard about Polymarket's a DCM, Kalshi's a DCM, uh a lot of the centralized exchanges, big crypto exchanges now have DCMs, a lot of them through acquisition. For example, Kraken, Coinbase, Coinbase derivatives offshore, huge. And all of these DCMs can list contracts, can list various uh you know, contracts through what's called the self-certification process, which basically means they can just list this contract after they self-certify it with the CFTC. And they do that by saying this contract complies with the Commodity Exchange Act and the

regulations and the core principles, which the CFTC is a principles-based regulator compared to the SEC that's a rules-based regulators. So, so basically the DCM has to say this contract follows the rules. So, Kalshi and everybody else in crypto has been dying for what is a what is called a what I'm I'm calling a true perp forever. We have a number of perp-like like products listing right now, you know, Cboe has one, BitMEX has one, etc. Coinbase, they're perpetual-style perps, but they're not true perps. They don't they have an expiration, they're kind of long-dated perps. The key aspect of the Kalshi Act contract is that it has no expiry, so

it's a true perp. And that means it uses a funding rate mechanism to maintain price convergence with the underlying spot price. So, what does this all mean and why do we really care about this? This is actually incredibly meaningful because it means that the CFTC finally found that a true perp without expiration qualifies as a futures contract under the Commodities Exchange Act, not a swap. So, up until now, perps were allowed. Perps have been allowed. True perps have been allowed, but as swaps. And it is much much much harder to trade swaps as a retail participant versus futures. So, this was a huge impediment to guide kind of the growth of true perps onshore. Nobody was going

to trade it as swaps. It needed to be a future. But years ago, the CFTC took the position that perps were swaps, not futures during the Binance enforcement action. So, this big news on Friday is effectively them kind of changing course and walking that back. >> Let me um Let me push on your analysis for a second. Um because you have gotten me very interested in perps over the past few months. So, I actually did read the policy statements and I and I think it's huge for the space and I really want to examine the pros and cons. But to me, like it's really important also to look at the policy statement. It's talking about a case-by-case analysis, right?

And it's also saying that perps may not be appropriate for all asset classes. So, can you talk a little bit more about that because as you said, there have been a lot of takes like perps are all legal now or this is how a perp works when it doesn't actually work that way, whether it's crypto or not crypto. So, can you just talk a little bit more about that? And also just a shout-out because as someone who isn't as deep in this um as KK, there is a two-hour plus podcast from Law of Code um that really goes into perps and Jacob Robinson did some god's work there. so worth a listen if you if you want more than 10 minutes of this right now cuz it's freaking

complicated. >> We love Law of Code. That is such a high quality podcast. And I don't just say that because Jacob had me on to do a master class on crypto perps months ago and I'm also featured on the podcast that Jesse just mentioned. But 100% if you want the deep dive, if you really want to really want to understand this asset class more than this quick overview, like listen to that podcast. His podcasts are very well done. But Jesse, I love that you're such a lawyer because you pick up on the the subtleties in guidance that other people that are not lawyers gloss right over.

You made an incredibly good point here. People are getting a little bit too excited right now because look, like this approval is case by case. It is limited to crypto commodities with a deep spot market, obviously Bitcoin, and continuous trading and doesn't extend to other asset classes for now, although the CFTC also said it would address perps more broadly in the future. And it's really trying to limit this interpretation by specifically calling out the fact that the perpetual contract design is not going to be suitable for all asset classes. And I'm not going to go into the technical details, but a lot of the futures market developed because of real commodity assets, hard assets,

like wheat, cows, and the the technicalities of delivering cows are a little bit different than delivering Bitcoin, so you can envision immediately why these contracts cannot all be treated the same. >> And like cows are way cuter. Let's like let's turn it to like oil or something not alive as like the vegetarian of this group here. You know, I do want to say that like I feel like I come here and sometimes crap on crypto even though I love crypto for being so negative about everything. So the fact that they're seeing this as such a positive just like gets me all going and excited and why I spent the weekend reading about it and trying to really understand it

and not just like the high-level news because this could lead to a much bigger framework and I like the excitement associated with it. But that being said like as someone who has worked in the space extensively, what freaking terrifies you about it as well? >> Uh you know, I'm very pragmatic. Look like one of the things I appreciate about commodities and the commodities exchange act is there's a fair degree of flexible interpretation. Some may argue with me there, but that's also the nature of being a principles-based regulator and a great example of that is future is not defined in the CEA. Perps the definition or sorry the definition of swap was added with Dodd-Frank, but

futures there's no definition. So that created a lot of the kind of confusion here and that also provided an opening for the CFTC to say that perps are now futures because they said courts have recognized that contracts of indefinite duration can have futurity. I actually didn't know that was a word. It is a word. Plus the contract >> it for the pod? >> I know. Like we'll we'll put it in the show notes. No, it's actually in the guidance. Plus the contract has all of the other futures characteristics. So like margin requirements, offset obligations standardization etc.

There's some innate flexibility. But the concern here I would say is two things. One, how is this going to impact the rest of the futures market which is a lot more than perps? Could this have a negative impact? Could this create precedent that should not be used you know, extending to other parts of the futures market? Two, there's a big question mark regarding leverage. Obviously the CFTC's order and guidance did not extend to leverage. I cannot contemplate a world where the commission is going to be okay with some of the leverage we're seeing overseas with perps. So, there's a big question mark as to whether the, you know, trillions in volume that we've seen in the

offshore perps market is really all going to migrate onshore given this uh guidance. Um and, you know, will people responsibly respond to this? Uh there's a lot of debate over the self-certification process and the DCM obligation to self-police. Like, DCMs have to have a rulebook. They have to have a chief regulatory officer. There's all of these requirements. Whether they will be responsible enough to execute and supervise this new asset class without ultimately violating the core principles. I think they will.

>> You think >> this is a fantastic opening and it's something Chair See like promised to do, to look at this asset class, and he's followed through on that promise. And we need this activity onshore. I mean, it's ridiculous that this all had to go overseas without any regulatory oversight whatsoever. There are policy-based reasons for why this needed to happen. Uh but I know that there are a lot of participants in the market like hyperliquid watching this very closely and asking could this extend to decentralized offshore >> Yeah. So, actually, I want to double click there for a second and God, I cannot believe how long I've been in VC that I'm using the phrase double click.

But, first question is a lot of what you talked about is about supervision, oversight DCMs DCOs, like all these centralized intermediar- me- intermediaries that obviously decentralized protocols don't want to be thinking about and don't want to be relying on because that would sort of defeat the whole purpose of decentralization, right? So, how should we think about building a perps market if we should, you know, you tell us or how that would work in a decentralized manner if so much of what the CFTC is leaning into here is the centralized parties. Does that mean that do you are

you do you know if they're thinking about it in the decentralized way? I feel like they're so long that we were only focusing on securities and is it decentralized enough so that it's not a security? Like I think we all dream about Howey or have nightmares about Howey far too much, but how do we think about decentralization for the CFTC and are they thinking about it? And then I definitely want to get to hyper liquid and your thoughts there. >> Well, you know, the two are I mean it's hard to talk about decentralized perps without talking about hyper liquid. I mean at one point we should have Jay Turvinsky who Jesse and I know on the pod to to break this down or another market participant in that role or in that sphere.

Look, this is this order is definitely limited to centralized regulated exchanges. And the other the second piece of here that I didn't mention is on the same day as the Kachy order, there was a CFTC staff letter responding to Coinbase financial markets which is an FCM, remember that's the broker, who asked whether perps on Deribit, which is Deribit's Dubai regulated qualify as foreign futures, which means they can be appropriately traded in the US as well through certain mechanisms. Well, no surprise the CFTC said they do. Again reasoning that the true perps like share key futures characteristics. So, kind of in line with the Kachy reasoning. So,

we're also seeing an extension of, you know, US engagement to foreign futures, which is exciting. But, Darabit is regulated and the FCM is regulated. I think that certain market participants like Hyperliquid see this as a positive development because they see this as the first step in opening up uh more access to perps in the United States. And I agree with them on that. I think this is a good thing for all perps, you know, DCM perps and DEX perps. I do think there was misguided optimism with the price of hype and directed towards Hyperliquid on Crypto Twitter because to

be clear, this order has no effect on Hyperliquid or any other perps DEXes. And if anything, arguably there's there's another contingent saying this is actually very bad news for Hyperliquid and perps DEXes because it does mean arguably a whole bunch of flow will move from the offshore perps DEX market to trade on these DCMs who can now have true perp >> they were very smart to put out a positive statement about it, right? Because that obviously helped the token.

And it seems like from what you're saying and from what I agree with is they're not effed and they're not also like the winner, but the story maybe has changed in some way and they're going to have to decide whether they want to live in the regulatory arbitrage space, which is getting smaller and smaller and really have to prove decentralization or lean into the regulated space. And that is a super complicated [laughter] space because you have explained it many, many times and it's still super hard to stay on top of and really understand all the different acronyms um unless you spend a lot of time on it.

And it's not something, I mean, correct me if I'm wrong, but like it seems like in many ways perps are like crypto's most honest product in that no one's pretending you're like buying coffee with it essentially. Like consumers aren't really engaging that much with perps except for like real crypto folks or like financial forward folks, but our parents or I don't your parents I'm sure are lovely and know all about perps. My parents don't know what a perp is and would never transact in the perp world. And so is is this something that's coming for everybody or is it much more like this is a financial instrument and now we have a cool new way of doing it that might be useful.

>> Yeah, I love that characterization cuz you're right. Perps are for traders, okay guys? Perps are for traders. They're not for our moms or our dads or our grandmas, okay? And and if your grandma's trading perps, I might be a little bit concerned unless she is >> so freaking cool. >> Okay, I mean, let's be honest. I want to be that grandma trading perps one day. But like I consider myself an exception. But the one thing we didn't address before we move on to another topic is why people like perps, right? And why the lack of expiry date is a good thing. I'll just make it very clear. Unlike traditional futures contracts, perps don't expire. So traders don't have to worry about rolling over positions or timing expirations. You can hold a

position as long as you want. There's huge efficiency. It makes it easier to short assets. Um there's more liquidity. Like the perp markets tend to be among the most liquid in crypto. Uh there's also the ability to speculate without ownership. So they can you know, you can profit from price movement without ever holding the underlying asset. And that's just a few of the big advantages. So from a trading efficiency perspective, this asset makes sense. And maybe on a future episode I can go into more of the nerdy history of the futures market as to why this makes sense. Or you can listen to the Law of Code podcast that goes into that in great detail.

So, >> one last thing to say on perps because it's you and I on this pod and we don't have like V here wearing a Knicks baseball hat. It is really Chicago-based with >> What is that about? >> market. And so, look at us celebrating perps in Chicago. >> Yeah, seriously. I don't You know, I'm going to wear a a Bulls hat on the next episode, okay? Like I'm happy for the Knicks, I guess, okay? >> [laughter] >> I mean, we'll just hit all the We haven't talked about Spencer Pratt's mayoral race.

We'll hit all of the metropolitan markets with uh Look, okay, the next topic has nothing to do with commodities. It has nothing to do with perps. >> Perp fiction, K.K. >> Arguably, it's actually a lot bigger than perps, than the Knicks. I mean, so Jesse and I just released this incredible paper. I referenced it on a previous pod. >> Such a good hype woman for us. >> I wanted to call it the the robots are taking over. Jesse wouldn't let me, so now we have a scholarly title, The Agents at the Gate.

Programmable risk management for agentic commerce commerce. This is a a super timely conversation, especially in light of some Robinhood news. Jesse, why don't you start us off and dig in? >> Okay, first I think it's worth just level setting on agentic finance. I know I talk about it a lot and there are some experts listening and then I'll flow into the paper and some Robinhood stuff, but I also just want to think about this topic holistically because it's going to keep developing and we wrote this over the past like month-ish as a part two to our first one and stuff's already changed since then.

We'll like see the Robinhood news. So, I, you know, want to caveat that like this is a conversation that needs to keep happening, but essentially, y'all have heard of agentic finance at this point. You probably understand all of it or different parts of it depending on whether you're a product person, a market person, a legal person, etc. But, the weirdest part for me and the thing that I really wanted to talk about in this paper was that the financial system is going to have to start treating software or agents like a customer. And how do we do that, right? And so, because now it's not just going to be about the agent pinging us and saying, "Hey, maybe you should go buy Nvidia."

Like, how many months ago was I trying to use Claude or ChatGPT to be like, "What stock should I buy?" I didn't do anything they told me, but it still was like what a lot of people were doing. But, now the agent is showing up at the counter. It's showing up at the website. It's consuming the API. It's paying for data, etc., etc. And it's placing orders in systems that were built for humans. And that breaks the plumbing assumptions that we have underneath finance, which is good and bad and it's always good to innovate, but it's bad because those plumbing assumptions have really created like a pretty stable consumer environment in the United States in particular.

The agentic model can be really, really messy cuz like, if I give it an instruction on Monday, and then it's looking for articles over the next 24 hours, it pays for a paywalled article on Tuesday, maybe a few cents with like stablecoins, etc. And then it triggers a card payment or a stocks trade the next day. Is that what I wanted it to do? And like trying to define that is really, really difficult. I mean, think about the kind of prompts you put in your like ChatGPT or Claude right now. Like, we're barely spelling things correctly these days. So, it's also like how specific do we need to be with these agentic agents that are not just potentially sending an email or deleting a file from our

folder, but like having access to our bank account, right? And so, the question we wanted to address is not can AI help me manage money, but when software becomes a financial actor, who is it? What is it allowed to do, and who has the receipt when it breaks something? And so, we really focused on three receipts, I'm calling it these days, but first the identity receipt, which we've talked about a lot in other places, but you know, it's very relevant for anyone who starts crypto, right? Who's the thing? It can't be AI, can it? Is it Claude? Is it ChatGPT? Whose um API are we using? If you have key, is it a custom bot? Who deployed it? Who authorized it? Who's behind it, right?

Second is the mandate receipt, which I actually think is going to be the most interesting and maybe easiest to solve. What is it allowed to do? Who decides what it's allowed to do? But this is also where people are going to get freaking smoked if they just treat prompts like we are now, right? And then third is the accountability receipt of what happened and who eats the loss. It can't just be user assumes the risk because that could be an accountability framework, but it's not a liability allocation strategy, and no one's going to use it if they have a credit card that they have access to, particularly in the United States where you know, credit cards frequently like pay us back for fraud per many, many

laws. Those laws though are written for traditional electronic payments. So, how does >> This is the biggest thing about all of this that we like I first I will say in the paper we have a handy chart, which is one of my favorite things in the paper where it goes through kind of different payment mechanisms and the pros and cons. And you know, what I mean about that is like when you think about, okay, wires they're really annoying, but there's pros and cons or credit card payments, you have the chargeback mechanism. Like if you get defrauded, you get your money back. And we haven't gotten to this yet because obviously the focus is on our paper, but like this pairs this conversation pairs so well with with big news from from Robinhood this week or last week that users can

now instruct agents to make purchases on their behalf using the Robinhood gold card. And in the release, the company cited a couple examples. One being a sneakerhead can tell their agent to buy a coveted new release in their size whenever it drops below 300. And that's spot-on. In our paper, we use the example of someone tells their agent to buy a Rolex. Well, of course that's incredibly compelling cuz you're not the one clicking around trying to get the new release. At the same time, agents are smarter than humans in some ways, stupider in humans than humans in a lot of ways. Like the agent could very easily be defrauded by a fake sneaker that's being released on a website that doesn't really exist. Or the agent could

be manipulated. Context manipulation is huge, something we go on into the paper. And unfortunately with agentic trading, this gets a little complicated with the Robinhood card because there likely is a chargeback mechanism. >> Have you Have you tried it? So, have you tried it cuz it's actually in Robinhood gold. So, Robinhood gold comes with the card. I have all these things. And they also >> The Robinhood card is actually really beautiful. Jesse, >> the Robinhood card. Not sponsored or sponsored. 3% on everything. Okay, I'm done with that.

>> like this card is beautiful. >> I'm done with that, but I love my Robinhood card. So, um then there's like an agentic stock portfolio rebalancing aspect, which I've been afraid to like actually automate. The one I give them some I give them a lot of credit actually because they have put a bit of like an agentic mandate in there like we've talked about because the first design choice they seem to make or the one that was public is separate accounts, separate funds, activity feed, notifications, pause button, etc. Right?

And so the system's saying the robot gets an allowance, not like the whole deed or whatever. But sorry, back to your point about the credit card as well. Like I think they're being smart about rolling it out slowly. >> And look, like the other thing that I really want to hit hard, Jesse mentioned this, but the crux of the issue that we highlight in our paper is all this is like the conundrum we have with crypto in the law, but times 100. Okay, the laws weren't written by written for crypto. They weren't written contemplating crypto. I mean, you have the securities laws where a bunch people who helped write those were alive during the Civil War. Problematic, right? Well, it's the same but way worse with agentic commerce. Meaning all of our laws were

written with the implicit assumption that the human a human being was taking the action. And now we have this conundrum where the humans are no longer taking action. The agent is taking the action. The agent is the customer. And that raises some crazy legal issues that most of the entities that are rolling out agentic trading, and we're not even talking about crypto here. We're talking about all kinds of consumer-oriented uh you know, applications and companies. But of course, in our paper we go into great depth why agentic commerce belongs on chain. But it raises all these questions that have not been confronted at all. Um I keep joking with my my

friends at law firms where I'm like, you need to like lean in hard on the agent front cuz there's going to be all these lawsuits. >> [laughter] >> Well, it's just and it's also what's it going to look like when agents are negotiating with each other? Or it's pretty much just like you're talking about this fake website with a fake sneaker that was created by an agent and then that agent poisons the output that it sends to the other agent. Like is it going to be [laughter] an agent agent competition to who can like the agent criminal versus the agent good guy trying to do the right thing?

Like what world are we living in and is it going to look like I, Robot? Was that the name of the movie or is that the name of my vacuum that I have? >> There's so many good robot movies. I actually personally quite a fan of post-apocalyptic movies and books. Like I I usually like to keep my Oh, big time. Like I I love zombie movies. Like and I'm usually a very upbeat, positive person that I also like fluff. Like I like to consume fluff. But I don't know. I find it fascinating. Or when you start mapping out alternate scenarios, like I loved Man in the High Castle.

Uh where the alternate terrifying scenario if the Germans had won World War II. When you start mapping out major world events, like which way could we go differently? I actually think we're at this point in time where how are we going to treat the rise of autonomous agents? Like when you start thinking about the impact this could have in and out of crypto and on crypto trading. Like are we going to do this in a way that ultimately benefits the consumer? I hope so. We're there. >> point is the agent going to be its own entity with its own quote unquote personality or decision-making authority? I mean, I think I mentioned it last week or I just been nightmaring about it. But China has rolled out like

IDs for robots. I mean, that's crazy. Like that is the I, Robot movie with Will Smith that I will keep referencing even though it's probably a bad movie. >> [laughter] >> Um what about zombie apocalypse though? Kill me. I do not want to >> [laughter] >> be alive for that. >> I I there's a big argument to be made that I just want to go out in the first day in the first wave. >> Yeah. >> I mean, I I have some survival skills. Like, you know, >> [laughter] >> I might BE ABLE TO SURVIVE TO THE SECOND WAVE, but look, if there's a zombie apocalypse, THE LAWYERS ARE NOT THE ones like thriving.

>> friend is a crazy prepper and she's like, "No, we need you to sort of run the new government." And I'm like, "Don't save me. Eat me or something." >> [laughter] >> Yeah, the preppers, the survivalists, you know, the carpenters, the people that work with their hands, like those are the people that need to like repopulate the earth, okay? Come on. It's fine. We all need to acknowledge our own internal and external limitations here. >> [laughter] >> Come on. Okay, so that is the perfect time to take a break and and listen to our generous sponsors that make decks in the city possible.

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Fidelity is an equal opportunity employer. >> And we're back on Dicks in the City. Jesse and I were still talking about dystopian fiction during the break. So, you know, >> tweeted us >> B needs to listen, I guess. >> I know, B needs to be here >> [laughter] >> to be like, "What are you two talking about?" Uh, okay. So, we actually, next topic is fascinating. And there's always these things that happen in crypto where they're huge or they're fascinating or they're potentially really impactful and no one's talking about them. And I I often wonder, do people just miss this?

Uh, and this might be one of those. So, I'll summarize it on a very high level and then I'll turn it over to Jesse. So, this is a New York civil lawsuit filed by Noah Doe. We don't know who he is along with two LLCs he controls. And as a reminder, civil lawsuits are when individuals file suit versus lawsuits where the government is involved. The government's not involved here. And he filed this lawsuit proactively seeking a court declaration that he legally owns almost 40,000 abandoned crypto wallets. And I will have to say I just have to say, I think this man's brilliant. So, what he did is for a period of I think a few months, he used a proprietary algorithm that he

developed to identify over 42,000 crypto wallets that had been inactive for at least five years. And then he went through appropriate legal channels. He knew that he had done some research here. He reported each of these batches to the NYPD as required under state law, uh got receipts, and then uh the NYPD eventually returned the wallets to him. And then he spent a year trying to notify potential owners, you know, sending uh messages on chain the op return technique to every wallet. He had a public notice webpage. He issued a press release, etc. And only uh a little less than 3,000 of those wallets were reclaimed. And the rest went unclaimed.

So now he's saying to the court, "These are mine. I need a declaration that I get to keep them." >> I was he saying "Finders keepers?" >> Finders keepers. Yes, give me give me a legal court declaration saying that these nearly 40,000 wallets. So I mean you can think about the sheer magnitude of of crypto that are theoretically the cryptos that's theoretically on these wallets. Um and you know, he's he's basically saying finders keepers, you're right. These are mine. Like Jesse, what is your take on this? >> I think it's such a good story. I just like love this story. Let me just be clear, he will not win this and it was a poorly written complaint, but I agree. I give him full credit for a novel idea

and this is going to be a little legal nerd-dom, but I actually think it's important for a lot of people in crypto to understand and a lot of this sort of tracks forfeiture and how that's done. So I also think it's important for that aspect. But essentially, he is making >> forfeiture for our listeners who don't understand it. >> Forfeiture can come in many different forms, but essentially it's a statute of federal statute and then there's state forfeiture laws, too, that allow people to say like I people, but usually government um to say that is either illegal funds or something that was garnered in a legal way and so you should not be allowed to have it anymore. And the reason I'm comparing it

to that is because that is how we had to do a lot of our like terrorist crypto and non crypto financing cases because the bad actors were in a different jurisdiction that would not necessarily extradite to the United States like North Korea or Iran. They we couldn't get access to the bad actor, but we could get access to their wallet or their bank account etc. And so a lot of the way we did that was we had to put up a website to make sure that nobody else had the rights to that money and we had to give notice and what we would sometimes do is give notice through is like an NFT to that address. So it's similar to what is

going on here. So he essentially has learned from a lot of that to try and say these how many freaking bazillion dollars of Bitcoin belongs to me. But he's making a legal title claim even though we're joking about finders keepers, right? It's not we found the coins and they're in my possession and I want to keep them or we lost our keys and we want help like getting access to this unhosted wallet or whatever. It's rather like these addresses no one's touching and so they've been abandoned and they're for me now. And he's sort of picking a fight assuming there's going to be an empty courtroom on the other side and it seems already like that's maybe not going to happen. But let's try

to be fair to the legal theory because this we are lawyers. So New York does have a lost and found statute and it's classic for like the human situation of you find a watch on a park bench or a wallet in a cab or Jesse Brooks's AirPods cuz I lose them like once every few months. >> Me too. I know. I just wish that I I I need them to have a cord. If only headphones had cords. >> Find my doesn't work. >> But now everyone's acting like we need the courts to do this. So the statute says in New York, this is a New York statute, if you find lost property, you report it, you deposit it with the police, and so that's what you were talking about. You give the owner a chance to come forward, eventually it

belongs to you. And for anyone who went to law school is listening, it's sort of like when you would move, you would read those cases about people moving into someone's house, and if like you didn't kick them out in a certain period of time, that house belongs to them essentially. So, it's a similar concept. But here is where like the wheels of this theory get a little bit squeaky, right? Because the statute in New York is built around possession. The finder is the person who takes possession, whether it be my AirPods or your air Apple Watch or whatever Apple product you're losing these days.

Um, but this isn't I found a wallet in Central Park. This is I'm not sure if this works, but I thought of it right before the pod. It's like I found a Zillow listing that has been there a while, and now I own the apartment. And so, he can't really say, "Where is the money, right? Like, how and how do I get it?" Just because it's like on a flash drive with a list of addresses, doesn't mean that he owns it. It's just like spiritually there, I guess. So, the core problem is not that he lacks the private keys, it's that the whole lost property regime he's relying on assumes that he has it, and he just doesn't want anyone to be able to contest it. And the reason why that's different in crypto and like this

question is going to come up in a more nuanced way, I think, is like abandoned and dormant in the physical world can mean the same thing. Your house hasn't been touched in a while, the wallet has been sitting there for a while. But abandoned and dormant in crypto are very, very different. Because dormant doesn't always suggest abandoned, right? Maybe people are smarter than I am, and they've been hodling Bitcoin for how many years, right? And or maybe they just lost their keys, and they're still looking for them like that guy who lost his cell hard drive in the bathroom. Oh my >> Oh my god, the Ireland guy. Where is that guy? Yeah, we all We all heard about that guy.

>> But why do we care here? Because if he even gets a little bit of win here or precedent, the paper victory itself can have value because once the money in those wallets moves to a centralized exchange, where he can access them, now he can say, "Hey, look at this court order, these are mine." And so these centralized exchanges are going to have to figure out how to do it, how to deal with this. And they're already like no shade to the centralized exchanges, but like they're already struggling on how to do this with a court order from the government says like this is terrorist funds, don't move it in and out. You do, you know, something you you can do like a freeze order or something to sort of stop it if it gets there.

But how do you you can also go like a step further and this is where I like I would love your financial instrumenting mind, KK. Um is like could he find Let's say he gets access and it doesn't move. Could he monetize the legally owned but technically inaccessible Bitcoin for like collateral or for litigation finance or for some sort of like, you know, white hat hacker to help him get in or something like that. Like Or could he This one is what drove me crazy. Like I think someone suggested he tokenize the claim and that it turns into a token, which is like could not get more crypto. So the claim to me is like pretty legally weak.

It's technically somewhat useless and a bit grimy morally, but also crypto's built its entire markets on this concept of non-custodial wallets, centralized exchanges being accessible in different ways as well. Like how do we think about these kinds of laws that we don't talk about a lot in the realm of crypto? >> They are nerdy laws, but they're really important. And the other complicated thing here is a lot of this is state law. Which state law is much crazier than federal law, by the way, because it varies dramatically. [laughter] And you can have a lot more like you can have a lot bigger swings with the states, right? Like you can actually do more creative things in state court than

you can in federal court. And the other thing I'll note is we we reference forfeiture. There is a similar but different doctrine called escheatment. And that's the legal process of transferring abandoned or unclaimed property to the state. So this is another related unanswered question. So this this arises a lot in the context of centralized exchanges. For example, when Cboe Digital, my former company, decided to wind down its spot market, we had to work with each state to figure out the various escheatment laws cuz each state has different escheatment laws, different terms. Like sometimes it's 1 year, sometimes it's 5 years. Where basically you have unclaimed property, you don't claim it after a certain time

period, and you take certain steps, that property moves to the state. So there's also a related question here of whether this guy gets his property or whether it's truly unclaimed, whether the state might have a claim, where is it? There's a lot of unanswered questions. >> Also, how do you spell escheatment? >> escheatment Yeah, exactly. Could we not have had a better like term for this? >> Oh yeah, this is like bringing me back to first year of law school. So it's probably a lot of people getting PTSD from that.

>> Yeah, yeah. I mean, come on. So we're we're running short of time and we need to make sure that we hit crypto good news. But very briefly, >> [laughter] >> I just [snorts] needed to call out something in the comments. it in. >> You're fitting it in. I'm so glad you're >> Yeah, I'm fitting this in. Something that happened last week that I'm so confused about. And okay, first we need to show this tweet by Brian Armstrong on the screen. And this was right after I think a lot of people noted that Jamie Dimon really went after clarity last week. And you know everyone how I feel about Jamie Dimon. I'm actually not so secretly a big fan of Jamie Dimon and what he's done in the banking industry. But he

went after clarity. So in response, Brian Armstrong tweeted this, okay? >> The only time a tweet has made me happy. >> [laughter] >> But what I'm very confused about is has no one seen this show? Like that [laughter] I watched >> to be clear, I did not have not seen the show, but largely cuz I'm cheap and won't pay for HBO. But I think it's hysterical because even if you haven't seen it, you know what it's about, I thought.

>> The show is not about >> I'm going to play it out. I'm going to play it out for a second because maybe he's secretly saying this is like the two of them are a slow burn enemies to lovers kind of game or like enemies to friends if we don't want to make it like romantic because maybe he's sort of hoping that they like find the I assume at the end of he to rivalry they're like in love or they're friends or something. But there is a meet cute, right? Like when they got together at Davos in January, they like called each other And now they're calling each other names in public. I just Can people just keep their conflict internal? Like do we have to

all say what we're feeling and thinking all the time? >> That is a very deep read of this and actually a very sophisticated read of that tweet. >> I've been up since like 4:00 a.m. So a lot of thinking. >> Heated Rivalry is not about a rivalry of two hockey players. The two hockey players featured on the poster, they're not rivals. They are lovers, okay? That is it. Like, the whole show is a love story. It has nothing to do with rivalry. So, I was so confused and disoriented when I saw this tweet. I You know, my favorite retweet of this was someone saying, "Is Brian Armstrong coming out of the closet?" Cuz I'm like, "Look, finally someone understands what Heated Rivalry is is is about." So,

I think the whole thing is hilarious. I agree with Jesse. You know, the memes in crypto are a fundamental part of crypto. However sometimes >> Pride Month. I just thought of that. >> Okay, well, you know what? That should be our good news. Brian Armstrong is celebrating pride and celebrating gay love in professional sports, which is really what Heated Rivalry is about. So, moving on. Our crypto good news of the week. It is not Pride Month, although shout-out to Pride Month. We love all forms of diversity on Dicks in the City.

Our crypto good news of the week is super random, but I love it, okay? So, I'm going to shout it out. >> More random than the new dinosaur I made a joke about last week. >> It is not a new dinosaur. It is relevant to crypto, so that is also good news. So, this is pretty cool, actually. So, out in Montana, a Missoula businessman donated 1 million in Bitcoin to the University of Montana Foundation. The foundation's first-ever crypto donation, okay? And why did he do that? So, he and a business partner bought a former mill site in Montana back in, I believe, 2011, and a Bitcoin mining company operated there around 2017. I'm double-checking my facts, which actually

inspired Steve Nelson to invest in crypto, and that investment sat in his wallet. He hodled that investment. It grew significantly over the years. And rather than selling his Bitcoin and paying capital gains, he transferred the Bitcoin directly to the UM Foundation, thereby saving a ton, well over six figures in taxes, and allowing the university to recognize the full 1 million. And this is all legal under IRS rules, which treats crypto like appreciated property, similar to stocks. I love to see this because first of all, we love crypto charitable donations. We love crypto use cases for good. And I love to see this type of mechanism being

embraced in different parts of the world, in different parts of the country, in different contexts, by not necessarily a crypto organization or a crypto trader. I'm sure the University of Montana was absolutely thrilled with this request, and I've been heartened by the fact that we're seeing more and more standard organizations adapt to, you know, have the ability to accept crypto donations, cuz this type of thing is yet another sign, both logistically and legally, that crypto is becoming a truly recognized asset class. So, shout out to Steve Nelson, who I don't believe he listens to this pod. If anyone knows him, please send him this episode.

And on that note, we will see you next week on Dex in the City. See you next week.