Inside the SEC Crypto Task Force — Fireside with Chief Counsel Taylor Lindman | BBW26

Hi everybody.

Good afternoon everyone and welcome. Thanks for joining us today Boston blockchain week 2026. Um as Ian said my name is Michael the Duke and I'm a partner in the financial markets and regulatory practice at Katton. Been practicing about 24 years and been practicing uh crypto for since 2012 when I was at the SEC and an application landed on my desk. two brothers and I had to determine back in 2012 whether Bitcoin was a security for 40 act purposes.

So I I've been involved in it for a long time and so I'm excited to be here with Taylor to talk to Taylor about all things crypto. Um and so for you those of you who don't know Taylor is the chief counsel of the SEC's crypto task force has been uh working in the area the intersection of crypto and the law for over a decade. Um, Taylor, before he talks, is going to give a standard SEC disclaimer that you've probably heard a million times. But before that, I'm going to give a little bit of my own disclaimer. Taylor and I go way back.

Uh, we worked together at another law firm back in the day when the analysis was about whether a token is a security under the Howie test and counseling clients on the risk. How times have changed um, significantly changed for the better, I would have to say. Um, and one interesting note that uh, one of the associates that we used to work with at that other law firm is now the current chair of the CFTC, Mike Celig. So there were were days when Taylor, myself and Mike would be in rooms sort of digging into the Howie analysis, looking at the Reeves tests and applying it to these um to these uh, token projects and and we trying to figure out a way to go back and tell the client that it's just not going to work. It's it's a it's a security.

Um so those uh those were the days and um but how times have changed. So a quick rundown of how Taylor got here. He joined the task force in 2026 early 2026. Before that he was deputy general counsel at Chainlink Labs where he worked on the legal side of digital assets and market infrastructure. And before that he was in private practice advising clients on securities and banking regulation uh including some of the earliest work on tokenization.

But honestly the best part of Taylor's story isn't his resume. It's about how he bought his first Bitcoin in 2013, how he lost it on an exchange, and then how he figured out self- custody. So, if we could all welcome Taylor, and it would be great to hear about that story. I think you'll really enjoy it. Hi, everybody.

Uh, yeah, before I begin, uh, standard disclaimer, see if I can get this all right in one go. Uh so these are my views as the chief counsel of the crypto task force and these don't these views do not necessarily reflect those of the commission or the staff with that I can tell a little bit of that story. So, I was living in Korea at the time. I was an English teacher between undergrad and law school. And I read in Wired magazine about Bitcoin and I was interested in it and I wanted to figure out how to go buy some.

And there was a cryptocurrency exchange called 24 BTC which was I think in Poland and I went on to the exchange and had to put into a credit card and do all kinds of other hoops to jump through to try to get some money on there. But I managed to over the course of like a week bought a bitcoin, one whole bitcoin at the time which I think was a thousand bucks was a big big outlay. Told everyone I knew about it how forward thinking I was. And then uh did not really appreciate the importance of self- custody and the use of your own wallets and the use of uh um you know public private key pair. Uh and so I left them the the coin on the exchange.

the exchange was uh I think shut down and then investigated by Interpol and then there's a bankruptcy proceeding that I was party to for a decade. Uh and so I learned a lot little bit about the legal system through it. So that's that's that story and yeah come back around to crypto uh you know happier times. Fantastic. Um so let's let's just jump right into it.

The task force's mission and priorities let's talk a little bit about that. In the past, you've described the work of the task force as falling into two distinct buckets. First, defining what is and isn't a security for investment contract analysis has consumed much of the earlier focus. But since December, when DTC's no action letter kicked off a new phase, the second bucket has taken center stage. The central question now is how does existing market infrastructure including the standard plumbing of broker dealers, transfer agents and clearing agencies work when translated to the blockchain rails.

So Taylor, we have a diverse room here today. Traditional financial institutions, cryptonative firms, investment managers, brokers, compliance teams, and lawyers. Um, what should this audience understand about where the crypto task force is focused and what's on the horizon?

Sure. So like you said, I think the first year of work at the task force was focused on questions that fall under the 33 act, which is stuff that relates to the status of these assets and kind of which uh you know regulators are responsible for those assets. Is it a security? Is it not? And then more recently the second area, this is as it relates to market intermediaries that are regulated by the SEC are brokers, transfer agents, clearing agents, uh national securities exchanges.

Um what are what are their roles? uh visa v these assets and how do they custody them safely, how do they transact in them uh and how do they you know really incorporate this the use of this technology for everything mundane things like recordkeeping all the way to you know really just changing the ways in which they're executing transactions and uh you know processing the the orders for their customers. And so that second bucket there that that's all been happening kind of just in the last maybe nine months. And where things have started has been a lot of staff statements and guidance which are informal articulations of various positions uh that the staff have to try to clean out some of the um lingering questions that market participants have about how do you custody a a tokenized security if you're a broker dealer? What does it mean to to have possession and control in that context?

uh now things are transitioning towards rulemaking and those rulemakings are building I think some of the most important foundations for the use of this technology within those institutions. So how do broker dealers think about acting as a custodian? How do raas and and investment companies think about custody and and transactions and tokenized securities? How do you go about creating tokenized securities and what are the rules for the transfer agents that are responsible for managing their cap tables? Uh so it touches pretty much every area of the securities laws right now and the regulation that's you know some of which has come out and some of which is coming is designed to really bring these worlds together in a way that is you know hopefully serves as the foundation for the future of our capital markets.

As somebody that leads the work at the SEC could you talk to us a little bit or explain to the audience a little bit how the process works? So how does an idea come to become a proposal and Is it through industry input? Is it you guys meet once a week on various topics and then sort of the most important topics rise to the top and sort of get pushed forward? Can you talk a little bit about the process?

Sure. So, one of the things I realized uh when I came in is that there's just a long history here with so many of these issues. I'll give the example of red crypto. Uh so, red crypto, which we'll talk about a little bit more, is one of these rules that's recently been proposed by the staff. And I the history of this rule dates back all the way to 2019 and 2020 when Commissioner Pur put out a statement about what she saw as being a a token offering safe harbor for these types of uh crypto asset fundraising transactions.

And you know that sat in a drawer if the staff worked on it. They had various different periods where they were soliciting feedback from industry and that built up both institutional knowledge within the building as well as like kind of an ability to see where the the the the problems may arise once it gets out there into the market and that is kind of like what was you serve as the foundation for what became reg crypto and then other times it is industry feedback or it is an idea that came from a brilliant staffer who says hey I think I've got a new way of solving a problem but yeah it's incred incremental and most of the time those things move from informal guidance and staff statements towards things that look more like you know the proposals that come out into final rules. It's a very long and considered approach

and how does market industry or industry input play into all that?

Sure. I think so there's two places where it's vital. The first is just in the ideation phase which is where are the where are the market participants saying there's challenges and the crypto task force gets a tremendous amount of feedback from the market about areas where things just are inefficient or not working for various reasons because the rules were designed without thinking about some aspect of the technology. There's that place and that's huge for just you know kicking off the the the issue and being aware of the issue. The other one that's really important which is a period we're in right now is when a rule has been proposed and And there's a request for comment period that's open that's currently open for red crypto and for a transfer agent rule as well as other rules uh that you know have a tangential bearing on crypto.

Uh but these are this is the time where responses to those questions and and providing feedback on what you think this rule should be doing or shouldn't be doing is vital because as it goes towards becoming a a final rule and adopting uh you know in the adopting release all of those comments and all that feedback need to be addressed by the SEC. uh and so that you know market participants really can get their input heard. So this is that critical moment and it's a big part of the reason I'm here.

Is the crypto task force working with the divisions of the SEC and the experts within those divisions to sort of develop these rules?

100%. Yeah. This is the the staff are the engine room of the rule making process of the SEC. So much of what goes on here are these technical experts who've been focused specifically on certain areas of the security laws, whether that's how offering exemptions should work to really narrow esoteric topics like transfer agency. They may have been doing it for 20, 30, 40 years.

And those experts are the ones that are often leading the charge on thinking about what what the rule will say and how to how to actually make this rule work for the most amount of market participants. Uh what the task force is often doing there is is providing that translation layer for the technology and also for how the rule works with market participants which is a big part of uh you know trying to bring these worlds together is making sure that those market participants that are actually engaged in these activities are being heard and are able to be considered given that oftent times these rules don't get opened up all that often. You want to make these rules flexible. We want to make them work for both the people who are protect practicing today and are utilizing them today as well as maybe the next 30 years.

And from a technology perspective, since blockchain is is a technology, how does the staff and the SEC work with technology? Do they actually have people that understand the workings of the technology and that as you are developing the proposals and thinking about these different issues, you work with people at the SEC or do you bring in people from outside the SEC to walk you through the technology?

You know, it's it's a little bit of all all of the above. So, one limitation it's worth just everyone being aware of is that SEC staff cannot directly hold or use crypto, which is very challenging when it comes to understanding how these technologies work. That being said, we have resources that you know market participants provide to us which are like demos and ex explanations or explainers. But beyond that there are also members of the staff that have deep um whether it's you know in in in mathematics or in computer science um economics various areas like PhDs that have tremendous amount of understanding of how these technologies work uh that are able to bring that to bear as well which you know in conjunction with you know getting a market participant to come in and give a demo of how some specific uh wallet or some specific tool works those things can can really fit together nicely for purposes thinking about how the tire meets the road for a lot of these products. But it is challenging when you can't like my whole practice before was you use the thing, you read your terms of service, you go through the product workflow, you understand exactly how it works down to the, you know, to the the source code if if necessary so that you have that firm understanding.

And the way to do that at the SEC is a bit more challenging. Not to say it's impossible actually. uh it can be done and it's done often more in like as an academic exercise than it is the way that it would be done you know if you're at the law firm or in house.

So you mentioned red crypto when we talked a couple months ago you sort of alluded to the fact that a formal rule making was coming and and boy has has it come with red crypto last month and then two weeks later um modernization of the transfer agency rules. So let's jump into that. I know a lot of people are excited about these two proposals. I know I am uh having been working in this area for a long time. This this is exciting.

I was reading um Chair Atkins uh's press release about this um before preparing for this panel and he was talking about that this is a historic proposal that's at the centerpiece of the SEC's capital formation um agenda. And so it is really exciting. And so red crypto is a framework for capital for fit for purpose. That's very important. A fit for purpose framework for capital formation that includes a safe harbor for determining when a digital asset is no longer security.

That's really really important. I'll repeat that. So, Red Crypto is a frame fit for purpose framework for capital formation that includes a safe harbor to determine when a digital asset is no longer a security. So, let's just jump right into it. Can you explain what fit for purpose means?

Um, I think that term is thrown around a lot and if you read the release, um, it sort of sort of jumps out at you, but it would be helpful for the audience to understand what fit for purpose means.

Sure. So the fitforpurpose concept here really is is taking the learnings from market participants as well as like the history that the SEC has had which for those that were around know that there was a tremendous amount of enforcement activity, companies moving offshore, a lot of like just really very difficult moments for a lot of market participants regarding how to evaluate prospectively looking into the future, how to think about having a crypto asset, managing you know the the development of a blockchain based protocol. uh and and just having some level of confidence in in what they're what you're doing in in uh in the market. And so this this rule kind of tackles this uh the fitforpurpose concept in a few different ways. The first way that it does it is it gives paths towards fundraising in the US.

Uh that give those that take advantage of these these fundraising exemptions a really clean bright line for how they can raise money similar to the ICO days in many ways with confidence with disclosures and then ultimately with knowledge that they're not going to go and get um you know crushed by the SEC for engaging in a unregistered securities offering. And those two offerings, those offering exemptions fall into two categories and these also are very fit for purposes and you'll understand a little bit more in a second. So the first is the startup exemption which I think many people have heard about which is this $5 million uh uh amount that you can raise which is very small but requires very few uh disclosures, very few obligations that are imposed on the team at the time of doing that fundraising. And what it's designed to do is it's trying to meet projects that are at this very early stage of trying to figure out how are they going to be executing on their vision for developing a blockchain based protocol or application and how they're going to fund raise around a crypto asset. And at that time there's an acknowledgement this asset is going to be a security during this period of time.

I'm going to make these disclosures but I'm not necessarily have to go and do all the hoop jump through all the hoops that you'd have to even to do a uh the next exemption up which is this one called the fundraising exemption. So the startup exemption is there. You can do one every four years. It'll it it allows you to raise up to five million. And the obligations that are imposed on the teams that are that are utilizing it are fairly uh you know well scaled towards the level of development that these projects are are at when they're using it.

It's similar to like a friends and family round for fundraising for a new startup. The next step up the ladder is what is called the fundraising exemption. And the fundraising exemption can go all the way up to 75 million. And the 75 million is a significant amount more of of more that you can you can be raising. It requires significantly more disclosures, but those disclosures are again principles based and tied directly to the things that are relevant to the project that is developing the application.

Uh and at that time is when the project's going to be making very clear disclosures to people about what the uh uh what the promises are that that team is making regarding the launch of the platform from there. I mean Mike I can jump in here. I can just keep going too.

Let me just ask a question because I think this will help clarify a question that I get a lot. Why why is this necessary? Why do people need to issue tokens in the fundraising stage?

Why can't they just rely on reggg digg cf rag a that's already out there? Why do why do tokens need to be issued while they get the money to develop their their business and their blockchain?

Well, I think there's a understanding by market participants today that there's like a lot of different ways in which you can fund raise and in fact a lot of people will continue to use private placements and other things. But there is this concept of network effects and you know reaching a a level of scale where the managerial efforts are not centralized around some specific team any longer. or people developing applications say on a blockchain network or um utilizing an application, you know, through multiple frontends. Uh where the only way to get to that level of of um it's not necessarily even only decentralization, but like let's just use that as an example here. The way to get to that diffusion of holders is uh is through having really public and really, you know, broad offerings, which you can't necessarily do as easily with a private placement.

So that's a big part of it. And so what you're saying is that the token that the investor will receive for its money will be used on the network and will help the developer develop its network.

Yeah, that's one one way for sure. Again, I would say this is something that's a bit different from what we you saw in clarity is that the uh uh in the clarity act is a whole another uh topic, but just with regard to how these fundraising exemptions work is they're very uh technology agnostic as far as the types of applications that people can build utilizing them. And in fact, I think what we'll see is that there's going to be a lot of creativity around the types of networks and the types of systems and applications that people build, especially given that that second category, that fundraising category of what are called covered investment contracts. That may be an area where more projects choose to live in under that disclosure regime for a longer period of time because of the value that you can get through those disclosures, through the ability to fund raise. You know, you can do that 75 million every year.

You can also do other types. It's not it's a non-exclusive um you know offering exemptions. You could do other types of exemptive uh raises as well and grow your business in that way without uh without necessarily going through the process of of going through what is the form TR which is the safe harbor.

And so with safe there's going to be next question. Can you talk a little bit about the safe harbor and what went into thinking about that? Um, obviously a lot of it comes from the the Howie test and the court's analysis over years, but can you talk a little bit about how the safe harbor was developed and um and how it kind of will actually be used if it sort of went forward given the form it's in right now?

Sure. So form this the safe harbor it's it's really about when a project transitions out of being uh subject to an investment contract because the promises related to that investment contract have either been completed to you know based on what the project promises that they made at the time of their fundraising or they've been abandoned and that's something that's articulated in Howy in the case law as well as in a document that the commission put out called the commission uh interpretation of investment contracts to relates to these types of of digital assets. And in in that analysis really there's this tacid acknowledgement that at some stage those efforts cease to be the material efforts or those efforts have been fulfilled. That is the network has been built, the application has been launched. The system is now functioning to a level where it's not no longer reasonable to look to the development team as the one responsible for generating an expectation of profits.

And the form TR and the transition report that comes with it as part of the safe harbor is designed to be a much more bright line for market participants. It gives issuers the ability to tell the market, hey, those promises that I made, especially those promises that they make in connection with the fundraising exemption, those have now been fulfilled. I'm no longer you know, you know, engaged in those types of promises. I may be engaged in these other activities, but these other activities are not the types of promises. Uh these are not the types of essential managerial efforts that are relevant for the Howie test to attach to the asset, the investment contract test to attach to the asset.

And this asset is no longer going to be subject to an investment contract and therefore is no longer subject to the securities uh you know jurisdiction. And it it doesn't go to mean that if you satisfy the safe harbor you are decentralized because decentralization is still a concept that is is sort of evolving and staff is working through but it doesn't mean you are now decentralized.

So the concept of decentralization you won't see necessarily as as part of what these transition reports are because that concept of decentralization isn't really rooted in in in the case law that we have and the tools that the SEC has to work with. Uh that being said, one of the ways in which you get to a fulfillment of those promises or a diffusion of the uh uh activities that are giving rise to an expectation of pro promises is or expectation of pro profits sorry is through things like uh decentralization when there's a lot of people contributing effort and it's no longer clear that some central group is responsible for you know generating the whatever the thing is that you're hoping to to to to see succeed then you know that that's the type of decentralization that can exist. The goal with the transition report though is that not everything needs to be tethered to those concepts which are not in the law today.

Um like I mentioned before, two weeks after uh Red Crypto came out, the SEC proposed modernization rules for the transfer agent rule, the rules that govern transfer agents. So the transfer agent rules were passed I think in the 1970s and last updated in the 1980s. When I was at the SEC in 2015, there was a concept release being kicked around um that I was working on and a lot of it had to do with transfer agents. And I remember being in the in the building down in DC and there there wasn't a lot of deep knowledge on transfer agents, I'll have to say, as I went around the the hallways trying to find out who the experts were on transfer agents. But this is um sort of I don't want to say it's sliding under the radar, but it's a big deal and it's it's it's really critical for the plumbing and the infrastructure of our securities markets.

And so I want to talk to Taylor a little bit about this transfer agency proposal and what it really means because um transfer agents are important piece for the tokenization process and we all want to talk about tokenization. tokenization is a big a big a term that's a very you know very widely talked about and is important and and so the transfer agent sits at the crossroads of that and so could you tell us a little bit about the transfer agent

yeah sure so let me do some history real quick because I think this will help orient everyone in space on what's happening and it's much bigger than crypto but it's very relevant in tokenization in particular so before we had the ideas of national security exchanges well I guess before we had a lot of this the existing market plumbing that exists today which is broker dealers, clearing agents, you know, centralized clearing and settlement of securities and all the trading that exists through an intermediated system. There were transfer agents and certificated shares. They were the party responsible for managing the cap table, managing the master security file for all the holders of some issuance of security. And that role was really, really important once upon a time because everyone needed to make sure that that certificate was in the vault and that it was being stamped appropriately and that you know the authoritative record of who the holders of that security were were known and that's what those rules were written for and that was a long time ago and paper certificates have moved on towards digitization. Now almost all securities are dematerialized just meaning that they're an entry in a database somewhere and actually transfer agents have largely seated a lot of their responsibilities and roles towards the CSDs the clearing uh the clearing agents of the world the the central securities depositories specifically like DTC and what's what's happened as a result of that is very few securities today are directly held uh you know on the books of the issuer so most securities today you go and buy them through your broker you're holding a beneficial interest in a security in the form of what is called a security entitlement where the actual share of that certificate lives on the ledger at DTC.

Some people are probably familiar with this but many may not be. So the transfer agent's role for a long time has not been uh uh operational all that much as it relates to securities trading. But tokenization and crypto have changed some of this equation because for the first time the need for all of that intermediation and all of those different roles that the CSD plays, the exchange plays um and and the brokers play can be replicated through the use of a blockchain for purposes of clearing and settling uh transactions. And you can have the pop the ability for a transfer agent to tokenize a uh an issue of securities and have them be held by an individual shareholder. uh directly.

And so this process of tokenization has really revitalized what what used to be a very sleepy area of the securities laws which was this transfer agent that didn't have a whole lot to do now has tremendous amount to do and has an area of the securities laws that haven't really been looked at or modernized for a really long time because almost all of the um plumbing and all of the development of of of our securities markets today have happened through the CSDs and with these other intermediaries have kind of left the transfer And this new rule is kind of the first crack at bringing that rule into the 21st century. Uh the transfer agent rules up into the 21st century, getting rid of some of the uh more antiquated concepts, but then also making it work really effectively for those that are seeking to tokenize securities and provide that closer relationship between the issuer and the shareholder that this technology promises. Will these um will these proposals help move either some or all of the official ownership record of securities on chain in the future?

So, we were talking about this before I came up and I think there's a combination of things that are happening. One is the use of the blockchain as a a source of truth for purposes of who the holder of a security is and as well as using the blockchain itself as kind of an the authoritative record of of where the security lives. And that is something that exists today. It's something that's been uh proposed in the rule as well. It's uh something that the staff has said there's nothing incompatible with the prior rules that would have prevented a transfer agent from using the blockchain as an authoritative source of record, but these rules reinforce that.

I would mention also that the rules are designed still as a very incremental step towards what maybe the future of transfer agency may look like because one of the things that many commentators will point out is that a lot of the conventional roles that a transfer agent plays in the market can be replicated and done very predictively using you know an ERC20 token interface. You've got all the list of holders right there and you know exactly who the security holder is based on their wallet address and you have all the information that you customarily need in order to, you know, know what the current state of your holders are. Uh it's not the same information that's collected by by uh under the transfer agent rules, but there's a lot of similarities. And so for some market participants that are looking at how to modernize the transfer agent rules, one of the things that you can do right now is you could look at our proposals and say, "Hey, there's actually steps you could take further towards making these rules more flexible to work in a more native blockchain context. to allow for permissionless trading of tokenized securities for instance.

Uh and these are the things that I think are very much on the table right now in terms of how these rules work. These rules are designed to uh provide quorum to to provide for corporate actions to pay dividends and for those that utilize tokens they know that you know these things are able to to do a lot of those functionalities natively. So I'll pause there. I know you want the industry or the SEC wants the industry to engage on these proposals because the more input the better proposal will turn out to be. But are there any specific areas that you would want the industry to engage on um in the transfer agent rule or the uh reg crypto?

Well, I think it's it just depends on where you sit a little bit. You know, I think if you're in a business that is thinking about tokenization or is wanting to invest in tokens, uh look at these rules and see about what are the that you think may create incompatibilities or maybe are missing the point on some of the disclosures. There's disclosures you think are more important for us to be getting. I think on the red crypto side of the house, I think the most important things that I want to hear feedback on are really about the covered investment contracts for the folks that do the fundraising. Like how does that universe look and is that a universe that they are excited about or are there challenges maybe in the secondary market regarding how these things would trade that would create reasons to not want to ever be, you know, fundraising this way?

And similarly, how do you feel about the safe harbor? Has it gone far enough? Do you feel like this is going to provide the level of certainty uh that that you want to see in order to be confident that the you know you've crossed the threshold so to speak and out out of the securities uh um ambit. Uh and then on the transfer agent side I think the the focus there is for those that are thinking about tokenization I really encourage you to think about uh what are what are the things that maybe these rules don't get updated for another 50 years. What are the things that would maximize the possibility of these tools uh these rules working as te our technologies evolve and as the use of blockchain or other types of technology are being used for the the tra the trading and the transfer of securities because this is probably the only bite at the apple that we will get for a long time.

That's a perfect segue to my um my next question and this is the concept that you talked about when we last spoke and it's the term durability and and you said that pervades the task force is thinking when they're talking about um crypto. Can you talk a bit about durability? I mean you touched on a little bit just there at the end, but can you talk a little bit about how the task force and how you think about durability and why it's so important?

Sure. So one part of it is and I think this is like maybe the most uh frustrating part of what the regulator does is that the regulators are have to think as far out as they possibly can while still protecting market participants today. And a lot of the work that the task force is focused on and the SEC is focused on as it relates to this is building what we are hopeo hoping to be very durable foundations for the growth of these markets over time because many of these markets are very nent today especially as it relates to the securities markets on chain. And so part of the durability uh piece is is trying to make sure that the rules are not so prescriptive and certainly not so tech like some specific technology lens that's being applied to them such that they don't make sense in a few years. That's one part of the durability.

And then the other part is making sure that we're getting the industry feedback. We're getting uh good and considered and and and thorough um analysis done on how these technologies are being utilized and then being incorporated into our rules such that market participants are relying on how uh the this new set of rules work just from day one and that that will help kind of provide the longevity for these rules over time. We need these rules to both make sense when someone's reading them 30 years on as well as have been picked up by industry and been utilized such that they have uh they've been kind of enscconced into the the way that people work today which is hard to do when you're modernizing a tremendous amount of the securities regulatory space.

Speaking of durability, let's briefly touch on the Clarity Act. In late July, Poly Market put the odds of Clarity Act passing in 2026 at 37%. Down from a peak of 82% March. As of this morning, Poly Market puts the odds of Clarity passing this year at uh 15%. You've spoken about clarity in the past as something that would empower the SEC in new ways and expand its ability to bring clarity, no pun intended, to digital asset markets.

Can you help the audience understand how the prospect of new statutory authority is informing or shaping the task force the task force's current work and does it consider the odds of clarity passing when it's thinking about what to do and what rules to propose?

Yeah, so clarity has been a really important piece of like the options that might be available to the SEC and to the staff and for right now almost everything that we're focusing on is just within our existing authority. What are the things that we can do within our existing remmit that will provide uh you know answers to market participants to give some level of certainty for you know moving forward in the absence of some of the areas that are more existential and challenging that clarity was seeking to to to address. The one that clarity is really would have been most helpful with uh is is just what happens with that transition from say you know a similar type of um transition report like has been proposed in red crypto. What happens after that? where does the asset go?

And right now the answer is that asset goes in back into a market that doesn't have a principal regulator like the CFTC which you know the CFTC would be given you know spot authority under under clarity and that would have given a very clear continuity for pickup. So some of the thinking I think right now as it relates to whatever happens to clarity is thinking about what does that world look like if there isn't some uh some new legislation that provides that bridge uh across to to uh a digital commodity land but there's also I think you know just assuming that something you know happens with with legislation at all what are the pieces of legislation that can be gotten done that will be more targeted towards the things that would you know have maximum impact which I think a lot a lot of which would relate to our commodities laws more so than the securities laws. A lot of what clarity does is really enhancing what CFTC is able to do. And what the SEC would be getting through clarity is um some some of those things that that it's getting through clarity are are things that the SEC has the ability to do but would be given you know just it's like a supercharger on top of some of those uh um existing authorities. You guys look at poly market and the other markets daily to uh look at the odds of clarity passing.

I can't say I have, but I've been I've heard it enough from people like you to know kind of where we're at. Uh it's not it's not been a big part of my uh my day-to-day. Uh

All right, switching topics. You had mentioned uh earlier vaults. Um earlier this summer, Commissioner Pur put out a statement uh about crypto vaults and lending strategies. She reminded everyone that tokenized securities are still securities regardless of moving regardless of them moving on chain. Um she explained that the principle also holds true for vaults which are use smart contract to send to send assets uh into things like staking and lending.

So some vaults she mentioned are purely automated. Others involve real discretion by persons or teams. And where there's discretion, Commissioner Pur highlighted. Uh those parties should think hard whether the federal securities laws apply. So as background, a vault is basically a poolled account that automatically deploys your funds into yield strategies.

So Taylor, why use a vault instead of just putting your USDC into a D5 protocol yourself?

Well, I think there's probably a lot of reasons to do it. One one of the pieces that I've heard the most is that it's just it's this is an efficiency thing. This is an allocation vehicle. It's like a holding. It's not even a holding pattern.

It's like a you put your assets in and then they're being kind of in some of these instances immediately redeployed into these various strategies. And I think market participants like that. They like the ease of it, the access to it. But it it adds layers of of complexity that yeah can implicate the securities laws. So I think part of the thing that's driving it is just this is a um a primitive that provides a lot of um ease of access for the market.

and what are the securities laws that that it could implicate?

Well, this is like a very complicated question. So, there's actually like a lot of things here with vaults that um touch on a lot of different areas of our securities laws. And the reason why it's it's tricky is because there's a lot of there there's a lot of variations in the ways that vaults work as well as the types of underlying strategies as well as the types of assets. So, when I I've been thinking about how to best describe it to a group and I think maybe the easiest way to do it is to think about it kind of in three three different layers. The first layer is just the types of assets at the top.

And a lot of what Red Crypto does and and a lot of what um the SEC's focus has been on to date is to give better understanding of what are the assets that you're holding when you're holding a tokenized something. Sometimes it's very clear it's tokenized security. Other times it's less clear. But assuming that it's like a digital commodity or something that is not, you know, a security and that's an important thing to know at kind of at that top level. The next layer down is kind of at the vault level which is kind of at the spot where the allocator is going to start making decisions about where the things go and depending on the types of assets that come in as well as the types of strategies that are being you know employed to you know put the assets into that can have status questions which is like raia are you a registered investment advisor you need to be an investment adviser and is that vault potentially an investment company because it holds say more than 40% of its assets as a security and And then downstream from that just to finish off the three is those underlying strategies.

What are the things that the the tokens are being allocated into and are those things potentially implicating our securities laws? Are they um you know is is it a uh an investment contract for instance of some kind, some kind of investment scheme? Um, are you actually just investing directly into something like a some some other type of of security or is it something like staking or another activity that doesn't uh uh have a additionia of of an investment or touch security jurisdiction and so kind of those three layers of the stack make the analysis complicated.

Is wson lending strategies is that something the staff is actively sort of thinking through and working on?

Yeah, for sure. I think Commissioner P's statement is there in to try to provide uh the market with some understanding of of where we're at on this topic and we've been seeking a lot of input from industry on how to think about these different layers and I think there's been a lot of progression on this topic just understanding how these pieces fit together. Uh but yes, it's a it's an active area for us.

Some vaults have curators and some are completely automated and where you have a curator. I think it goes to your point that that that could be considered a investment advisor because it's sort of deploying the assets that are put into the vault. Um so a curator could be considered an investment manager. Um not saying that they are, but that's sort of the argument that's out there. And then the pool itself could be considered an investment company or a separate separate account.

It's um various arguments out there for the application of the securities laws, but those are It's a complicated area for sure. And so yeah, I think vaults are like a perfect example of of an area that uh you know, this is something that's on the vanguard of of what our securities laws are capable of kind of analyzing today. Uh because of how complicated some of these systems are as well as how they're they're evolving. And again, really solid foundations for how the the things work in our existing securities laws are important for building up to things just like this to understand how these systems can be used by an RA or an investment company if they want to such that it doesn't create some kind of negative some bias against you know being regulated and utilizing um you know say registering a security for purposes of doing this type of activity but yeah there's a a process for this like all regulation

um we have about three minutes left um no blockchain conference would be um complete without a discussion about AI uh when we talk about the adoption of tokenization of real world assets there's an assumption uh while on chain it involves a human but many say the majority of transactions on chain will be done by AI agents. How is a task force in the SEC thinking about Gentic AI as it develops guidance and regulation?

Okay, so one place that it's getting used is we're using it for the rule making process. So like that's just operationally like these tools are getting used a lot more in the building uh to review comment letters and to to help us understand uh you know the things that we're hearing from the market. But I would say like just as it relates to like you know the intersection of crypto and AI, I think this topic has come up in a few different places. The one that I think is most interesting is like the the defensive and offensive capabilities of AI tools as they relate to cryptography. uh and this is an idea that you essentially have uh AI tools that are really good at breaking uh you know the systems the security of various you know software software systems as well as you know potentially smart contracts and blockchain based systems and those present an existential threat to the developers of those applications because so many of these assets you know are you know bearer assets especially outside of securities land and so that threat is on one side of it so you're thinking about it in the defensive value of having AI tools to defend to against um you know to formally verify your code and then the offensive capabilities of these models and their ability to to break into systems.

Uh and so there's that there's that dimension and then there's the agentic finance side of it too which is you know akin to robo advising and things like it and I think that is still a very early area of development but is one that is interesting because it raises these questions you know people use the term agentic but yeah it's agent principal questions about you know you set your agent free onto the the web or onto a blockchain system or something and and who's responsible for it how does that um you know agency theory of liability attach is an interesting But maybe one for law school classrooms and I've got other fish to fry.

Um with about a minute and a half left, um what would you want the audience to take away from this in terms of how to engage with the task force and with the staff? I know that um market input, industry input is very important. So what do you want the audience to take away if they have a question or they have an idea or they have a comment about one of the proposals. What's the best way to engage?

So make it very simple. Uh so if you guys have anything any input that you want to submit uh to the SEC at all on any of these rules or anything that relates to crypto that you think is important for us to know, you can send it to the crypto task force's written input website and we will direct that information to the rulemaking teams if it's relevant and we review everything that comes in and it's not an AI agent that's reviewing it. It's human beings and that information will get to the right people and if it's being submitted non-confidentially and you say hey I want this to be part of the public comment file then it will used in connection with the rule making and be used to inform the rule making. So please, the window is open. It's not a long window.

This is 60 days and we're in it right now. So this is the time.

Anything else you want to tell the audience about your work at the SEC inside baseball? How the sausage is made?

No, I mean it's a it's it's a lot of work uh by a lot of career staff getting these rules done in in into the the public sphere. I think it uh it probably feels like it's taken forever for this stuff to get out there into the market. Uh but this is a uh you know it only feels longer for those staff members that were there in 2020 thinking about this rule and are finally able to get it and see the light of day. And so it's important for the market to engage and and give us feedback because we need to stay humble as regulators and we need to listen to the market and now is that critical time. Well, thank you everybody for joining us and thank Taylor for his time and his his comments.

Appreciate