BBW22 - Day 1 - The Road to Digital Currency

[Music] I'm so excited to be here today um thank you to the City of Quincy for cubic labs and all of you and our wonderful moderators for making it um so I'm the general counsel at uh Como Raby Collective where we invest in exceptional female Founders and I also help run women in blockchain where we try to make this crypto landscape more diverse through educational initiatives Community Building career initiatives and all that and please come out to our event this evening at six o'clock across the street and I want to talk about how there's a lot going on in crypto today um there's recently there was the ethereum merge um there's been a lot of talk about stable coins whether algorithmic or pegged um and them crashing um there's been a lot in the nft and Dav space and as a result there's been a lot of regulatory interest and potential actions related to it um and I think it's really important that we sort of talk about how that will influence things going forward and we have two amazing panelists today so Gus cul-debella who is a partner at true Ventures where he focuses on global public policy and regulation as it relates to cryptocurrency cyber security and other emerging Technologies uh previously he was the general counsel at Paradigm and circle and helped create the crypto Council for innovation and Marie uh practices at Goodwin's Technology Group where she advises blockchain companies and governments with legal and Regulatory issues most commonly related to Securities Commodities Banking and corporate law and she's also an Adjunct professor an Adjunct professor at Boston College Law School where she teaches a course called blockchain cryptocurrencies and digital assets and she loves all things related to the functionality and economics of crypto token offering smart contracts cbdc's stable coins and nfts and wow that's a lot of different things thank you by the way for not booing when she said we are lawyers because there was already one gentleman um and I introduced myself and he was like oh gosh I hate lawyers that's what's so amazing is both of you are lawyers but both of you have completely different perspectives on this as well because you help companies um and you teach a class and so you you know see what people are excited about and I think to start us off Gus um would you mind telling us about what the regulatory landscape is right now like what's coming down the pipeline totally um thanks everybody for being here um you know the first panel really touched on this uh in a state and local way the federal environment is super important as well uh and zooming out I mean I started uh going down to DC to talk to legislators and Regulators about crypto probably in 2017 2018 and at that time you could count on one hand the number of members of Congress who knew more than and I love them but the mayor when he was talking about this earlier uh and those who did got their information about crypto because of the bad news that crypto uh resulted in like the mount gox hack or other hacks or or ransomware using Bitcoin as Ransom we've moved from that point in 2017 or 2018 to a point now where the president of the United States in March 2022 put out an executive order on digital assets where we have at least three and maybe more active uh bills in Congress being debated about jurisdictional issues around crypto and where you know nearing 535 members of Congress have some opinion some attitude about this that sounds like good news and I think it is but the landscape is a little bit more complex than that because and you know I I really appreciated that the founder uh view that we heard in the last panel I have that as well we all have that uh the idea of being say a founder of a drone company you know if you're the founder of a drone company you're looking at the Department of Transportation you're like oh what regs apply Department of Transportation this is very simple if you're the founder of a crypto company you're thinking about regulations from the SEC the cftc the IRS fincen the financial crimes enforcement Network ofac which uh administers United States sanctions the TA you know the IRS countless other entities in the federal government and that's that's only on that level we have 50 states uh that are also interested in regulating some aspect of crypto so if you're a crypto founder you have really two jobs one of them is building and the other is keeping your eye on the horizon for what's happening on the regulatory uh front and that's why Maori and I and you know the lawyers that are interested in crypto hopefully are so helpful to builders because Builders who are who are just pounding out code know that there's something that they have to be worried about out there and don't get me wrong you have to be worried about it but what we like to do is help shine a light through that fog and say okay here are the risks here's what applies to you and here's how to smartly manage them so I think that's that's a little piece of landscape right now so much guys um and Marie do you think that with all the you know increased attention and uh members of Congress and everyone else who now have had a long time to learn more about crypto and are more informed do you think it's actually gotten a little bit easier or are we still in the same issues of well Founders are still worried about Securities laws and you know everything else that they were back in 2017. yeah I actually think that we are yet to see the fruits of all this education that Gus and other folks are doing um in DC so we don't have a comprehensive regulatory framework for crypto companies its pieces there and pieces there like Gus explained um it's possible that in the future Congress will pass something that will be comprehensive I I'm not that hopeful uh there are some news that there are stable coin bills that may proceed uh I personally don't think that that will happen unfortunately maybe it will um so we are left with the SEC being the strong regulator that says that all tokens if not almost all tokens are securities CFT CSS we are happy to regulate but the SEC won't allow us to regulate uh and then we have the state money transmitter issues so it's all about managing risk how much risk are you willing to take if you don't want to take any risk do you have to stay away from the U.S entirely and operate elsewhere or are you able to do something with accredited investors or are you able to launch your crypto business serving all even non-accredited investors so it's all about managing risk since we don't have a clear regulatory framework for these businesses Susan I'll I'll just add one thing since Marty brought up the SEC you know sometimes I feel a little just a twinge of Sympathy for the SEC because the SEC was created at a time when you were just after the Great Depression and Congress said people are raising money in in all kinds of different ways we can't predict in this statute how they're going to raise money so we're going to give the SEC all kinds of statutory Authority right anything that people use to raise money could potentially be regulated uh by the SEC so they have a broad stature it was written in 1933 like cutting-edge technology in 1933 was the rotary phone uh and now we're using 1933 1934 statutes and a Supreme Court case from 1940 called uh Howie uh to regulate this entire new industry with massive massive energy uh the problem here is that part of crypto is investing that's great but part of crypto is using part of crypto is uh using tokens to show that you're part of something or that you can you have the ability to participate in this ecosystem or to pay for a service uh saying as the current Secretary of the SEC does that everything is a security might be allowable under that totally broad statute even though I disagree with it but is it right from a policy point of view having this uncertainty that Modi uh talked about where things are happening through piecemeal adjudications and enforcement actions rather than a comprehensive system of uh regulation in the United States is going to say to those Founders who we were talking about in the last panel in this one I don't want to take on that risk I have enough business risk I've left my job at this big company to be a founder and start something in crypto that's risk enough I don't want to worry about the SEC breathing down my neck so this is why I think having the president put together this executive order is important yet to be seen whether it results in the kind of comprehensive scheme scheme that I think we all want but having a unified approach rather than an agency by agency in state by state piecemeal approach is going to give those Founders at least some measure of certainty that they don't yet have if we are trying to predict what this comprehensive regulatory framework will include I think we have to look at what is the goal of security this laws why is this is he breeding at our neck it's not to prevent investors and consumers making bad investment decisions it's to give them enough information so that they are informed when they are making these decisions so the SEC wants token issuers to disclose as much information as possible so that whatever you are investing in you know all the risks at least you know whatever is information is available so I'm pretty sure that if we will have something coming from the SEC it will be heavily focused on disclosures and to be fair right there has been a lot of Fraud and there are a lot of bad incentives in the system um for things like icos then nfts now um there are a lot you know free Minds pre-sales all that kind of thing so I agree with you guys that they're you know they're in a pretty tough spot and what I'm wondering is you know with all this regulation um do you think it's pushing Founders to work in certain areas in crypto as opposed to others so for example recently um the Facebook meta uh group that was working on DM well part of them decided to Pivot to light spark to work on the lightning Network because it's clear that you know Bitcoin gets uh is treated um you know a little less roughly than a lot of the more security like crypto um is there any of that that you're seeing I think definitely uh when the SEC heavily went after token projects because there were investment contracts and securities I think that gave rise to the nft industry because there was an idea that maybe nfts are not security so that there's a lighter regulation for them and uh SEC of course then doubled down and said wait a minute some nfts actually may be security so it again depends on how you structure it be transferable if there is an expectation of profit do you fractionalize it um stable coin industry I think is is one industry that has developed a lot because there's some hope that maybe that part of the crypto industry is not regulated by the SEC again the SEC issues uh makes a speech saying that wait a minute some stable coins actually maybe Securities if you have an algorithmic stable coin you are noticed by the SEC the SEC is now very carefully looking at algorithmic stable coins because there's an active manager behind the stable coin and saying that look at the money market fund regulations and then compare your stable according to these money market funds that are securities so I think it definitely gives path to some parts of the crypto industry to develop more if it's if there's easier regulation uh in that tunnel you know Susan I would just add to that um I I I think we do have people uh injecting regulatory concerns into their design but I do not see uh people leaving the field altogether because of the regulatory uncertainty I do see people making jurisdictional choices because of the regulatory uncertainty that is where is my office where are my people to whom do I sell and the problem with that is it creates fewer jobs in the United States people in the United States who are consumers have don't have the the economic benefit of this technology and the systems that will inevitably be built are not being built in they might not be built in jurisdictions that share our values of making Hard Promises about you know Financial privacy um and other things but I mean some Evolution that we have seen is if you rewind the tape to 2017 um projects wrote white papers and said we're going to build this thing and we're selling our tokens to essentially Finance it right that's a security right it wasn't sort of uh absorbed by folks that when you uh when you turn over some value and become part of a common Enterprise and rely on some other people to build something that that's a security but it is uh today the types of projects and tokens and ways of working together uh you know responded to sort of the legal realizations that happened in 2017 uh and I think are much more sophisticated about not having uh tokens be in exchange for money and having uh Dows uh decentralized autonomous organizations run the entire show rather than having a small group of people that token holders can rely on they you know we won't go deep into the law but those are both uh sort of crypto ethos things decentralization and sort of broadening the reach of a financial opportunity but they're also responses to regulation because it's a security only if you're relying on the efforts of others if you're relying on the efforts of yourself and other token holders then that may be something that is sufficiently decentralized as to not be a security right I think that makes a lot of sense um Marie I wanted to go back to something that you had said about stable coins and how the government um you know has been putting together more of a framework for them do you think that uh you know with the coming regulation on stable coins that Central Bank digital currencies for example will take their place or do you think that no they're in completely different spheres and if so why it depends on if cbdc's are can be easily used on metaverse I think because on metaverse you need something that's that's native there and the tokens Can Be Moved without exiting the metaverse system going into the traditional banking system it's possible that the cbdcs are just um like a better version of the current digital money that we have now like if you put it on your lawyer hats and you think about money the real legal tender is actually only physical paper bills and coins that's legal tender uh if you sell me your hat and I give you digital venmo payment you can refuse it and say no I want my legal tender so in the future when the FED issues native digital dollars you cannot um say no you have to sell me your hat that's the difference and if the technology in the what the FED is creating is interoperable with crypto world that's amazing and then I think stable coins might may have to rethink why do we exist but I don't think that's happening so stable coins have this um place to do business with cbdc's I think the big big question is whether the countries are building bridges between their stable coins we can use the U.S digital currency with the Euro digital currency did you by the way hear that uh European Central Bank tapped Amazon to develop the pilot the prototype for the digital Euro and imagine if the Euro digital Euro and US dollar will be interoperable but then the Chinese digital currency won't or other way around if the Chinese and European will be interoperable but the U.S digital dollar want so the U.

S government has so much to lose with our dominant World Reserve currency status that they are correctly I think being being slow in carefully thinking how do we want to do this instead of being the quickest one to win the game yeah one quick um uh additional point on cbdc's I think I think that was a great great rundown and the legislation we are most likely to see uh most quickly out of Congress is one about stable coins so all and the president the reports on the EO uh touch on cbdc's as well but I have a in many in in the crypto sort of uh policy sphere have uh some serious concerns about government-issued digital money uh and they mostly uh Center on privacy because if if we have if we use the blockchain Techno blockchain technology and we are wallet based every transaction between you and me between me and another vendor uh a political donations uh charitable donations donations to maybe unpopular causes uh purchases of things that may not be in the government's favor are all potentially knowable by the government right I'm not saying they will be known by the government but it's like having that bold candy over the corner and say you you just can't look into that right but the government's like and as as an Alum of the government like okay we have this Treasure Trove of information a crime a terrorist attack you know something horrendous has happened should we crack into that right so if private entities like Circle uh are issuing stable coins like usdc and the private sector has come up coming up with privacy preserving Technologies I think that is better from a privacy protection and public policy point of view then uh than having the government create what is essentially a database of every transaction uh that folks are engaging in so I think that's a very good point and it is a huge concern that especially those uh who started out in crypto are very concerned about um to push back on that a little bit it does depend on you know what the goals of any particular government are right is it a democratic government like so for example uh Canada in its you know wanting to put together a cbdc environment is concerned about um you know Financial inclusion and like no we don't want to track people we want people to be to be able to use this without electricity or Internet like in our Northern Communities so like those are some of the policy goals whereas if you get to countries who you know have a lot to lose or who have um you know want to control who uses the money um and maybe even other countries that use the money um and like how can we use this as a tool for surveillance I I also understand that the you know if it's there it will likely be used but um you know maybe the private sector also has a lot of issues like well why is the private sector making a profit on government money um and I know Murray that previously you had talked about how well if the government issues you know a digital currency like what is actually the role of banks like can we get rid of them all together um other than I guess for Lending purposes yeah so what do we need Banks if we have central bank accounts and central bank money that's fully backed um that's a good question um why would you keep your money in a bank maybe the bank in the future has to offer you higher interest rate for you to keep money there they have to rethink the services they are providing because it's not anymore the place you can where you can deposit your money um regarding the data that government might see from your cbdc use you can also think the positive size if they can see that okay yesterday our citizens bought so much ice cream we are having a heart attack soon we can raise the tax on sugar tomorrow so we can make quick decisions also based on that data we can do it uh some good things also and maybe the private sector can then use the cpdc technology and create like like VPN style of networks where they're the government cannot see what's happening with their cbdc in this private Network so and I think that goes back to Gus's Point as well where we can you know make incentives for people to behave better but also is that the government's role and you know what if they use it for a bad purpose um so we have a couple of minutes left I just wanted to ask both of you you know what's one thing that if you could change about the current regulatory environment to make it easier for crypto companies to you know innovate um keeping in mind the risks as well uh what would that be if I could make one change I would ask the SEC to Clearly say when a token is decentralized enough so that it's not anymore a security I agree that if you sell tokens before anything has been built it's an investment contract but if there is a point in time when your token is no longer treated as a security and can be listed on coinbase for example I want to know what is that moment I think that's a really good one but I I also think that you know we we have a lot of focus on the SEC because the SEC has been the big dog in the junkyard and as we move from a world where we're getting our services from centralized businesses in offices with people to code on a blockchain I think we have to Define as a government and as a society what the rights and obligations are of that code on the blockchain uh I don't want to go down this particular rabbit hole right now with one minute left but we've seen a recent regulatory action against tornado cash which was uh which is it continues to be uh a service on the ethereum blockchain that obscures the source of funds people use that for privacy purposes and bad guys also use it to obfuscate uh how funds move across the internet is that code something that has legal obligations to report to the government I think uh we believe the crypto advocacy groups believe that uh that no it's it's it's autonomously operating software but there's a lot more uh uh specificity that we need in the policy making process around the Nexus between autonomous software and privacy and what is allowable I think that's a really good point to end on all right thank you very much um thank you [Music]