In this episode, Cobie & Ledger bring on three expert crypto lawyers: Gabriel Shapiro, Sarah Brennan, and Marc Goldich, to do a deep dive on crypto regulatory issues that are in the news. It's very valuable for anyone in crypto.
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Show Notes
Gensler Comments
– Everyone is saying its incredibly important
– Cobie: “Are we all gonna die or are we all gonna make it?”
– Lex: “probably somewhere in the middle” FACK lol
– *extremely complex jargon talk*
– Cobie Summary: “So basically, maybe, they might actually do something here”
– Summer 2017 very similar to summer 2021
– 2017 new group of leadership coming in, ICOs very hot – same as 2021 new group of leadership coming in, DeFi very hot
– ICOs were super complex for legal red tape
Some More Gensler
– Gensler saying now the SEC doesn’t have the man power to really go after these big DeFi projects
– Shannon: “Gensler said he looks around and basically 99% of these assets are securities”
– Gensler taught a course at MIT on Bitcoin/ crypto
Gensler’s Speech
– Starts with Bitcoin thesis (Nakamoto, double spend, peer-to-peer cash, etc)
– Gensler is in like the 1% of guys who fully understands the tech and isn’t crazy bullish
– nerd
– He’s “technology neutral” – crypto is a market and all markets need regulation
– His speech is unrelated to the Infrastructure Bill tryna get passed now
– The tax provision is an existential threat
– “Though there is a lot of hype masquerading as reality in the crypto field, Nakamoto’s innovation is real”
Money Laundering FUD
– Said Bitcoin is basically only used as a medium of exchange when used for money laundering
– Sarah: “Well like if a tired wife beats her husband to death with a mop then we’re not gonna outlaw mops as a weapon of mass destruction”
– Money laundering seems to have a lot of sticking power in the public legal talks even though the stats don’t back this up
– Marc: “Dollars are easier to use and better to use for illicit activity”
– Gensler finds crypto interesting and thinks it could be a catalyst for real change
– Is the right way to reduce the risk of crypto to make sure as many transactions as possible flow through intermediaries?
– “crypto is mostly looked to for speculation rather than medium of exchange”
– Ya cause you get taxed if you actually spend it jfc
– Sarah: “Fix the tax issues there and maybe we’ll see it fulfill that use case more” YES Sarah
US Red Tape
– *on WSB phenomenon* Cobie: “I like how when a small amount of people have info its insider trading and its wrong but when the entire world knows somethings happening and its on reddit, its like everyone knows, its outsider trading and that’s wrong too” lmao
– dYdX airdrop today didn’t go to any US residents
– Ledge: “If its worth like $20k one day I can thank the regulatory system for protecting me from that $20k”
– These laws are really preventing the little guy from climbing the ladder to financial freedom
– Gabriel: “The core of this tech is to help civil disobedience – to help free those living in an authoritarian regime. But the same way it protects from bad types of laws it also protects from good laws.”
Centralized = Security, Decentralized = Not
– Howie Test: almost all cryptos are securities because most people are betting on their price going up with a small group of central entrepreneurs building the value
– Cobie: “There’s not really a clear distinction between what is centralized or decentralized” (decentralized would mean not a security)
– If the SEC gives a clear definition of what’s centralized then people would game it, nothing would be securities and fraud would still happen
– ETH not a security, Ripple is a security
Summary: Our stance on this stuff hasn’t really changed, but we’ll probably do some stuff now cause it seems bad
DeFi
– Under the gun – trading platforms, lending platforms, and DeFi platforms
– These platforms can implicate securities laws, along with banking laws and others
– There are unregulated foreign exchanges that allow US residents using VPNs
– Gensler does have a tough job cause teaching new people how to use this stuff… you’re always 1 step away from getting rugged or fraud lol
Stablecoins
– There are stablecoins that have been around for a long time
– Tether, USDC name dropped
– Stablecoins are embedded in the crypto ecosystem, 30% of trades
– Gabriel: “I think most stablecoins are securities”
– Gabriel: “I don’t personally think Tether is a scam” YES Gabriel u get it
– Gabriel: (paraphrased) “But if it rugged then it would likely be deemed a security”
– Gabriel: “UST (open) or RAI (backed by ETH (not a security)) likely not securities”
Conclusion
– Money markets, DEXs, DeFi, exchanges all going to be in the sniper scope in the future
– Gensler specifically mentioned SEC registration, so maybe there is a path for compliance
– Tough to see how there will even be DeFi moving forward – it wouldn’t be open access, it wouldn’t be irreversible anymore
– So what will happen?
– Any front end that is controlled by a centralized party will be increasingly scrutinized
– They will need to increasingly comply with regulatory regimes
– Maybe: users start to actually interact with the smart contracts
– People get MORE DeFi savy
Consumers vs. Government
– Ride sharing & Uber paved the way for consumer preference and profitability beating out entrenched products
– However, Taxi unions are very different from banks
– At the end of the day, banks are the ones whispering in these regulators ears
– These regulations won’t necessarily stop the innovation but it will stop the use of these innovations by Americans which would be a huge bummer
Notes by Kevin
Music by GiovanniPickle