What To Expect in the New Era of Crypto Regulations | Greg Xethalis | Miller Levine | Chris Grieco

[Music] okay hello everyone up next we have a panel that will talk about regulation laws and legality in crypto and what that next era of crypto regulation will look like the panel will be moderated by Gerald Gallagher from say Labs with a panelist full of people who probably look familiar from crypto Twitter and what they've done throughout their careers I will let him introduce his panelists once they're up here and enjoy yes okay this yeah this all right there we go hi everyone um um so we are a panel of attorneys keeping you from happy hours so really really appreciate uh everyone sticking around uh this afternoon to hear us talk about the future regulation uh as it relates to crypto in the United States so um I'm Gerald Gallagher I'm general counsel at say Labs we're a layer one blockchain scaling the evbm um I am joined today by uh V Le of Anchorage digital Chris uh Grio of rain car s Jay stoken of multicoin capital and LZ Piper of the defi education fund and uh so so yeah yeah so it's it's obviously been like an incredibly uh busy time um and uh yeah I guess maybe I'll sort of ask a first question and then let the panelists also maybe give a little more uh context on themselves um it's been frankly like hard to keep up with the of developments you know just this afternoon uh there was a bit of a revision to uh the legal understanding of meme coins that was put out from the um we had the the bybit exploit uh about a week ago now um and just a lot coming out of Washington and uh and a lot on the uh litigation side as well um so panelists yeah I I'll turn it over to you um and maybe we can start with with UV like uh just a bit more about yourself and then also just uh what you think about you know the uh so the recent developments um and how that's impacting our industry yeah I mean it it it I think what's happening right now is not just like a reset of the approach that we've seen to crypto regulation for like the last four plus years it's also like an unwinding of a lot of what's happened right so you see the SEC dismissing cases and investigations um really starting to engage with industry really for the first time um Congress is really committed to passing stable coin legislation Market structure legislation you have the White House setting up its own um presidential working group right so all of these efforts I think just reflect a totally new approach to crypto regulation so I I mean I think it's like very positive obviously for the industry um and legal regulatory clarity is on the horizon which will be like good for everyone in the space yeah I mean I I would Echo that I mean I think it's important that these things are done and they're done it's actually surprising how quickly they've moved on some of these things reversing the last four years but the the things that have happened thus far I think are relatively easy and it's not to say that uh you know as I said I'm surprised that they've moved so quickly but um I think the bigger tasks and the bigger lifts are going to be on the legislative front some of the stuff that that's coming out of the SEC is really promising but it's not really necessarily enduring and so there still needs to be a bigger framework in place for some of these things and uh you know most of the the things that the SEC was charging in in the previous administration have a five or sevene statute of limitations and so just because they're the current secc is not as uh as angry at crypto doesn't mean it a future Administration couldn't take that out if we don't don't get something more enduring yeah not a ton to add other than I think what's been interesting is what we're seeing particularly out of the SEC thus far is not necessarily par for the course with an Administration change for instance it's not typical for a new Administration to just straight up dismiss suits that were levied by the the prior SEC more typically you would see settlements um and and ongoing discussions and the fact that this current commission is just dismissing suits against large players in the crypto space as a positive signal but Echo the sentiments that were just at the beginning here we don't know how things are going to shake out and that um you know the work is really just starting in terms of the industry engaging with both agencies and Congress to ensure that we get concrete guidance and uh legislative clarity as well yeah you know I don't think I have too much more to add to that I think that uh with Securities laws we're seeing uh things move pretty quickly um and as Chris said that seems to be like kind of the easier stuff um I will say I am very curious to see where things go with bank secrecy act things uh like tornado cash um but as of right now I think the sentiment is pretty solid you know with the crypto task force that came out um and the request for information um I feel like that's a pretty promising thing yeah one of the reasons that I was really excited about this panel is the the variety of viewpoints we have right so we have custody we have payments uh or at least payment rails we have investing and and we have policy um I want to go back to probably one of the things that you know this a very Builder focused event right and so we want to we want to be able to talk to Founders about how this actually affects them given this new kind of uh sort of meme coin guidance or at least uh the chance at some more regulatory CL Clarity um and maybe maybe just overall less regulatory pressure Jay like how does this affect how you guys look at things at at multic coin you guys just going to be aping into to meme coins now or like what what does that look like how does that change the landscape for you guys I mean it's all of it is is positive right I think um you know it it's it's it's a great indication that Congress and the agencies are willing to move forward and provide actual guidance in terms of what that means for the investment process at the moment I mean I think we're we're still very much in a wait and see um you know situation where we need to see how things are going to firm up um you know I think historically when you talk with potential portfolio companies and potential Investments all you can really look for is are you at least thinking about the regulatory issues we know that you don't have a perfect answer for all of these but are you at least thoughtful in your approach have you have you engaged good count coun are you thinking through the regulatory issues are you thinking through what jurisdictions you'll be able to serve given the products that you're proposing to launch um and I think now the the the risk of enforcement uh against these companies is less but you know we're still going to be looking for uh companies to be taking a thoughtful approach and as things firm up um you know we will actually be able to engage further in sort of legal due diligence in the sense that if we have it as to how a certain product can launch and serve a particular jurisdiction we'll be able to look deeper into whether or not uh you know the project is is coming into compliance with applic applicable regulation so I think you know moving out of the gray space is is going to be great for investing it's going to open up all sorts of new opportunities for for regulated projects and for compliant projects and um I think overall from a due diligence Pro uh uh from a due diligence perspective this is this is positive yeah and and Chris you guys um I I think maybe just talking a bit more about you know what rain does but you guys are incred incredibly close to Founders right and so maybe this um uh you know I I think you have some takes on on essentially how we could be looking at compliance and whether or not things have really changed yet like does this impact at all the way the way you guys will work with with companies or Partners yeah uh just for background so I work as general Council Rin where a stable coin back Visa credit C card issuer um so I I mean I think there are a lot more projects that are going to come online we're going to have uh people that are looking to you know incorporate payments into their their product road map um you know in terms of what's going on on a regulatory front like I don't anticipate huge over overhauls of like the BSA or uh you know sanctions regime I think there's very promising signs with some of the hearings that were had on on Deb Banking and maybe there'll be tweaks but like you know if you're operating in the payment space I think the idea that you're not going to have to kyc you're not going to have to abide by sanctions screening or something like that like that's not going to change in the near future and so I think you just have to be prepared and that is kind of a a dichotomy for many Founders you know a lot of D5 Founders are just kind of opposed to kyc and want it to be uh a little bit more open than that and I think that's something in the US and and internationally you're going to have to kind of contemplate as as you're developing what kind of product you want to operate with and V you guys at at Anchorage are are one of the few I think kind of like industry sort of standard bearers in the the custodial space um and there's been I think obviously the repeal of Sab 121 was was hopefully uh positive direction for you guys like uh but there's still a pretty big lack of clarity around uh you know custody of digital assets do you see anything coming on the horizon or is there anything you know that's that's going to change how you guys operate in in the the near future yeah so we're we're really uniquely positioned because um I mean this is crazy to say this like this many years into the industry but we're literally the only crypto company that is federally regulated and it's because the OCCC under the LA the last last Administration um took a very different approach from all of the other Federal Regulators where they said okay this is a new asset class it's a new technology but let let see how we can work with like a crypto company to figure out um how they can offer these services in a way that is safe right so like not risk elimination which is what other Regulators pursued but like Risk mitigation and as a result of that like we've been able to build like a successful company and the OCC has gotten all of this experience actually regulating a crypto company we want to see more of that right obviously hopefully the next few years will bring more productive working relationships between Federal regulators and crypto Market participants um you know obviously the things that we're very focused on is making sure that any legislation or regulation um contains like custody standards that are pretty rigorous um you know people think of custody as something that's very straightforward and maybe it is for certain kinds of tokens um but actually it's it's much more complex from both a technological perspective and a compliance perspective than um most people would think especially when you're talking about like the more esoteric tokens out there so that's one thing that we're really focused on um and then you know like obviously our clients span the entire crypto industry so we want Clarity for them um yeah I I think one of the uh sort of sort of uh you know uh through through tones of uh the way everybody is operating now and you just sort of highlighted it uh is the previous administration versus what we're dealing with now and sort of the uh the feeling that there's much more of an open door policy with Regulators Laz you guys obviously deal directly uh you know with with legislation you know you guys have have done um you know you guys have have sued the SEC uh directly um maybe just tell us a bit more about like what defi education fund does and and also uh have you guys seen the shift I mean is it truly that sort of Paradigm like just the previous administration and the engagement you guys were to have versus now like how does that impact what you guys do yeah so at the defi education fund we meet with uh lawmakers representative Senators um and we educate them on defi um and so you know that's we've had allies in Congress uh throughout even like the past administr or the past Congress and um but I think that's growing broader and broader um increasingly there's an increasing support in Congress for uh for Defi and to kind of leg is late things a little bit differently cuz we have to consider of course that we're dealing with software here not intermediaries in the traditional sense um and then in terms of from the executive branch you know we we were dealing with a very hostile uh Administration um and now there's one that's in place that now kind of has more open-mindedness with it uh we can see that with the crypto task force but also the executive order uh that came out in January um and so it's kind of a little bit refreshing to um be able to you know at least work with the white house instead of against it yeah I uh I think it's it's super interesting work and and it it also reminds me I think um you know we've been coming at this from a very us-centric perspective but obviously e Denver has become something of a a global sort of crypto conference and different jurisdictions all over the world have have dealt with this very differently whether it's MAA or something like Vara is trying to do in Dubai um you know uh lot lot of different approaches out there and a lot of different options for founders do you guys think that we're going to get and this is sort of just open to the panel do you guys think we're going to get more certainty uh for Builders here in the states in the in the near term do you think there's anything that we can potentially borrow from other jurisdictions uh like how do we keep the ball rolling here I mean I can be the downer and say I I don't actually think we're going to get real Clarity uh I mean we might have uh something come out from executive branch agencies R making something like that but that's not actually as enduring as legislation and I'm pretty pessimistic on their legislative front just because of the nature and the makeup of the current Congress like there's a very slim margin in the house and a even Slimmer margin on uh on the crypto front in the Senate so I mean I that's not to say that like you can't build in the US I think that obviously the environment is going to be much better over the next few years um but in terms of like real enduring legislative Solutions I'm I'm pretty pessimistic on that I'm curious does anyone on the panel have a good idea of maybe what we'll get to first or is anybody optimistic about you know whether it's Market structuring or tax Jay you look like you have something to add I think it's possible we get stable legislation or stable coin legislation in the near term I think Market structure is going to take some time to sort out and I think that's okay because I think we need to think very carefully about it um you know this could be our our best and only shot off goal collectively as as a Wii and so I think to answer your first question what I would say is I think it is possible I'll be slightly less pessimistic I think we can get incremental progress here I think we can get stable coin legislation and even putting legislation as aside I think we can get a lot of helpful guidance from executive from executive from the Executive Branch from the agencies from the SEC from the cftc from the Department of Treasury um but it's going to be incumbent upon us to ensure that happens to make sure that we really drive the ball forward that we work together that we approach the agencies in congress with uh a unified front with specific asks with proposals for legislation rather than just asks I mean I think it's it's very important that we um coordinate well across the industry and approach the uh these agencies with concrete asks as early as possible so that we can actually get the ball rolling yeah I think like one thing we hear a lot from Congress when we do policy work is like okay we get it you hate this proposal but like what's your alternative right we hear that a lot especially when it comes to um a lot of the BSA and like elicit Finance yeah legislation or legislation that touches on that um I think historically the the industry has not done a great job of actually putting forward good ideas on that front but it's I mean I get it it's hard it's one of the most complex areas of crypto like regulation right yeah I continue to believe that that's the most difficult and and pervasive issue that we have I mean it's it's fun to talk about Securities laws issues and commodities laws issues and they're relevant and important and they've been plaguing the industry for as long as I've been working in it but the BSA uh and compliance with the BSA is is the hardest issue to deal with and it's much less partisan or sorry in in the sense that everybody cares about it right so um I think that uh where on certain secur Securities laws and commodities laws issues we may be able to appeal to one aisle or one side of the aisle um on the BSA front that's that's less likely yeah and I oh sorry but I also I I don't have much to add in terms of what everyone else has said but I will say that I think it's it um it's a little bit surprising from like the EU that they were just cuz they're pretty regulatory friendly or not friendly but aggressive uh that with ma they really just focused on custodians um and left out D5 for later and I think that's something that we still kind of need to do here because you know as as my colleagues have uh really said I think that it's it's just really not an easy answer you know especially with like the bank secrecy act and things like that like it's you know we have sof we have software not really intermediaries anymore and so like how does that look when you can't really collect information on your users um nor nor should you be forced to if you're just developing software yeah I mean I would say the the BSA and kind of the National Security aspect of crypto is the most dangerous thing going forward right so you have a huge uh outpouring of uh support from Republicans but if you think of what could split a lot of Republicans off it's some of the national security stuff like you know1 and a half billion dollars going to North Korea so that could very easily split the kind of uh you know Coalition of folks who are working in favor of crypto and so like making sure that protocol call security is is uh more buttoned up making sure that you know money and and tokens and whatnot are not going to Bad actors uh you know it's something that will continue to be a problem for us uh I think but like yes like coming up with Solutions is is Paramount in trying to solve it yeah I think it's just important to hammer home that it's not a free-for-all now and to the extent that people start treating it like a free-for-all in the early months of the administration that's going to make things much harder um over the next four years and so um yeah again just it's it's kind of incumbent upon the industry at this point to demonstrate that uh you know there are good actors and that there are folks who want legitimate regulatory Clarity so that they can operate in a compliance manner in a compliant manner yeah I think uh it's it's interesting like we've we've talked about you know crypto is a a bipartisan issue right um it's uh uh there but there's there seemed to be kind of some lines drawn um you know that that maybe uh get more steam with with one party or the other Laz I want to go back to you like uh you know V talked about actually meeting with regulators and and obviously being a federally regulated business but for you guys like it's it's in the name right like defi education fund and one of the things you know we live in a bit of a bubble you know in in crypto land uh you know we haven't discussed the nuances of like staking versus staking as a service and how that's regulated although it's like an incredibly important sort of regulatory issue when you guys are meeting with legislators uh whether it's on the Republican side or the the the Dem side um what do you find are the things that maybe if Founders want to approach you know whether it's through like initiatives that stand with crypto have done or something like what you guys do or you know blockchain Association which I I think we're all members of um um what is what does a Founder need to uh what does an industry player need to educate the legislators on like where are you seeing those gaps and then what can a Founder do you know if they want to drive home that this is an important issue for them well I think you got to remember that you know folks in Congress deal with who knows how many issues on a daily basis and so they're con constantly being pulled into in all different directions and so it's really hard to become an expert in one thing and so um I think you know when we meet with these representatives and Senators uh they really are these like defi 101 demos um where we just show them how it all works because they don't really understand how software can allow peer-to-peer transactions and that there's no third party that's moving money for you and so a lot of a lot of uh lawmakers are really at a very infant level of understanding this stuff but I think like as a Founder if you you know if you really want to make a difference uh you know we like reach out to us we we like bringing Founders onto the hill to meet their representatives um and their senators and so that they can explain you know what they're building and why they're building it um because I think what a lot of you know folks in Congress want to see is or what they want to know is what's important to their constituency um and if you're in if you in their constituency and you're building something that you believe uh benefits the world then they want to know that yeah I uh I know where where uh coming up on time but I'm very curious like we have three really unique perspectives just in terms of an investor um a huge partner and vendor and then obviously a custodian um I want to touch on some of the other structures right like uh that that are out there for Founders you know some Founders might get legal advice that oh you need to setup in Cayman or you know oh maybe you need a Duna right which is is a very interesting sort of new thing that's coming out um and maybe we'll start with Jay like is does it make a difference the way a Founder sets up their project in how you guys approach investing in them and and looking at them like how does that affect your process and then maybe just yeah V and Chris as well I the short answer is yes but I think what I would say is you know there are various structures that have emerged as pervasive over the last however many years and we don't necessarily say it has to be one of the it has to be a Cayman Foundation or it has to be you know a disappearing foundation with a Panamanian subsidiary or you know 14 different entities across spread out across South America right we don't what what we look for at this point is you know do you have a structure that makes sense that was you know thought out you have good Council advising you so I think to answer your question and and one other thing I want to hammer home at this point is you know we are not yet at a point where exploring new exotic structures for launching within the US um has become viable just yet I think we'll get there and maybe we won't need to have so many offshore foundations and weird entities involved in our corporate structures but we're not quite there yet right and and I think Reinventing the wheel at this point is a bit premature so anyway to answer your question I mean what what can turn turn us off from an investment is some bizarre corporate structure we've never seen before that is somewhat inexplicable and hard to unwind right so I think uh yeah do that answer question Yeah Yeah Chris go ahead I was just going to say yeah I mean I think that's important is right now there's hope that there's going to be change in the future so there's not really that change yet so I think you want to as a as a Founder you want to keep yourself flexible and don't do something that's going to be really hard to unwind like create some kind of very convoluted structure that's going to you know be impossible to to switch out of once there maybe is uh a more streamlined solution and then you know if you're a founder and you're trying to build something that's durable you should talk to a lawyer at the very beginning that's someone that is like a real expert in the type of product you are trying to bring to Market and not kind of just a general kind of corporate lawyer who may know how to incorporate a Delaware curve or something and I know it can feel expensive and slow at the beginning when you're excited to to launch and and get formed but I can assure you that it it's much more expensive and much more consequential if you know two years in you realize that you've entered into a structure that's very difficult to unwind and is is going to make your plans going forward very difficult yeah and V I want to uh I know where're it's we're almost up but uh finish the best for last are uh is trafi coming are are you thinking oh they're already in the chat yeah they're they're here look you know I think they've largely been on the sidelines because of the lack of regulatory Clarity um and I don't necessarily think they're even waiting for that they know it's coming and so they're yeah they're diving in Big Time exciting times exciting times hopefully uh price can correlate with policy uh a little better at some point in the future uh please join me in thanking our panelists uh thank you for your time and and hope you guys enjoy the rest of uh eth dener [Applause]