Why Clarity on Digital Assets is Weeks Away with Adam Minehardt of Chainlink

Transcript

All right, you guys. We are live from DC Blockchain Summit day one. Adam, round two here Smart Con round one. It's good good to see Yeah, it's good to have you on, man. I think last time we spoke it was in New York for Smart Con. >> New York and I I run into you with the banner outside this morning. So, great to be back. >> Yeah, man. Absolutely. I mean, lots of lots happened since since Smart Con. Chainlink has been absolutely crushing. >> Yeah, yep. Chainlink has been good. Um a lot's happened, but also a lot hasn't happened when it comes to DC, so um yeah, really good to see you guys.

>> So, this is your arena. You know, when we were in New York, we were getting a sense of how the institutional capital is starting to come into the space. You've been here you as the the chief legal for Chainlink uh may you have made your mark here in DC. We see Sergey in DC quite a bit. You guys are part of the Innovation Council uh that came out. Tell us what it's been like to make your mark on DC. What has been the trials and tribulations in your personal experience? >> Yeah, uh you know, I was on Capitol Hill for uh almost 20 years and initially initially I went to um a large bank. I went to Citigroup.

Uh very very Wall Street uh very traditional and really wanted to get into crypto. Uh moved into crypto and uh it's been wild. It has been uh quite a learning curve. I think for me learning the industry. Um I'm 6 years into crypto now, um but also the industry learning DC. Very different personalities, expectations for engaging. I think the the uh the OGs in crypto are more of a uh we break the rules um and I think government is very much like we make the rules. So, I think it's uh it's been wild to see kind of this like clash of uh philosophies.

>> Mhm. >> Yeah. So, Adam, perhaps we can set the context here for DC Blockchain Summit with this kind of clash in mind. Really this kind of core ethos of digital assets, of crypto that is kind of simultaneously being combined into now this more grown-up sense. I mean, look at us. >> I know, right? Exactly. You look around here, everyone's in suits. I don't see one t-shirt. >> So, what do you expect out of DC Blockchain Summit? What are some of the core topics that you think are most important? And just kind of walk us through why people are gathering here today at this pivotal moment in crypto's regulatory history.

>> Yeah. Um I think since President Trump took office, we have seen uh the crypto industry come to DC hungrier than ever. What's different though is that now TradFi is here doing crypto work as well. So, I think the word that comes to mind for me is convergence. You're really seeing crypto do crypto things, but you're seeing TradFi do crypto things. And you're seeing crypto do TradFi things. And you see that with the policies that are being pursued both on Capitol Hill, but really in the regulators now. How can we allow TradFi rails to operate uh and facilitate crypto transactions?

So, I think what this is about here is not just crypto, but really about regulated finance. You really see a broadening of the of the word crypto here to really include Wall Street now. So, the the playing field's gotten a lot bigger. It's led to a lot of complications though uh with market structure, but that's the word I would say is convergence. >> What? You're You're our first guest today. I would imagine we're going to hear a lot more about market structure and the Clarity Act. We'll give you the first word on where Clarity stands right now today, March 17th.

>> Yep. Um I personally believe it is close. I think we're within a week or two of a deal being announced, um us seeing language on the yield issue, which I think what is what a lot of people think market structure really is. It's a lot more things, but the ability for an exchange to pay yield on static uh stable coins is the issue at hand. I think we're going to get some form of deal in the next week or two. The question is, are the exchanges going to like it? Um will crypto writ large like it? And will the banks like it? So, it's one thing to put something on paper. It's another thing to get people

aligned, but I think we're going to see something in the next week or two on market structure on the yield issue. The other issues that people will talk about you'll hear talked about all week. Uh blockchain regular regulatory certainty act, which protects software developers, uh section 505 regarding tokenization. A lot of these issues are being worked out in the background. So, if we're able to achieve some sort of deal on yield, I think things could move somewhat quick. I mean, you know, uh the boy who cried wolf comes like to mind here. We've been at a lot of deadlines, but uh I think it could move quick if all these things come together and it feels like a lot is aligned in the next week or so to make that happen.

>> Yeah. >> So, Adam, as Rob said, we're we're going to talk a lot about stablecoin yield clarity act, market structure bill. I want to throw kind of a curveball at you. Yesterday, the SEC announced that they are contemplating a proposal to reduce the quarterly filing requirements to bi-annually. Right? So, every 6 months rather than every quarter. >> Yeah. >> What do you Why would they do this? I put out a tweet. I said, "This doesn't make any sense to me. Why would you do this?" What's your take on this? Why Why would they do that?

>> Um they continue to send signals to traditional finance that it is okay to go further into crypto. And all of these small details matter. They're complicated, they're Byzantine, they're esoteric. You need a a computer science degree and a law degree to really understand it. But but the SEC and the CFTC are doing the hard work, making changes to the plumbing, if you will, so that TradFi can really enter the digital assets world in in a big way. And things like the change they announced yesterday are really important. They sound complicated, but when you drill down to it's another flashing green light of

it's okay to come in and do crypto work if you're a regulated financial institution. So, bit by bit they're doing the tough work day by day, complicated as all hell, but they're doing it. And they're moving they're really moving the needle on a lot of this stuff. >> So, you really think this quarterly filing change is part of this gradual shift towards kind of this 24/7 trading market, this more blockchain infrastructure-oriented way of of, you know, of doing their business? >> Definitely. We saw it >> Something like, you know, >> That's huge.

>> transfer agents, another like part of the plumbing of all of this, critical part. They made changes there. Um they're making changes on this. We know the innovation exemption, albeit narrower, is coming as well. Uh and I look forward to hearing uh Paul Atkins talk about that later today. Um but really all these things are just lining up to really make it okay to kind of go further and further in. >> C- Can you help set some expectations for this innovation exemption because we heard a bit about this in Denver. Uh Hester Peirce and Paul Atkins gave uh or it might have been Mike Seely, but but the together the two agencies talked about some of the things that we should expect when it came to the innovation

exemption. It sounds like uh, there's a carve out where some of these digital assets are not going to be considered securities, not considered commodities. There's this special uniqueness to some of these digital assets. Can you just fill in some of these gaps? What should we expect from Paul Atkins today? >> Yep. Um, what we know on the innovation exemption, we have been expecting this for months. Um, we know that there are Wall Street interests that are planning to litigate on this.

>> Right. Likely the day >> it's issued. So, the SEC is aware of this and they have been taking steps to ensure that whatever they put out there is defensible in courts. This is why we've seen a narrowing of it. We expect the exemption to be quite narrow for smaller type projects, but again to provide a safe harbor so that they can conduct innovative ways to offer tokens to build projects without running a foul of securities law. So, I think it's going to get it's going to be windowed down. It's an important message though nevertheless. And really, you know, for the industry, you're surrounded by a lot of big companies now, which is wild and really what we we need to remember that

there's a lot of small companies that can benefit from this and can become the next big companies. It's great for the ecosystem. >> So, let leveraging some of your legal background here, also your your experience on Capitol Hill, you know, Andy and I's experience and this our perspective comes from Gary Gensler, you know, issuing enforcement actions against these companies where everyone was in a gray area. Now, we're kind of approaching this from from the other side and we're going to see, you know, the large TradFi companies litigate on this issue that tends to support crypto. How is this is this going to resemble the Gensler era enforcement action just coming at it from more of a tradfi angle. Can you draw some of these comparisons or how how should we think about litigation as

this innovation exemption comes comes forward? >> it's a great point that you raise because there are there are definitely pockets within tradfi and Wall Street that see blockchain as a monolithic competitor to take market share from them. It's really in the market maker space where you're seeing this. The Citadels of the world that I think are likely to see blockchain and defi in particular as someone that can take market share potentially with a different set of rules and they're going to protect their territory. I'm not going to hit the table. Don't make me not hit the table. What what I think makes it interesting though is you have to look at the tradfi ecosystem

in different spheres. So, when you look at say asset managers, the fidelities, the Blackrocks, I think you see a lot of alignment there >> Yeah. >> on ETF products, ETNs where they're they're not likely to be litigious. Um it really is these market maker sides. I think the most to me the most interesting part of tradfi is really the banks, particularly the large banks where you have the City's, the JP Morgans, the Goldman Sachs who will be competing with crypto interests. We all know their investment banks are book runners for various crypto IPOs. We all know that they're going to be working with crypto in various parts of their business. So, talk about a challenge. If

you're the CEO of of a G-SIB right now and you have to decide, am I for or against it? It really depends who you talk to in your business. If you're on the retail banking side, you might be against. If you're on the investment banking side and you're taking someone public, you don't want to say anything. So, um so I think it's going to break along different lines, but I I there's going to be a lot of litigation. I see it mainly on the market maker side Um really focused on D5. >> Okay, and my my last follow-up question on on the innovation exemption within the the digital assets and tokenization space, who do you think is most poised to be the main benefactors of this innovation exemption based on

your knowledge of how narrow this would be? >> Yeah, um it's likely to be projects none of us at the stable have heard of. >> Really? >> I think they're going to be I think they're going to be smaller cap newer projects that are looking at doing airdrops, some form of limited fundraising through a token. I expect it to be capped at a certain size. So, I don't think it's going to be the name brands that you see at conferences like this. I think it's going to be smaller down the the food chain. Could be interesting deep in type projects. Maybe uh not at the level of say a helium, but maybe the next type of helium. Someone in that space I think that they're really looking for unique ways to use tokens to spur innovation.

>> There are quite a few projects that fall into that category. We've heard of you know meanwhile daylight some of these these companies that are using digital assets and tokenization as a funding mechanism to fund the energy the energy crisis where you know we know that with AI we need to finance a lot of this the the main limiting factor is energy and electricity and so there's digital assets and tokenization are used as a funding mechanism to drive that energy crisis forward and I could see a lot of alignment within the broader government agenda as a as a means of kind of rallying around this core base.

>> Well well when you when you can take take things out of the pure financial world and get into physical infrastructure and non-financial uses yes funded by a token but the actual product is something that is like wire like wireless service or solar or mapping, or any of these real things. I think to me, like that feels like a natural area where we want to spur innovation, so we're not just talking about financial products, but we're talking about real-world use cases. I think that's something I think all of us are starved for. I'm not saying there isn't any, there's a lot of it, but we could use more of it, and we I certainly would like to talk more about things like that, and less

about trading all the time, so um that'd be great to have that. >> He doesn't own any hyper liquid, ladies and gentlemen. It's okay. He's got huge chain link bags, but that's okay. Doesn't own any hype. Um Adam, one thing that also kind of came out in the last 2 weeks, I think, was CFTC SEC coming together. There was this kind of joint MOU that was like, "Look, we're going to try to reduce regulatory overlap amongst our two agencies, specifically for digital assets, but also just broadly." How realistic is this? Is this just a headline, something that we can actually see in practice actually come to fruition? What, you know, what's your what's your take on that?

>> to like being like a like a long-time DC guy in the financial services world, the fact that we have a commodities regulator and a securities regulator that are not housed under one entity is insane. There's nowhere else in the world where this exists. You have ESMA in European Europe-wide, the member states of the EU, Japan, Asia. It is natural for commodities and securities to be housed under one entity because there is so much interaction between the two regulators that they need to be within one entity. I think this could be one of the most important things that comes out of uh this this period for all of us,

not just crypto, but for all of financial services, to have stronger working relationships between those two agencies. The amount of time and money wasted by companies going back and forth to two regulatory entities that are on different pages is mind-numbing. It's a waste of their time. It's a waste of the industry's time. It doesn't protect investors well. So, um I think we're at a unique point. Mike Selig worked for Paul Atkins. There's tight uh personal alignment there. Uh so, I think this is one time that we can actually see So, you know, you see a lot of these um MOUs happen and they don't

mean it like nothing happens. I I'm very bullish on this one just given that you have Selig and Atkins who know each other very, very well. I think they can really bring a lot of alignment um to to the industry, the people at both agencies. We've had legendary turf wars between these agencies implementing Dodd-Frank. Some rule makings took decade. Uh so, it's it is just insane the amount of time that is spent on these regulatory inefficiencies. So, again, probably not a big deal to people outside of the Beltway, but in in inside and the people have to deal with multiple regulators, big deal. So, I love it.

>> And would you anticipate that this materially lowers the cost and resistance for institutions, capital allocators, people trying to build on chain? Like, do you see a direct correlation to digital assets regulation or like just kind of show us what this means for crypto? >> Uh 100%. I mean, the the key issue and we talk a lot about yield because that's occupied a lot of the the time in delaying market structure, but really the purpose of market structure is to decide when a digital asset is a security, a commodity, or something else. The the Senate uses a concept of ancillary asset network token. So really

the most important thing to the industry is understanding is my token a security or is it a commodity? So the amount of time that industry spends trying to figure out and get outside opinions on whether you're in one bucket or another bucket, there's very different requirements if you are in each bucket with regard to disclosures, which are very laborious and time-consuming. Um so it's extremely meaningful uh both as a signal, but then in practice where you can go and take one meeting >> Yeah.

>> and get the lay of the land of two regulators and maybe have a unified response from them. So it it's huge. I think it's really bullish for the industry. >> You know, Adam, we're we're going to be talking to uh you know, legislatures, regulators, policy makers, government officials from both sides of the aisle. Um our understanding of the Democrats' position on a lot of the regulation that's moving forward is primarily around consumer protections. Um do you think that the regulation that the SEC, the CFTC, the Clarity Act, the Genius Act, everything that we're seeing come out of this administration we're opening up a lot of these markets.

Do you think that we're doing enough to protect consumers? Should we be doing more or is this thoughtfully curated regulation protecting consumers sufficiently? >> Um it's a great question. I'm going to be diplomatic in my answer. We saw a lot of enforcement under Gensler and it tipped well past in my view and I obviously most in industries of what is reasonable as a way to protect consumers through an enforcement-only mechanism. I think what Atkins is trying to do is bring that back into balance and really focus on areas where businesses are committing fraud against consumers. And I think that's important both from a resource

spend at the agency. If consumers are being harmed, by all means go after the company. If someone's committing a paperwork infraction that you think may or may not fall outside of your view on what decent decentralization is conceptually in the context of the Howie test, let's just leave that alone for now and let's really focus on on areas where consumers are being harmed. And I think that's what Atkins is trying to align. I think it's it is very important for us in industry that there still is enforcement. We want to see it. Industry does not want bad actors out there

harming consumers. It's bad for all of us. So, it it needs to be in balance. And I think that's where we're going. >> It it really feels like the mantra of this administration and the SEC and the CFTC is protect consumers without harming innovation. >> Yeah. >> And and I think that that feels like the right balance. >> Yeah, it does. It definitely does. And I think I think Atkins and Selig are like perfectly honed in on that. Getting us back to to to neutral here.

>> Last last question for you, Adam, is you know, where does Chainlink fit in? We're going to have you on a couple more times throughout the week. You guys have made such a significant presence in DC. You've been here on Capitol Hill. Yeah, so generally how how are you seeing the space and how is Chainlink making an impact in DC to drive the whole industry forward? >> Yep. Uh Chainlink is pretty interesting. Uh Our origin story comes really from DeFi in providing data streams for smart contracts. And they've really built to be a full stack solution for anyone really wanting to interoperate with a blockchain, whether it's trad fi, governments, or defi. So, I think Chainlink really sits in the

middle now. We know where our roots are, but we know where the future is. So, I think we're looking at all angles really as a software company that has become uh critical to the functioning of a lot of the infrastructure. So, I think it's a great perch to be in where we kind of can see all of this evolve without being overly parochial on one particular niche area. So, for us, we're trying to engage thoughtfully and really move market structure forward. That's our goal. We want to see this get across the finish line. Um we think it'll be good for the industry. Clarity is necessary on a lot of fronts, but uh I'd say foremost to really protect investors. So, and I think that I think

protecting investors is bullish for the industry. I mean, that's how I see it. So, I think that's where we go. Chainlink, we get to kind of look at all vantage points given who we're working with. >> Yeah. Incredible. Kind of a similar question, my last one, and you may you may have a biased answer. May just be Chainlink. Um I put out this tweet, if the tokenization thesis is correct and trillions of dollars of new assets move on chain in the coming years, which company will benefit the most? There's a variety of different answers. Um lending markets on chain, so like on chain defi protocols, they get a lot of these RWAs, ability to collateralize them, exchanges, or pools. Um we had kind of like a a wide set of issuers, etc.

Is this right? Like, what's your view on this? >> Yeah. Um there's going to be a lot of winners and losers as assets get tokenized and consumers uh start to choose the tokenized form over the non-tokenized form. I think before I get to your answer on that, I I what is incumbent is for the industry who's helping make these tokenized assets to provide consumers and investors with a real tangible reason of why you would actually want it in a tokenized form.

Like I don't want to lose like vision of that. It sounds cool and it can move on, but we have to be focused on why would I prefer to have a stock in tokenized form than the other form. So I think we're getting there and I think the borrowing lending protocols, being able to move that around as collateral, being able to trade it 24/7, these are real advantages. So I think they're there and they're coming. For us at Chainlink, we like to think we'll be a big beneficiary cuz we're in the middle on the infrastructure side, but I agree with the list you laid out.

I think asset managers, banks, um I think exchanges all stand to benefit from this this tokenization can play. I think the losers are likely to be your incumbents on Wall Street and that's why we're seeing this tension that that you alluded to before. So lots of winners, lots of losers playing out before our eyes. >> Yeah, I mean this is interesting because this tokenized 24/7 trading I saw this article on Wall Street Journal that said that institutions are kind of resisting it and that they anticipate retail to be the early adopters of this as institutions work to kind of restructure their underlying infrastructure to actually provide for

instant settlement and provide for 24/7 trading. They're just not built for that. >> Yep. >> And so there is this kind of head budding happening. >> Definitely. And and underpinning all of that is liquidity. Is you you want to be able to execute your trade for the best price, no matter what. So I think that that also uh in addition to what is the reason you would seek a tokenized asset, also underpinning it that you need deep liquidity regardless of where you're trading. If it's a thin market at 1:00 a.m., well, you're probably going to wait until 10:00 a.m. if you can get a better price. So, I think that these are questions that are open. I think infrastructure clearly is going to be a winner in the near term.

Um but a lot of these crypto-native firms that are set up to help transition this over stand to win. Um we're starting to see it already. So, I don't want to name names, but I think we all know the names. We're starting to see see flows follow. So, I think there's going to be a lot more of that. >> Yeah. >> Plenty more to come. Ladies and gentlemen, >> Adam Manhardt >> on Public Policy. Our first guest today from Chainlink. Uh thank you so much for sponsoring our week. >> Definitely. Um love you guys. Uh Chris loves you guys. All of Chainlink loves you guys. So, we really appreciate what you're what you're doing. Uh bringing um real live interviews to the masses out there. So, thank you for

everything you do and look forward to speaking with you again. >> Well, we love you guys, too. Thank you so much uh for pushing the whole industry forward. We'll see you again this week. >> Thank you, guys. >> up to our Empire State studio. >> Oh, man, I'd love to. >> It's It's pretty insane. >> I'd love to. >> Adam >> Awesome. Thanks. >> Thanks, guys. >> Good to see you. Yep. >> Yep.