Bank Connectivity: Crypto's Biggest Challenge | ETHDenver 2023

uh our next speaker we know where we love her our friend from the north does anybody know Caitlyn long Caitlyn has been around the crypto technology Bitcoin blockchain scene for as long as I can remember I remember when I first met her we were talking about this idea that she had for a crypto friendly Bank and if you know anything about recent events you'd understand why she needs a little time to vent so he's come down from Wyoming and I said you know we're gonna have a little therapy for you so she's gonna spend some time telling you how she feels about some stuff Caitlyn bring it thank you thank you thank you thank you all right how long are we going like 15 minutes 20. all right I'll leave time for questions as well uh well it's an interesting time in our space I assumed that by now custodia the bank in uh in that's headquartered in Cheyenne would be open but we've had a little hiccup like so many have had and for the longest time you know it's so interesting in the ethereum community the focus has been mostly on the SEC in the U.S with regulatory issues but I my fear all along has been that the bank connectivity of this industry is where the single point of failure is Ryan selkis at massari has been saying that in his annual reports for the last couple of years and it's unfortunately proving out to be true that the bank connectivity is is is is among the biggest issues if not the biggest issue in this sector a lot of venting tends to go towards Gary Gensler but I bet you most people don't know who the head of the FDIC is and he's actually I think in many ways from what I understand had a much bigger impact on this industry and he's just not out front so he's not getting all the all the shade on social media that Gary Gensler gets but how are we going to solve this and first of all let's step back and ask the question why are we bothering because in this industry especially in the ethereum community there are so many other uses Beyond money and the question then becomes do we care weren't we supposed to be replacing the banking system and the answer is eventually I think yes but that we're not ready we have so much infrastructure billed that we still have to do in this industry before we get there and I think if we went overnight to a transition from the old Financial system to the new one it would be a deflationary depression and nobody wants that so I'd much rather see people voluntarily moving with their feet to the new world and coming into the this technology with infrastructure and ux designed to be able to bring in even those who are not comfortable with the concept of self-custing their coins or even using any kind of Technology we need to be able to have infrastructure that brings those folks in too and we're not there yet we're not even remotely close to that so we therefore need to be able to keep connectivity to the old traditional Financial assists in the US dollar system in particular now necessity was the mother of invention because tether was in some ways created the last time we had debanking for those of us who've been around in this space for a while this is my third bear market and in each of the previous bear markets there was debanking in fact actually I remember back in 2013 2014 bit pay and consensus or and coinbase were about the same size and coinbase obviously massively increased its market share relative to bit pay they went in different directions bitpay of course was was focusing mostly just on payments which was originally what coinbase was focused on as well coinbase ended up building the exchange and the rest is history but the reason I'm bringing up that that history in our industry is that coinbase lost its Bank relationship during the debate debanking wave post mount gox in 2014 and it was Silicon Valley Bank this is all publicly disclosed I don't have direct knowledge of it but it's worth again sharing the history Silicon Valley Bank pulled back from serving crypto companies and coinbase was able to Pivot quickly and the rest is history the ability to maintain the durable banking relationship ultimately chose who the winner was in this space and that was not what people were thinking not what what folks were set up for back then well guess what then it's what we're facing now I'm afraid but but let's go to the next bear market so the 2014 bear Market was the debanking of coinbase the 2018 bear Market was the debanking of tether and we know what happened when tether got debanked it was actually bitfinex in particular tether was created arguably as a reaction to that and so that's where I'm going the last time we saw this kind of debanking in the industry necessity was the mother of invention and a means by which to get around the US dollar just Chokehold on the industry was stable coins and of course the rest is history and the stable coin Market has obviously taken off now this time I think so what's interesting about the debanking wave custodia my company was at the very front of it and they shot the proverbial stallion to scatter the herd but since since January 27th which was our horrible day uh every there there have been actions taken against every stable coin issuer and part of the reason I think they might have gone first with us the FED wanted to go first before the SEC we of course had an application in front of the FED but then the SEC went after all the other stable coin issuers and here we are so for now we're still not sure what the end game is here there are of course for those of you who are watching silvergate um is unfortunately in a in a pickle don't we don't know how bad it is uh there were rumors that it uh that there were Bank Regulators showing up there this afternoon but that doesn't appear to be truth thankfully for them I've said publicly that our industry wouldn't be where we are if if it had not been for a couple of banks that had the guts to stand up and say I want to bank this industry back in 2014 2015 of which silvergate was of course won so we'll see how this all shakes out it's not over yet um but I think two things will come out of it I can't wait to see what all of you engineers build because the next version of tether if the if the US dollar connectivity is is really getting getting choked down what are the engineers going to build to get around that there will be a next version of this to deal with the fact that the bank Regulators don't seem to want private stable clients in the U.S they're of course green lighted in every in most of the G7 countries right now but most of the people want have voted with their feet to get US dollar stable coins that's what users want um I thought it was interesting the the case study was was written up about Venezuela a couple of years ago during the hyperinflation there were people mining Bitcoin so that they could get usdc and tether because the US dollar was what they were really interested in not not Bitcoin um and and so that shows you people have voted with their feet in unregulated markets to go for US Dollars will they keep those US Dollars uh it's it remains to be seen those of us maybe the joke was on us for dealing with Regulators I always thought that was the right way to go because ultimately every US dollar has to settle through the Federal Reserve even if it's offshore um tether's right now looking like that was the better route for because those who tried to go in through the front door and ask for permission of course um were were made examples of in the very beginning in a very heavy-handed way in the very beginning of this regulatory Crackdown but I still don't think that that's the wrong path I still think cooler heads are going to Prevail what can I share with you John wants me to vent what can I share with you about what I know I've said publicly that we know that this crypto Crackdown is being coordinated it doesn't it's not just merely a coincidence it is it is absolutely being coordinated and we actually happen to know that it's been coordinated by the White House the interesting piece of that and by the way we have receipts on that and that was part of what happened with us being at the front of the wave and so it started White House fed with us on January 27th then when sec to all the exchanges with Wells notices the next week then the IRS and the SEC went after crack in the next week then we had the the custody rule issue from the SEC the next week now there are apparently a bunch of Wells notices that have gone out to D5 projects in this week and of course whatever's happening with with um with silvergate this week as well so it's not over yet it's pretty brutal and it's I just described a six week period of time it's a pretty pretty short period of time in the grand scheme of things but it's an epic in uh in crypto but that's kind of a downer of a message and yet you see me with a smile on my face I have a smile on my face because I don't think that this is the end of it I know it's not just like in the Trump Administration there were warring factions between the pro-crypto folks and the anti-crypto folks and Trump didn't have a view on this really and I think that's probably true of Biden as well the anti-crypto folks are warring with the pro-crypto folks and what's been fun for us is how many pro crypto faults on both sides of the aisle have come forward to tell us what really happened and it's a sieve in Washington DC it is the scariest it is it is as bad as you think it is it is incredible executive branch overreach it is agencies throwing caution to the wind knowing full well that they're not on solid legal ground to do some of the things that they're doing but doing it anyway and basically just recognizing as one person told it told it the story that this is going to get fought out in the courts and the agencies are gonna are just going to have slowed us all down and if they lose then they'll say it's not their fault it's the judge's fault so that's how this is the United States of America Works in in 2023 unfortunately but the optimistic angle here is of course the judicial branch is an equal branch of government so keep an eye on the lawsuits there are three lawsuits already in flight from this industry against the different different agencies you've got the you've got two against the SEC both grayscale and ripple and then you've got us against the FED a custodia and there are more lawsuits coming and so that's one angle the other angle though is that from what we what we know that happened in the white house and we know the names by the way I find it hilarious I'd never heard of the people involved I don't know how they even knew who we were but suddenly we were we were being attacked by the White House but it was all done very very uh underhandedly with the Press actually I'll even share because this is public the fed and and the bank Regulators asked all of us that had applications in front of them to withdraw the applications or the staff would recommend the applications be denied typically you get a week to make that decision in our case they gave us 48 hours and so we had to call an emergency board meeting Etc this is you know 48 hours is not a lot of time so this is clearly done to put pressure on us then the phone started ringing because the Press had been tipped off by the FED that that our application was going to be voted down and that happened even before our board meeting so it was very underhanded and then we actually handed we we sent in a letter after the board meeting and within hours a reporter called us and was reading from our letter so it was pretty nasty folks um but all that said now that I know the names of the people who did all this I find it all amusing because I know that they're not they had a power vacuum that they could walk into and fill and now that jobs have been filled above them they're not in control anymore so this is the optimistic conclusion that I draw this is not over this is far from over and there the resurgency of the more reasonable folks in the power structure of the Biden Administration has happened the question is at what point will they start pushing back on the on the agency overreach that has taken place it sucks it's a bummer that we had to deal with this uh because there are a lot of you know I asked the question rhetorically is this United States of America are we still a country of rule of law do we still have due process for for companies and businesses and even Dows that set up legitimate projects in this industry uh and and are being pursued by Regulators that may that may not have jurisdiction I've heard all kinds of things about Regulators doing things outside of their statutory jurisdiction and again they're just daring us all to sue them and okay if that's what they want here we go but I'm not I'm not concluding that it all has to get fought out in the courts because I am optimistic that cooler heads are going to Prevail it is crazy to push this entire industry offshore there was a very interesting analysis of software developers in this space just how many have left the United States in the last few years due to the fact that you have clearer regulation and more welcoming jurisdictions for the software developers to do business and that just breaks my heart we've done so much in Wyoming to try to bring developers in some very interesting laws including one that just passed this year that prohibits the compelled disclosure of private keys so um if there's a divorce or something a judge can can force you to move your digital assets but the judge cannot force you to compel it cannot compel you to to reveal your private key that's designed to protect folks in this industry from from an attack by the legal system we always knew an attack by the legal system was an attack Vector on us and another one is a law that passed two years ago in Wyoming that protects software developers code is speech and as long as a developer writes code if someone uh someone uses it to commit a crime then that's the crime but just merely the act of writing code is not criminal there are there's a push to to criminalize the act of writing code in the United States coming out of Washington DC to try to make some of this stuff illegal but Wyoming as a state is leading the way pushing back against that to try to protect all of you so that you don't face criminal liability for the mere fact of writing code uh let me stop we have three minutes left um let me see if anybody in the audience has questions it's kind of it's a it's a Cool vibe late on a Friday night anybody have any questions yes sir okay good question I mentioned executive branch judicial branch the states what about Congress that is interesting because in everything that's happened we have had people from Congress reach out to us they're watching what's going on because we unfortunately were thrust into this Spotlight as the tip of the spear and they know that something untoward happened to us and they want to know about it so the problem is that Congress right now is pretty much impotent it's we've got to divide a congress we've got one house in Republican control one house in Democratic control and the presidency and Democratic control interestingly when all three of those were under Democratic control Congress couldn't agree to get a stable coin bill passed anyway so I think the chances of of something happening are that's meaningful are pretty slim and so I don't have a lot of optimism I like the fact that we're seeing real Advantage you know real example set by the work for example that Senator Kirsten gillibrand a Democrat from New York and Senator Cynthia Lomas a republican from Wyoming strange bedfellows but they are working together I've been in the same room with those two women one time and it's they are so fun to watch because they're genuinely friends and they're actually working together and and so the question is can they actually drag along the powers that be in their respective they're both in the Senate um Jilla Brown of course comes from New York Schumer majority leaders from New York so if New York decides they want to get behind something then there's a good chance it happens in the Senate but but the the houses in Republican control so most of what I'm hearing in DC and I like to stay out of DC but most of what I'm hearing is uh is that there's not much chance of anything happening it's just little things around the edges so we're going to have to basically tough it out at least until the next election and then maybe even longer so all right well we are I'll give you 30 seconds back I'll be here I'll be around tomorrow morning as well if you want to chat about what's going on in the in in Wyoming and um stay tuned because I'm hoping that we'll have some good news that what's happening with custodia is we're it's far from over for us yet we are this close to launching the bank we just don't have the final piece in place yet but we've we're this close and hopefully can turn it on very quickly and try to fill the void for this industry it's going to be tough to get bank accounts I'll warn everybody in advance the regulatory Crackdown on the banks is pretty extreme and so um just everybody needs to be patient with your bank if you have a bank account right now do everything you can to keep it and if your bank is asking you for compliance information don't fight back because the banks are under incredible regulatory pressure and those that stand up and fight for this industry are are worth keeping thanks all perfect thank you Caitlin