Legal Risk in Real-World Collateral: Structuring Stablecoins for Regulatory Resilience

Very well. Good afternoon everyone. Thanks for staying until the very end. I'm not sure if there's some cocktail upstairs. I hope so to keep you.

My name is Hugo. Um, and we are here today uh to discuss yet again regulatory risks and legal risks and and regulatory resilience. So yeah, quite boring topic. Let's try to make it a little bit more interesting. I'm going to try to poke some holes in our audiences especially after the very nice talk from from Pinto which is quite a re rebellious project as you have ear especially when we are comparing it with some of the other stable coin projects that presented over the past few days.

So yeah without further ado let me just try to to get a rain check on what's your perspective on regulation. So today we had a debate this morning about Mika and Genius and we have some other panels chatting a little bit about these topics. Do not go overboard about them. Who here thinks that the Mika regulation here in Europe is good two folks? Three.

No, just two. The other person is just scratching its head. Uh yeah, that that's good. Um okay, nice. And we are thinks that the genius stable coin regulation in America is good.

Okay. Some some maybe three times more. And so that that's interesting to see. I think that's pretty much an accurate assessment of what I've been uh checking in in some other conferences in in the overall industry. So let's go deep a little bit uh about that.

And and starting with Chris uh and and given your extensive experience at all levels of of government, I was curious to to get some more insights spec specifically on on on the genius stable coin regulation and how is that threatening what was once perceived as the kingdom of Europe on on stable coin regulation, which is clearly not the case. But also there have been some interesting criticism of Genius especially by David Saxs but not only so curious to dive a little bit more into that. Yeah, thanks uh Chris from Rain. Uh we're credit card issuers uh backed by stable coins. Uh so if you've seen any of the stable coin back credit cards in the market, we are the kind of the stack that runs that.

Um just for reference, I used to work in government uh in the US uh both on Capitol Hill in the White House. um for genius. I mean, I think it's the way you phrased it, I think, is is accurate. I said you you asked, "Is it good?" I think it's good.

It's not great. I think there's uh you know, there's a lot of issues you could take with it. Uh but let's be honest, there's a very very slim margin. So, politically speaking, you can't get everything you want. Um I know people including uh Cryptozar Saxs has highlighted some of the issues around yield.

Uh, I actually think that's not a huge concern. Uh, because as least, you know, as as the current version of it, uh, expresses, there's no prohibition on other people getting yield from the stable coin. It's just the issuer themselves. So, I don't think there's going to be a problem with like the end customer getting yield. Um, I think there's some other issues in it that that have kind of fallen under the the radar a bit.

um for example uh you still have to regulate or you still have to register and kind of get regulated by 50 states if you're going to use these uh chartered stable coins which is a problem uh especially when compared to the EU where you have kind of the passporting regime. Um so that's not great when you have 50 states that have all different kind of licensing regimes for money transmission. Uh, I also think it's probably problematic when you've already seen a bunch of those states try and, you know, pick up the mantle from uh from uh Secretary Gensler or Chairman Gensler and kind of uh step into the breach there. So, there's there's obviously a bunch of state regulators that are opposed to crypto still. So, that leaves us exposed.

Um, but with that said, I think it's, you know, it's pretty solid. It's a good start. And I do think, you know, this has been stated a number of times by Secretary Besson and the president like that the goal of stable coins, at least from the US perspective, is continue US dollar dominance and and that's it's going to help with that. Uh obviously in in opposition to what the EU is trying to do in that regard. So I'll leave it there and let others chime in.

Yeah. Yeah, definitely. Going into Michael, but just touching on this last point of yours, not sure if anyone in the room heard or saw what Christine Lagard said last week about stable coins. That's shameful because she said that the EU MEPs, the EU lawmakers need to speed up the process to approve her very dear digital euro project CBDC to fight the egemony of US stable coins. Do you think the digital euro is the right tool to fight the edge egemony of the US stable coins or US denominated stable coins?

Maybe. Let's discuss this in in a short moment. I don't think so. But but Michael going going back to you and especially regarding this this aspect that Chris was mentioning that regulation or this regulation is good but not great and and given the fact that most crypto regulations have been just purely transposed from tradi regulations even mika being perfect example of that from from me not sure about America but you can expand on that but so given that knee-jerk reaction like what's your perspective on on the state of crypto regulation and how can crypto projects become more more resilient either by trying to fight the regulation themselves a little bit like Pinto does uh or tries to do um as opposed to to any other solutions you may you may think of given your yeah very nice experience at the coin center thank you um yeah and and just briefly the background like I've been doing crypto stuff for 10 years recently security and but moonlighting as a technical person in policy conversations which is mainly been working with coin center as a fellow but But representing myself and my opinions, uh, Coin Center's made their point clear on like where where they see like legislative focus should be, which is actually more on the Clarity Act, uh, which is just an extension of the work that they've been doing for almost 10 years in Congress now, which is to get like a lot of housekeeping done on like providing regulatory certainty to developers building in the space to resolve questions like tornado cash and samurai wallet, which is where does liability for developers lie? Um, and that is a very blurry, very dangerous line that has been drawn uh such as by the Biden administration's Department of Justice.

So, that's what I'm more excited about. But the fact that genius has been passed, the fact that a piece of crypto legislation has been passed that is at least intended to be positive and consider the industry important is an incredible milestone. Um, because that has been something that has been working forever. Ever since up till this point, it has been purely on the defense of trying to keep harmful legislation from being passed. that is kind of uh almost nefariously like trying to target the crypto industry.

So that's a really good stepping stone. That being said, yeah, there are challenges. Um, I think in trying and what we've seen so far, which has been most regulators coming from a okay, let's try to assume that people can do AML KYC as they uh normally do in traditional finance. And um there were some talks earlier today that that highlighted this, but like you know the the little known secret is that there's a lot of money spent in compliance in traditional finance and its effectiveness is questionable to say the least. And actually stopping bad actors.

It's more just putting uh it means only sophisticated bad actors usually can get away with money laundering but they very much still do and they use traditional finance to do so. So the real question is like how do we then approach it in crypto and from a security perspective uh there has been a lot of like both hacks but then outright fraud that blockage has been almost built entirely from the ground up to fight that we are seeing being perpetuated. You're seeing billions flowing into North Koreans's nuclear program and funding the development of weapons that could harm not just Americans but anyone across the globe. Um and that needs to be addressed like crypto can't have a silent answer or a freedom permissive answer. Uh freedom can you cannot support freedom in crypto if it means you give freedom to totalitarian regimes to oppress their people and fund their efforts further.

So with with that potentially controversial state put out there, I think what we need to see is regulations written to say, okay, if you are a custodial actor or you're an actor that's trying to build technology, including stable coins, you need to give a pathway to reliably fight against bad actors um that are going to potentially steal steal funds, launder money, etc. But you need to create an open space where you're not mandatingly use traditional methods. I think uh using zero knowledge technology using better digital identity standards there is a path where you can create compliant stable coins um or at least that ones that are able to address AML KYC challenges without reverting to old trify methods or limiting innovation. Um and it's there's no clear answer to this. is simply that regulations need to be written where regulators are aware.

There are potentially these better solutions out there that can be both more permissive and more open to users being able to like have direct custody of funds and not being limited but still being able to like have an answer to how to fight bad actors. And that's so there's not a clear answer there. I think we're we're going to see more solutions being built over time that are going to better address that. uh and the way regulations need to be written is just in such a way that like hey there are that there's there's a a bit more freedom to pursue options that will provide AML KYC and that there's a carveout for users for stealth custod users where there's no third party directly involved can still act mostly freely like once you start to operate something close to a business which frankly many stable coin projects will be u except for maybe the purest of them uh there has to be someone like backing those assets there has to be developers building it and getting funded like you h you have to the clear future is there will be more regulatory expectations for them uh if there weren't already some um and uh we we would just hope that they have the ability to provide to yeah pursue better options in the future. Definitely.

So if you are in the US you should consider donating to Coin Center. If you are in Europe, you should consider donating to UCI, the European crypto initiative. And uh yeah, Pelle on on to you and I think this will be a nice transition because at at not the Ben you have done a lot of work in regards to driving forward crypto compliance but at the same time I see you as a crypto OG which also shares a lot like the traditional or typical ethos of of of crypto values and um how do you balance those out and how do you see these difficult equilibrium in in between innovation and safety uh going forward. Yeah, thanks. Yeah, just well for context, probably not many people outside of of CFI know what we do, but we've essentially built Swift for crypto over the last 5 years, and we are now starting to reach some quite significant transaction volumes where we're not quite at Swift level, but we are, you know, edging edging up there at the moment.

And most of the CFI industry is using us right now to process transactions in a compliant way to solve a lot of the issues that you talked about with with KYC. Like ultimately stable coin supplier or issuer should not have to do KYC for example. That's what a financial institution does and they privately implement payment standards and payment compliance to be able to solve those things. But one of the big issues that I see in this industry because I I am I've been involved since the old cipher punk days. I'm an old anarchco crypto kind of guy and now I'm invited to fatf meetings and these kinds of things right which is you know 10 years ago I was giving talks against fatf but I've I've come to the conclusion that the that as an industry we we've we've we've kind of lost track about what we were actually for when I started getting into Bitcoin in 2010 you know I was out there at meetups talking about, you know, we're going to replace Visa and and we're going to replace Swift, we're going to do all of these kind of things, but we've been so enamored with this massive decentralization theater, I have to say, that we've actually set our industry back.

also constant fear of regulation rather than you know everyone's trying to figure out how do I arbitrage arbitrage my way around regulation and therefore lying to themselves and everyone else about what they do right and I think that's actually setting the industry back it's not setting you know people who are maybe trying to push their token or something back temporarily but ultimately if our goal is to get to get the $190 trillion of payments that are happen happening right now u every year in crossber payment on stable coins. We can't keep playing this theater, playing these kind of games with each other and the users because you know what? We're not going to get the users. We can talk about bad UX, all of these kind of things. But we're not going to have a functioning system.

And to get that functioning system, unfortunately, we need the regulators to be along with it. We need financial institutions to be along with it. And we need a ton of in innovation still, of course. And that's where we have to kind of balance all of these things. Yeah.

Great. I think we'll come back to to this topic in in in a moment. But um coming down to you, Satlin, our European man at the other end of the panel. Curious on on on your perspective on on all these on but spec specifically on on Mika and on what we've heard on some other panels. We have um I think it was like the guy from Anchorage, not Bruno, but starts with a B I believe uh was also saying yeah, Mika effectively killed the possibility for stable coins to scale in Europe.

Um in addition to other issues and three, four years ago, maybe even two years ago at crypto conferences like these, everyone was praising Mika as as the savior of the crypto industry in Europe. And that has clearly been not the case especially now with with the threat of more sophisticated regulation coming in from America. So how do you see all these and then how do you tie this up specifically to to the risks that stable coin issuers face? How can they innovate here if they want to conquer the global arena or if they want to be building out of Europe? Thank you.

Uh to give a bit uh more context uh in the course of uh our risk evaluations um at Lamarisk we uh have uh observed many different legal regimes not only the braced Mika uh but um also other legal frameworks across different countries that are attempting to to capture to different extent stable coin regulations. I have sighed some um in the the course of our discussion. Uh but specifically on the point of uh Mika um my view is that uh it was long awaited u um law that uh was expected to to bring sufficient uh transparency and uh ease the uh operations of uh different players within the crypto space. However, the result is that uh this regulation uh as much as uh serving the the purpose uh for customer protection, it uh significantly hampers the innovation. Of course, this is my personal view.

Uh practically, it is impossible to um start operating compliantly. uh if you're not a uh wellunded and sized firm as of a current date and uh this as we have seen uh prevents uh newcomers from entering the uh Euro crypto stage. Uh well uh we cannot state uh for sure what is the number of uh businesses that uh have already left Europe but uh a quick check at Mika interim register uh will show that uh currently we have a number of uh casput authorizations uh around 10 uh EMT electronic money token um issuances allowed and uh zero asset reference tokens. issuance is approved uh and uh without uh serving as uh any sort of uh advisor or uh legal council of uh Athena basically Buffin killed uh their effort to to become compliant within uh the European boundaries. So uh maybe the case is that uh European authorities driven by the desire to protect uh the European customer base uh effectively uh lo lost the pace uh with uh which they pushed through very harsh restrictions.

Yeah. Yeah. Definitely like Mika succeeded at its main goal which was to kill Facebook's Libra. It was created for that and it succeeded but now it's killing everything else like Athena Bafin as you said literally them and uh they were trying to get the license in Portugal but the Portuguese government fell and so we are one of the free few countries in Europe which doesn't have a operational regime for for Mika licenses yet the government has been uh elected recently and we we have heard good news it's it's nearly there but uh after buffing what what can the Portuguese regulator later do for that. Let's see.

But uh but not easy because um yeah, Ethena also has a big crowd building out of Portugal. Um, but yeah, you touched on on this point about like regulation and I was thinking about like the contrast between regulation and self-regulation and how regulators typically react in a knee-jerk fashion typically to acts uh or to big threats like Libra, but also um at the time of of Luna's crash like Lagard and the rest of the EU folks were like, "Oh, we need to start thinking about Mika, too." Fortunately, that idea seems to have been killed recently, but it's still a threat um that looms over the old continent. So the question is, is it possible for the industry to self-regulate in a way that's sufficient for regulators not to go after them or will banks always be lobbying uh on on the back on the sides to to push more regulation that keeps stable coins and interesting for consumers so that consumers stay more like yeah um within the realms of banks? Mike.

Yeah, that's a really interesting I I like I appreciate that question because I've heard that in other context. There was some conversations I had with cyber security professionals last week and it was the same topic but on more of the cyber security side but it was like can we get like good enough self-regulation because when you look at other practices like you know the accounting industry the legal profession usually on the services side but still it was like there's usually a self-regulatory body that there's no government mandate but government regulators have in effect looked to this and said this seems like a good regulatory body this is not an industry we need to wait into um I I think you you touched on one challenge which is like you you do have existing players in the space that prefer regulation because it's a space in which they have an advantage such as banks, traditional institutions. So you have that challenge but you also the challenge is within the industry who who's self-p policing and saying that is too risky don't do that. Um and you know in stable coin and crypto in general it's usually like uh you know the dgens are a large part of the market and the dgens will want and care about pushing the boundaries far further than is reasonable for the average consumer. Um and it's very difficult to avoid massive risk there.

Um so it the real question is like okay so who are the players in the industry that can to some extent be big enough to push stable coins in the right direction and to point out the good acts versus bad. One you obviously need to kind of like at least have some set of best practices and standards in things you just don't do. You don't do what Luna did and basically have zero backing behind your stable coin and hide it behind these gobble gigu around you know some Bitcoin and algorithmic whatever. Um, and I think in in generic stable coins that's pretty well established like what is at least a general good practice and there's some transparency inherent in the chain, but there needs to be more disclosures on what happens offchain. But at the end of the day, like who has the who's the ammunition to actually tell stable coin issues you do this or you don't survive or or rather you are not going to be a significant enough industry to be a threat.

Um, and that would be like the people that list them like both the exchanges like what exchanges which exchanges are going to use which stable coins and uh some even some of the DeFi platforms themselves. I know like I've been on stage at this conference in the past kind of representing Compound and we had a very we had to replace what was a very loose listing process of well people like the stable coin so we're going to vote for it and list it. Uh and then you learn issues down the line. We had that with True USD and some technical issues they had in their implementation. Um, so we had a very rigorous listing process that was both from a security perspective and a riskmanagement perspective.

Um, and if you could get like more protocols across the line to say we're all going to say we're not going to list stable coins that have these inherent risks. Um, I think that would go a long way. But I think what is needed is a single entity, a self-regulatory authority that is actually setting those rules and the regulator can talk to and understand how the industry self-regulates as opposed to this happening kind of sporadically in different layers. So I think that's there needs to be some sort of entity that everyone respects. It can be a consortium.

Now we have some opinions. I I would just say like I think that's a great idea. I'm all for it. I think the difference between lawyers and accountants and cyber security professionals and and crypto is uh those people like to follow rules and whereas everyone in crypto is inherently like anti- athoritarian. Screw you.

You can't tell me what to do. And so the idea that like a bunch of companies are going to come together and agree on something and someone's not going to try and like hard fork it and make, you know, whatever the protocol is that does the exact opposite of that. Uh I just think it's it's it's unlikely to happen. I think it would be great. It's certainly preferable than like a bunch of uh politicians who don't really understand the technology trying to, you know, implement and regulate in the space.

I wish I could disagree with you. Yeah. But I just I just I just don't think it's going to happen. Well, cyber security folks like to break the rules. So, but I mean I I also don't think we need to regulate and stop all the different um different innovation happening out there or you even though there's a lot of of what I consider bad bad happening out there in the in the in the the DJ community.

But I first of all, I think there's one thing that you said that I actually disagree with. I always used to believe it that the regulators are here to protect the banks and I actually do not think that's the case. That's not what I see. You didn't say they are here to protect the banks. I said the lobbies the banking lobbies.

But I actually I actually also don't think that the banks are are out to stop there a lot of things that they're nervous about. But one thing that like that a lot of people coming from crypto don't understand. Like everyone likes to say, "Oh, banks, they don't get it. It's so oldfashioned. Why it's so slow?"

People that work in banking know how shitty banking is. They know how bad it is. Like they they know like I spent I don't know 20 years or something working on a system to to to uh reconcile Swift within a major major European bank. And you wouldn't believe the amount of money they did not know because the internal systems sucked so bad between Swift and trade. They were losing like something like 2530 million euros.

I mean it was before euros pounds I think it was actually back then a day because of of all of this bad stuff. Bankers hate the thing that they had to there's things that they have to deal with things that are very difficult because of regulation that they they can't innovate as much as they want to because they can't even go in and like patch their goddamn core banking systems without getting the regulators approval on it and stuff like that. Right? So they're actually very very keen to move forward and they're looking at things like stable coins and when I say they a a subgroup probably I'm not going to say all bankers for sure but there is this idea within within crypto the bankers are trying to stop us they're trying to talk with the regulators and maybe there are some other you know we but in reality most of them actually they know how broken their systems are and they actually would be the primary beneficiaries of public blockchains and stable coins. and DeFi, all of these different kind of things.

There's like just massive offices of back office. They're processing all kinds of stuff that no one in crypto has any clue about and they would love to get rid of all of that, right? But then the other part on the self-regulation, there's a ton of examples in Tradfi about self regulation. So for example, um there's Swift. Swift for example is a consorcia for payments.

Now it's going to be very difficult to get every single crypto company together in the world particularly who are competing with each each other and create a comp competitor to swift and I don't actually think we want that either necessarily. Uh but global regulators they'll say well you know we can recommend Swift because and Swift have their processes and now uh you know they spent the last 5 years getting upset at crypto because crypto isn't implementing proper payment rules which is like where companies like us come in and fix that part of it. But now they're actually really upset at Swift and the banks and the core banking and all of these kind of things. And very few people in crypto has actually seen the latest updates that are massive opportunity for crypto and for stable coins because swift have I mean the overall like fatav the global regulators are saying you guys up in banking you guys up with swift there's all of this innovation that's happened on top of traditional payments to make things work everything like actually you guys for example I mean you guys are a great way of of one of these like solution solutions that makes makes Visa cards insurance work in a in a great way, but it introduces on on the on both sides like there's not a lot of transparency. Like basically traditional payments is broken because they're like 20 different intermediaries.

No one has any clue what's happening. There's so much risk. There's so much fraud. It's very expensive because of all of that. Crypto, we have the opportunity to actually do something a lot better.

And this is a massive opportunity for us to work together. But I don't think we need an organization. I think we just need open protocols to talk about this. to your point, u correct me if I'm wrong, but uh Switzerland has a pretty decent sale of regulatory organization that uh overseas wasps. Mhm.

Uh I'm not pretty sure how this will evolve around uh Mika even though the deregulation uh doesn't have uh direct implications in Switzerland. Uh what uh I could foresee is uh an analogy of uh um European Union at two speed that was uh promoted by Macron a few years ago. Uh in my view um uh the interest spread between u centralized players, centralized exchanges, centralized businesses uh and uh the one that is driven by uh dexes and other defy uh participants is uh getting uh more and more uh diverse. So uh such consort consortium or uh any u other type of self-regulatory organization uh may be composed by uh representatives of uh the two different worlds we are living now US I'm not an expert in this but I believe US there's a long history of of self-regulatory organizations in particularly in in different trading ecosystems Right. Um definitely.

But on this point like it's all about this like regulatory bloat that the banking industry got affected by especially in the aftermath of the financial crisis. Uh but now crypto is suffering from it. Whereas from a technology perspective we will not need to because we can build any kind of compliance in the technology. the fact that blockchains are reasonably transparent or or or and and composible, it just creates all this possibility for you to like diminish the the the need for the burden and the cost of of compliance. But that's already being built by by some protocols and and some stable coins are kind of focused on that.

But then we are not seeing the regulatory response on the other side as in the regulators are still focused on the same lens they have to approach the banking industry. Maybe because they do not know better. Uh although I've I've known some instances of the banking industry, not necessarily the CEOs but their lawyers meddling directly against crypto. Um but of course it's not a compl or conspiracy. It happens just because of the incentives they have.

uh but maybe it's also the problem of the regulators that no matter how well educated they may be they they still have just their lenses of Can I intercept just a sec that absolutely happens I also just want to say it also very much happens in our industry that CEOs of very very large crypto exchanges go in and meddle and stop and stop processes that could actually make it easier for the rest of the industry and for example such a large exchange and they're meddling in the Europe like in the roll out of the TFR in the U is why you kept seeing those headlines that self-hosted wallets are going to be banned. Yeah, it was because of a particular meddling CEO of a major exchange that I will not name that they have their interest like even within crypto there are all these realms and there's this fight between the open systems and the closed systems which is also an area of interest of yours and very much aligned with with this topic um because based on on your previous work as well you believe that open systems promote better innovation and better outcomes for the users and for society at large Yet capitalism and and just people overall are typically incentivized to build closed systems so that they can extract whatever they want. Um but how can this change in the context of crypto? Like we've been for more than a decade trying to to build open systems. Uh we can argue that Ethereum is a functional one but but still um there's so much chaos and so much infighting within.

What's what's your perspective on these in in the context of yeah the regulation topic? it like our approach to it is that we are as I mentioned we're building swift for crypto and we don't actually when we say that it's functionally swift for crypto and we are selling software to companies but we actually don't want to ever be a gatekeeper or anything we really really believe in the openloop network that crypto is and there are ways that you can do this uh in a very easy way in well maybe not easy way but we we are publishing open technical ical standards. Now there's public domain standard that we hope we can believe we can get for example FATF and banks etc to support but not they're actually the lead least interesting one I want the crypto industry to to support them and understand that they're public domain there's no central gatekeepers in it so we have tap which is a new protocol the transaction authorization protocol taprvp is the domain um where we're trying to do this and essentially build the technical standards to build swiftl like layers to create better safer applications for real world real world applications particularly on top of stable coins but not just on top of not just for stable coin purposes but it has to be done in a way that it's that is that's open and and the the interesting thing is um it's actually cryp a lot of large players again in crypto who's trying to close things down like I feel like there a lot of the companies in the last 10 years who like grew because of the first regulation like US in 2013 came out with the first like practical crypto regulation and out of that came some of these large players and they're now kind of in this world they're making so much money that they're essentially creating AOLs and AOL's versions of crypto and I personally as someone who's a big believer in the openness of crypto I think this is horrific and it's also going to fail fail because AOL failed these closed networks. It goes goes closed and it goes open and they're going to fail pushing this part of it. And DeFi and all of these aspects are part of keeping everything open.

But even within these public ecosystems like these DeFi ecosystems, we also run the risk of like turning things closed. Um so yeah my view Michael K wetland fendies uh I think the the brief thing I'll mention is it's I think the trick is going to be saying okay who's ultimately a regulated entity and who's not or who shouldn't be and like I think my biggest gripe legally and it's something that Coin Center's also talked a lot about is like just how third party doctrine has affected the way that surveillance and and financial regulation is done in the United States which has been this concept that like well okay uh you know if If you are interacting directly with some other person um then you know the the government has no business regulating that for the most part even if it's if it's commerce um but once you introduce third parties which has traditionally been banks but has also even extended to uh you know technology providers uh the government does have the ability to come in and say we'd like to look at those records and and you know there can be legislation such as BSA that mandates it there can even be uh closed door uh agreements between companies and the government to simply do passive surveillance and that's to me the concern in the fact that that's allowed a lot of regulation to sneak in in cases where it wasn't maybe initially intended to that extent. And I think what's really important in crypto is, you know, first of all, we do have fairly public systems today, but the the hope for some is that eventually privacy is introduced as being more common for things in crypto and stable coin. And that in general like the ability to transact directly is never like compromised. and that and that just because you've built software that helps someone transact permissionlessly between two parties that doesn't imply any sort of third party doctrine that allows government to become involved and granted this is a doctrine specific to the United States and our legal system but I would hope kind of could grow and be applied to other jurisdictions and the most important thing is just to make it very clear who when is there actually a third party involved and what sort of regulation do that imply even if there's a third party involved there can be better ways to regulate than we have in the past or the way we've at least tried to be compliant with regulation.

Um but yeah, it's like for example I would say unis swap unis swap is an inc incredibly immutable protocol allows anyone to go out there and issue a token for anyone to then be a liquidity provider to trade that token. Um it does introduce risks. You do have for example like rugpoles that can very quickly run and operate on unis swap with no real restriction. Uh but you can introduce some layers. You can say if you operate a unis swap front end that people are trading through you should at least do some due diligence provide risk to users.

Uh we've worked with the unis swap team to you know help them detect rugpulls and then signal that to the users but if you just want to bypass that and trade it anyway they can. Um but they at least have there's some consumer protection in the sense that they're getting risks serviced to them. So that's just like one example, but like there are ways we can add layers and do the sort of compliance and regulation that uh would be important for consumer protection and mass adoption uh but without making it so that like at the end of the day we treat like an AMM the same way we treat a stock broker or other things. Um so so at the end of the day like making a very clear line when is something like decentral decentralized not for the sake of avoiding regulation but because that's just the best way to have implemented it and to let people transact directly. Uh, and stable coins are going to be a weird one because, you know, issuers, yeah, we should probably regulate them, but a person paying for their Starbucks coffee, yeah, that should be considered a cash transaction where no third party exists has occurred.

Um, and and how you still like get the regulation and compliance that regulars are used to, that's it's going to be challenging, but it'll be new and hopefully it'll be better at the end of it. And I would just agree on the the BSA front. I mean, I think that that the reality is that the BSA, which is the kind of overarching compliance regime for uh the US, I mean, I think there's a serious constitutional challenge coming to it in the next couple of years. Uh the the underpinnings in US law have been slowly whittleled away. And so that will have downstream effects not just in the US for crypto, but also I think in the EU because let's be honest, like FATF and a lot of that, they come from the BSA.

Um and then getting back to your point about regulatory capture, I mean that is absolutely the case. There's uh emphatically large crypto players who are trying to uh like cement their lead through either the Clarity Act or the Genius Act. I think getting back to the DeFi point, I think the the good thing about both of those is at least they are like hands off for the most part about DeFi. And so the regulatory capture has not been extended to that. it's just kind of in the bigger bigger players uh for centralized crypto uh regimes particularly in Europe uh yeah it's carve out uh from u the current version of Mika we all hope that we'll remain with Mika v1 only but uh uh there will be a a report uh expected in uh maybe late 26 or early 27 that uh should examine the the necessity of uh for the regulation of uh defi.

What we have now is uh most of the the projects relying on this um uh exemption u under recital 22 that uh can be broadly interpreted that uh mika is not intended uh to capture protocols that are sufficiently decentralized. uh how uh this sufficient decentralization shall be measured. What uh methodology shall be used? Uh neither uh the European uh lawmakers are yet clear on that. U nor um the national competent authorities uh developed uh any practical frameworks.

Uh I can relate the uh audience to u the report of the Danish uh financial services authority that uh introduced a good concept of uh assessing uh the decentralization of of a protocol. Um well uh it was conservative enough and my expectation is that uh the u on a super national level uh such approach to be to be adopted. uh for for for the time being um most of the the policy makers uh rely on the very broad uh definition given by our friends from FATF uh that uh if uh if you interpret in detail you end up with the resolution that basically the the core team um has u sufficient uh control over over the protocol and basically uh these uh regulatory hooks can be imposed on them. Uh my call to action here is uh to uh to be more creative with uh this uh interpretations and uh just uh devote more time and resources to reliable legal engineering because if you just blindly follow the three lines provisions in in the guidance coming from uh international body uh you you may end up uh with um yeah a lot of difficult Lego pathway. Definitely.

Very well. We're about to wrap up your 30 seconds recommendations for the builders out there on how to build something that's more regulatory resilient. Of course, number one, get out of Europe. But in addition to that, I mean, I I would just say I think you know, Clarity Act or no Clarity Act, at least in the US, it's not that important for the next three years because we've got uh leaders at the SEC, CFDC, OC who are like generally pro crypto. And so at least through like 2028, 2029, there's going to be uh reasonable regulations put in place uh that theoretically the next administration could repeal.

But so for the time being like the Clarity Act, I think people are focusing on it a lot. I very pessimistic that it will actually pass, but I don't think that's actually the the beall endall for regulation in the US. Don't forget my lawsuit. Can you repeat? Sorry.

Oh, sorry. I was going to say I'm suing the uh DOJ over basically what the Clarity Act hopefully clarifies. So that's not the only uh dog in the race. Although, you know, a jury's out on that literally. Um the I I say the call to action is I I would build if you're building something that's going to be longterm definitely like don't worry as much about regulatory arbitrage in terms of the design.

We've seen Dows become almost more of a mess for protocols and really hamper their ability to innovate um because they were designed with regulatory arbitrage more in mind than actual efficient governance. Um, but I do think there's a lot of value in building like a system that's going to govern your protocol independently of any one core team. I think there like security councils and others that you introduce in ways that you know in any in an area where usually you design a protocol that like by design it shouldn't touch user funds directly but there's a security council that could do an upgrade. Uh there are bridge operators that could potentially freeze funds. like these things will exist and you have to kind of build knowing that they exist and put good guardrails in place where the right decisions will be made for users in the end and when those decisions have to be made they're made as efficiently and effectively as possible to the point where like I think there are cases you could point to in crypto where like the ways that they're operating um was actually like better for consumer protection than the way it might operate in traditional finance.

Um, and I think just build more examples of that so that like, yeah, regulators don't have bad cases to point to when they do want to find excuses to regulate poorly. Well, uh, don't leave Europe if uh if you are uh want to target a particular uh customer base within the block. But uh be sure that you you can raise enough funds to fund your operations. Uh as for builders of decentralized protocols, be be aware of the the forthcoming uh guidances and um these uh reports that will shape the the future. uh I'm not certain whether it will be regulation or uh like u high level regulation or uh some uh um secondary level of u um legislative improvements.

But uh in the coming years at least we uh we may expect um more u more specific and more comprehensive observations of this decentralized operations. So be aware of legislative changes. Yeah. And then finally for me, yeah, please do stay in Europe. Europe is pretty cool.

I've lived both. I've lived all over the world. Europe is awesome. And um don't be scared of regulation. And I think if you're trying to do something real, something good, and not just figure out the next way to generate a little bit of of yield, uh or whatever, do something real, something that actually solves a real problem and do it in a way where you actually focus on the safety of of the users of whatever you're doing.

I think you're going to do okay. It's the pro people who are having problems are the people who really don't care about their users and who are just trying to do regulatory arbitrage and pumping their goddamn token. Right? Stop all of that. Build something real, something something useful and I really don't think you're going to have a massive issue in Europe or anywhere else with regulation is when you're doing all of that stupid Yeah, you will have issues anywhere in the world.

Yeah, as someone said earlier, stable coins in Europe aren't as popular because our payment systems is actually quite decent as compared to the rest of the world. So maybe yeah, stay in Europe, but don't build stable coins. Go and build out some cool that solves real problems. Uh but let pass there tons of real problems we can solve. Yeah.

Yeah. And stable coins just a fat boring stable coins like three years ago wanted like to work in stable coins. Now it's kind of next big thing. Why build the digital euro? Yay.

Oh my god, we forgot about that. But the time is over. Thank god for Lagard. We are not going to criticize her on stage, but uh I hope we go all outside and do some graffitis against Lagard and the European Central Bank. Thank you everyone and uh on to the hosts.

Thank you all.