Hester Peirce Fireside: What's America's Crypto Future? | Hester Peirce - SEC

hey guys I'm MAC welcome commissioner purse it's so nice to have you here everyone is thrilled to welcome you to Denver McKenzie hello eth Denver great to be here thank you for having me and you know part of that has to do with the fact that people see you as you know the friendliest and staunchest Ally of the crypto Community when it comes to us regulators and I will say this I mean I feel like in this room the SEC is Enemy Number One and I think that people feel like you are the exception to the rule I don't know how lonely it feels over at the SEC for you but my my question is you know it's historically been this tenuous relationship between the agency and the crypto ecosystem to to you where does that relationship stand today is it still is it still pretty tense or do you think it's getting better like how how is the SEC doing in terms of its relationship to the sector well let me start by giving you my disclaimer which is that my views are my own views as a commissioner not necessarily those of the SEC or my fellow Commissioners um it's fractured it's it's definitely fractured and it's um sitting inside the SEC it's very frustrating for me to to to see that because I don't think it has to be that that way yeah and I I think that you know a lot of people there 20,000 people who came into Denver for this conference a lot of them are developers and Builders and the and the coders who are really creating this industry and I I want to start with how the regulatory apparatus intersects with the people who are building these decentralized applications and you know the perfect example of this is the is the broker dealer Rule and so earlier this month um at least as I read it the SEC broadened out its definition of a dealer such that it seems to kind of Encompass and ins snare defi uh within this new rule change and so I I think to a lot of the people who have come in they're Keen to understand how does this impact them because they think of themselves as Builders and coders not as licensable Brokers so that's a a scary change in terms of uh definitionally how they see themselves professionally no I agree it is it is troubling and I when we adopted that rule I tried to understand help have have the the staff who were recommending the rule to us help me understand how does this apply to an amm for example who has to register everyone using it um the developers well the developers probably not was the answer I got I don't like the probably piece of that um but you know the the whole concept of decentralization stands very much in contrast to what we're used to at the SEC which is we have a centralized entity that we can grab hold of and when you have just people working together and you have someone interacting with code instead of with a person or an entity it's a real challenge for the SEC to figure out what to do with that yeah and another part of this um you know this dealer rule that was just adopted is this redefinition of an exchange which could potentially impact people who are building decentralized exchanges and and so to people in the room here who are uh you know coders with and working on dexes what does this mean to them as you understand it so that rule is still out it's not it's been proposed and then we put out another um request for comment which really filled out how uh how it would apply in the crypto world and as I read it uh what it said is you better centralize you better get out of the us or if you don't want to do either of those you can shut down those are your options so let's hope that we get to a better place on adoption um but I'm you know I'm I'm really quite worried about where that rule is going to go where are we on token Safe Harbor because it's to those who aren't familiar with this um it's something that you conceived of back in 2020 I believe this this three-year window where you would Grant projects the opportunity to decentralize before the SEC would pursue action against them uh didn't get much traction internally within the SEC representative McKenry tried to fold it into a bill that again did not make it uh you know that far along but it seems like a great idea so I mean is there any hope of like potentially uh incorporating that into the apparatus in some capacity I mean look right now we're sort of in an enforcement only mode uh really other than some of these rulemakings that you mentioned that touch on crypto though they're not really directed at crypto um but you know I think with ideas like the token Safe Harbor which really the idea is just look let's get some basic disclosure out there and then let's allow projects time to get to that decentralization point ideas like that which people are welcome to iterate on and some people have already um we really need to work on those kinds of ideas and have them ready to go I always say well maybe Cher G will Ganser will wake up tomorrow morning and have a have an epiphany and we'll be in a different place so we need to have ideas on the Shelf ready to go when that happens uh the SEC has brought a number of enforcement actions against major players in the space you've got coinbase Unis swap now generally speaking you have made the point that this heavy emphasis on enforcement is a mistake uh when the SEC doubled its capacity uh on this front you like put a tweet out there that basically asked why are we leading with enforcement in crypto and my question to you is what's the alternative at this point I mean there are no Harden fast rules coming from Congress so what do you do well I mean I think you don't go after people who are asking you for some clear rules around how to proceed in this space I mean obviously I think everyone in this room knows that there are lots of fraudulent people out people who are who are engaging in fraud in the name of crypto and there may well be room for us in that area we've brought a number of cases in that area and that makes sense but when you're talking about registration violations because someone has touched a crypto asset that we then come in years later and say ah that that is uh security um it just it seems pointless because you're you're you're bringing a case against someone where there's no allegation that anyone was hurt right so this is just strictly about compliance with a registration obligation and I'm not minimizing the importance of of registration obligations but if you're not willing to tell people what a security is it seems it it just seems very unproductive to go in after the fact and and just start picking people off for not having [Applause] registered now you made the point a minute ago that you know you need to have proposals waiting in the wings in case you know chair Gensler wakes up and has some sort of epiphany and uh changes his view on how he sees the space I think many in this room would argue these are not my words that uh he's made it his mission to end crypto and in some capacity but my my question is more about how does the SEC get more comfortable with this sector does that come from a change of Commissioners of the chair uh change in the white house where you have a turnover in priorities in terms of how they're Staffing the SEC and and one one note that I'm going to make here is that I know that chair gensler's term ends naturally in 2026 but typically what's been the case is that if you have a you know a turnover in the White House that results in a party change a chair will typically tender their resignation just noting that but anyways back to my original question like what does it like take to change the tide at the SEC I really think it takes us sitting down and reminding ourselves of what our role is and our role is not to necessarily even get comfortable with crypto our role is to say hey our job is to figure out where the Securities laws are implicated um to try to help people get disclos closure where there are securities and then let people make their own decisions it's not our job to tell people crypto good crypto bad um let's let let's let the market decide let's let people decide and I and I think it's really reminding ourselves of that core role um that that it will take and I'm not terribly optimistic that's going to happen tomorrow but we got to keep hoping yeah you know I feel like crypto has become this partisan issue in the United States when it really didn't need to be so you've got Senator Warren who was you know firmly in the camp that's anti- crypto and then uh you know former president Trump has recently softened his stance on on uh the crypto space made some comments about Bitcoin that we're seen as neutral to positive and I guess my question is how important is crypto going to be in terms of um being a fixture in US elections we're headed into a major election cycle this year um also do you think it's troubling that it seems to be such a partisan issue nowadays well look I think there are people on both sides of the aisle who feel strongly one way or the other um so I I like us just again to take us back to what we are as an American people and what's important and those principles are ones that people on both sides of the aisle I think can agree to which is that we're a country about people making decisions for themselves and their families they know best they know their circumstances best they know their limitations best and their strengths best um um and it it really isn't about the government coming in and telling you what you can do with your life the government is supposed to work for the people and that's that's a fundamental American principle risk-taking right we're we're supposed to be a country where people are willing to take risks and I might not be comfortable with the risks you take and you might not be the Comfort comfortable with the risks I take but we're supposed to be about letting those risks be taken so that you know we can move forward with Innovation if you if we all want to Bubble Wrap ourselves um it will be a much less interesting country and I think very different from what we set out to be you know yeah in the last year the SEC has lost a lot of court cases I'm thinking about grayscale I'm thinking about Ripple uh how is that going over internally are some people happy uh that a court intervened to kind of change the Direction well again I can only speak for myself and say and and I I can't talk about any ongoing Enforcement cases but what I can say is is look the grayscale case basically gave us the option of approving a Bitcoin exchange traded product and it's it's remarkable to me that it took a court to tell us that we had to do that um I started in 2018 the that summer we had our first Bitcoin exchange traded product come before us as a commission and I thought back then which was quite a long time ago now we should have said yes to it um and it took how many years six years in a court to get us to a yes and that just isn't it's not how it should be right yeah I mean I I think a lot of people you know in in the absence of a Court ruling in favor of grayscale it seems like it wouldn't have made it to the Finish Line these spot Bitcoin ETF and some people make the point that you know you could have saved um investors a lot of headaches in terms of having a safe vehicle to invest in the space that's you know an established pathway you know instead of going through a lot of these um you know onard the on and off ramps to crypto can be problematic we've seen that in terms of security and and and issues in the last few years and this could have been a safe alternative um but kind of staying on this issue of a spot ETF so you know spot Bitcoin ETFs we've seen a lot of uh we've seen a lot of flow since they were approved where are we on an ether spot ETF well I'm going to use the lawyer's answer again and say it's under consideration at the SEC so there's not a lot I can say on that though I'm sure people here are interested in finding out what's going to happen is it going to take more Court intervention to get that one to the Finish Line look you know everything is a facts and circumstances determination I think you all can go back and read the um statements that came out at the time that the Bitcoin exchange traded products were approved um I actually think those I I commend those to your reading commissioner crenshaw's statement I think gave a real window into her thinking on crypto um and chair gers gave a gave a window into his thinking so I I I commend those to you to get a a sense of sort of what we're the world we're in right now yeah uh now I know that you can't get into the specifics of ongoing litigation and uh coinbase is still uh you know uh at odds with you guys in the court system but what I I do want to ask you about is that there was this huge freak out yesterday and uh coinbase is characterizing what happened as an outage uh what users saw was that a lot of their account balances going to zero and my question is is it is there a regulatory role here for the SEC in terms of navigating that kind of Crisis scenario well look I think one thing people in this space should be aware of is if you come to us when something goes wrong and you say where were you why weren't you there then what you're saying is we want you to be there right so you have to figure out what the balance is do you want us there or don't you want us there and I think we as a as a country need to figure out when do we want a regulatory framework um for something and when not I sort of approach things as as may be evident um not concluding that regulation is always the answer you can you can do a lot without the government being the one doing markets regulate right if you know markets regulate people's behavior so you don't always need the government to step in um what drives me crazy is when people are like government stay out stay out stay out and then something bad happens and they're like government why didn't you protect me why didn't you tell me not to invest in this so you know with freedom comes responsibility yeah and on that point um you know like you spoken into the fact that with crypto companies leaving the US they're doing that because there isn't any sort sort of established framework there are no hard and fast rules there's this concern about um you know facing litigation after the fact and the issue that comes with uh with firms decamping from the US and and operating elsewhere is that you still have us users who are going to these platforms but what they miss is with that is like any sort of regulatory oversight where you can step in and and and provide more consumer protection so it's kind of this like Catch 22 almost yeah I think you're pointing out something really important which is that some of the choices I think that the SEC has made are very strange from the perspective of people who favor regulation as a solution because when you push entities away from the US you're actually pushing them outside of the the um control or the the you know the reach of of of regulatory agencies in the US so it's a little bit strange and I think actually the regulatory approach we've taken is is through enforcement is also strange because if if you really want to sort the bad behavior from the good behavior um having rules that are clear to people who want to follow them or is a much a much better approach than doing this you know parachute in later with enforcement you know one thing I will say is you have countries like Singapore um the UAE The Wider EU with MAA who who have established uh through legislative bodies these these hard and fast rules but they're not really enforcing them and and what I will say for the SEC and and the cftc and other uh Regulators here in the US is that they're they're the top crypto cop on the planet and so they they at least to my view they seem to be the only ones actually enforcing rules on the crypto space uh which I mean somebody's got to do it I mean it's an interesting point I think again it depends what you're talking about right if you're talking about frauders who are ripping people off certainly I think we want someone to to be there there to uh to in to go after those kinds of people um but look I still think we're better off sitting down and thinking through what regulation makes sense in this in this area and that should be a conversation it shouldn't be um a one-sided a one-sided conversation through read our latest enforcement press release yeah I mean thinking more broadly I know that a lot of people uh there's this chilling effect when tornado cash sanctioned a protocol for the first time ever there's a dust attack soon after to show how unenforcable that kind of sanction was and then you saw the the developers these open source code developers um you know facing legal repercussions one of them was jailed in Amsterdam two others like uh were dealing with the US legal system and I guess my question is is that it feels like a scary time at least this is what I'm hearing from some coders it feels like a scary time to be working in open- source code people who previously felt comfortable uh being on stage speaking at panels at an event like this don't want to do it especially not in the US like I've talked to a lot of people when I've been reporting overseas that just don't feel comfortable being here because they just don't know what waits for them uh in terms of being persecuted for the work that they're doing in open source yeah no I think you're raising an important issue I can't talk about again any particular cases but I can say that that's one area where I think it's really important for people who are um who are in this space to be thinking about how can we protect um developers when they're writing code the implications of building a permissioned regime where you have to get permission to write code are terrifying right and I think we really need to be very Vigilant that no regulator is coming in and saying hey you need a permission card for me before you can write code um if we don't get this right now we could have a big problem down the road yum so I want to go to this conversation about stable coins and cbdcs it's really heating up do do you think that in the US a cbdc is a foregone conclusion and do you think that there is space for a cbdc to coexist with these US dollar pegged stable coins I certainly don't think a cbdc is a foregone conclusion I will say this a little bit outside of my remit um it you know that's a Fed issue not not an SEC issue but again I think one of the in my spot at the SEC one of the areas that I have grown most concerned about is the expanding use of the financial system to surveil Americans activities and um that is where I I look at something like a cbdc and I say we we again really have to be extremely careful um that we're not empowering the government to watch what you're doing in your in your financial lives if there's no reason to suspect you're doing anything wrong or even worse to be able to stop you um from using the financial system um which you know obviously is something that people have a concerned people have raised with cbdcs so I mean that's again it's outside my purview except to the extent that I think Financial surveillance is something again along with this idea of of protecting coders ability to code we have to protect Americans right to live their lives without having um the government watch everything you do yeah China has has been a really early mover in the space and there's certainly a lot of concerns around some of the surveillance uh you know issues that come up when you have a a centrally issued virtual currency uh moving on How concerned are you when you see huge price run-ups like the one happening now in terms of the Bitcoin and ether price appreciation obviously this is um this is cyclical roughly every four years we see this kind of bull run but it also is accompanied by rug PS and a lot of schemes like is this when uh you start to see enforcement actions really pick up or are How concerned are you right now well look you know the market can speak for itself and people can make decisions about what they think it's worth to pay for something and and that's that's really not my spot as a regulator what I will say is that I'm always encouraging people no matter what you're buying be skeptical right that's always what you should do you should ask questions um that's just a a valuable thing to keep in mind for anything that you're you're buying and um and and certainly you know be on alert because you're right when the market goes up the frauders um hop in and so that's that's something we all have to watch out for people are in this room so many of them are Builders or developers and I I think that what people are Keen to hear from you is how should they approach building in the space right now well look I want you all to be able to look at the world see problems and think about solutions to those problems and it actually makes me I it's nice to be here because there's a lot of optimism here and I I like hearing people being excited about what they're building but it makes me a little sad that a regulator is sitting here right right now because I think what I reflect is the fact that you all are spending part of your brain power thinking about how do I build this in a way that sort of avoids those areas of regulatory ambiguity and again if we had clearer rules you could focus your time and your energy on building what you're building knowing what the rules are so that you could stay on the right side of those rules um and so I guess you know my advice is help me think through what a good regulatory framework would look like um and I I really think that we can get to a better place in the United States it's taken a lot longer than I or probably you all want but I I do think we can get there if we work together and think about what would make sense um so that's my my request of you how do people reach you if they have ideas about what a regulatory framework should look like what's what's the easiest way to get in touch with your office or you personally um commissioner purse at sec.gov is is a way to get in touch with my office and I will say when I travel to uh different places I mean you're welcome to come visit me in Washington of course but when I travel to different places I usually post that on on Twitter x uh and and I'm happy to meet with people uh where you are so please do take me up on that it's always um it's great to hear from you oneon-one or a group of you together um so I appreciate those of you who have already done that um been willing to take time to talk with me and I hope I hope others of you will do the same what is the biggest thing that you want to have happen in this calendar year with respect to the work that the SEC is doing with crypto is there a rule change that you're after I like I just love to hear a more productive tone coming out of the SEC when you uh when you say well this this whole industry is Lawless you know that's not really a great way when you say well just come in and register with us okay well then let's have a conversation about what that actually looks like so I'd love to see a little bit of a more productive uh tone coming out of my agency that's not much to ask for anything keeping you up at night I mean lots of things keep me up at night but you know one of the things that keeps me up at night which I think this technology can actually solve is centralization means that you have concentrated risk decentralization can actually bring resilience and strength to the financial system so I'd love to see more resilience and more strength um points of centralization always keep me up at night thank you so much commissioner for joining us into the [Applause] audience so much that was wonderful um decentralization will be