Will the SEC Kill Crypto? with Jake Chervinsky & Amanda Tuminelli

Joining us today are the best in the biz Chervinsky & Amanda Tuminelli who are here to answer all our questions about the SEC and it's assault on the crypto industry as a whole. ------ 📣 ASYMETRIX | STAKE stETH NOW https://bankless.cc/asymetrix-pod ------ 🚀 Airdrop Alpha is waiting for you on Bankless.com https://bankless.cc/Alpha ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://k.xyz/bankless-pod-q2 🦊METAMASK LEARN | HELPFUL WEB3 RESOURCE https://bankless.cc/MetaMask ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum 👾STADER LABS | ETHX LIQUID STAKING https://bankless.cc/Stader 🗣️TOKU | CRYPTO EMPLOYMENT SOLUTION https://bankless.cc/Toku 🎮IMMUTABLE | GAMING ECOSYSTEM https://bankless.cc/Immutable 🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle ------ CHAPTERS 0:00 Intro 6:05 Who are Jake and Amanda? 8:08 Breaking Down This Historical Moment 11:19 The SEC Never Wanted Crypto To Win 14:56 Why Is Gary So Confident? 18:43 David's Conspiracy Theory 23:52 What if Gary Actually Wins? 31:07 Clarity From The Court Date? 35:01 Does Gary Just Want the Fame? 36:49 Why The SEC Rejects Public Process 38:34 Is This Un-Constitutional? 44:06 Jake's Optimistic Take 48:14 The Digital Asset Bill 52:44 How YOU Can Take Action ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://www.bankless.com/disclosures

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:06David Hoffman?

  Welcome to Bankless, where we explore the frontier of internet money. And we protect that frontier from rogue, unelected regulators whose sole focus appears to be stopping anyone from exploring and settling on that crypto frontier. Bankless Nation, on Monday, the SEC announced their lawsuit against CZ and Binance. On Tuesday, yesterday, while Coinbase's chief legal officer was busy testifying in front of the House Agricultural Committee about a new and progressive market structure bill for digital assets, the SEC announced their lawsuit against Coinbase. What are they accusing Coinbase of exactly? Allowing securities to trade on its platform, an activity that is integral and fundamental to both Coinbase and the entire crypto industry. And is also an activity that the SEC themselves approved of

• 0:51David Hoffman?

  when they allowed Coinbase to become a public company back in 2021. So what gives? What gives is the question. And today on the show, we're bringing on two legal minds to help answer that question. Legal minds from outside of Coinbase. We had Paul Graywall on yesterday to give us the Coinbase perspective. But today on the show, we have Jake Stravinsky and Amanda Tuminelli from the Blockchain Association and the DeFi Education Fund to give their independent, objective perspectives on the matters at hand. But before we get into that, into the conversation with Jake and Amanda, first got to talk about Asymmetrix Protocol. If you are familiar with Pool Together, Asymmetrix is like Pool Together, except for ETH staking. Is regular old 4.5, 5% ETH yield just not boring enough?

• 1:34David Hoffman?

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• 2:18David Hoffman?

  Bankless, we've produced three other podcast episodes about this subject matter at hand. So if you listen to Jake and Amanda here on the show today, but you have further questions, you can make sure to not miss these episodes. Bankless has got you covered. On Tuesday, Ryan and I did an hour long episode where we comprehensively covered both the Binance and Coinbase suits. And compared and contrasted the differences between each one. We also discussed the issue of the crypto assets as securities and talked about why Gensler picked which assets to be securities. I wish I knew the answer. That same day, we also did a 30 minute episode with Paul Graywall, the Coinbase chief legal officer, getting his statements and perspectives about the details on the case. And this morning, we did an episode with Ryan Selkis that went out to be as a call to arms for the crypto industry, claiming that

• 3:01David Hoffman?

  now is the time to make a full court press in Washington, not in 2024, not next bull market. The fight is here, the fight is now, and the fight is big. So if this current news from the SEC has you worried and confused, don't worry. Not only do we have all the content to get you up to speed, but the TLDR of all of it is that, don't worry, the crypto industry has got this. So that's my rant and it's over. Let's go and get right into the show with Jake and Amanda. But first, a moment to talk about these fantastic sponsors that make the show possible, especially Kraken, a preferred exchange for crypto in 2023. If you do not have an account with Kraken, consider getting one. There's a link in the show notes to get started with Kraken. Let's go hear from them right now. Kraken Pro has easily become the best crypto trading platform in the industry.

• 3:44David Hoffman?

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• 4:27David Hoffman?

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• 5:12David Hoffman?

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• 5:57David Hoffman?

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• 6:05David Hoffman?

  Bankless Nation, I would love to introduce you to Jake Chervinsky. He's been on the podcast before. He is the Chief Policy Officer at the Blockchain Association and on the board of the DeFi Education Fund, where he works closely with our second guest, new to the show, Amanda Tuminelli. Amanda is the Chief Legal Officer at the DeFi Education Fund. The DeFi Education Fund, of course, does a very hard job of explaining DeFi to policymakers around the world and advocates for policies welcoming of decentralized financial infrastructure. Jake and Amanda, welcome to Bankless.

• 6:35Speaker 01

  Awesome to be here.

• 6:37David Hoffman?

  Amanda, so you're new to the show. Jake, we've had on a handful of times. So as the welcome to Bankless for the first time, can you just give us your background and what you're up to and just where your perspective comes from?

• 6:48Speaker 02

  Sure, absolutely. So I joined DEF a couple of months ago from private practice. So while I was in private practice at Cobra and Kim, I was focused on white collar criminal defense and securities and more and more in the past few years, I was focused on representing clients in the blockchain space and the DeFi space. So I was able to come from a place of seeing what happens internally with a client once a regulator does send a subpoena or start an action against somebody in this space, which has really helped me as I've transitioned to DEF. And one thing that we want to do, and I'm sure we'll talk more about this, is use the court system in addition to the legislative branch to advocate for the rights of DeFi users and developers.

• 7:34Speaker 02

  So I hope that my background will lend itself to doing that work in the future.

• 7:39David Hoffman?

  Well, I definitely appreciate having a second legal mind on here because my limited layman questions can only go so far. So having two of you here, I think is going to be really, really great. Jake, I want to start this first question with you. Like I said in the intro, yesterday, the SEC charged the two largest crypto exchanges with being unregistered securities exchanges and then named a handful of very large, popular crypto assets to be securities. So Jake, the date today is June 7, 2023. We are 13 years into this crypto experiment. Can you explain just this moment for us? It feels like a big deal, but can you can you say why? Can you place us in the arc of history as the crypto industry has developed and is now going toe to toe with the biggest regulator of financial markets that the world has?

• 8:24Speaker 01

  Yeah, happy to do that. And I think it's it's worth noting that I feel like I'm only on the show and very horrible things have happened. So yet again, that is sort of the situation that we find ourselves in now. Look, I think where we are is At the end of a very long multi-year process that the SEC has been engaging in through its enforcement division to either regulate or it seems now like ban crypto in the United States. And this is not an uncommon thing for the SEC. We've talked about this, I'm sure, on our shows before, that what they tend to do when they see some type of activity that they think is a violation of federal law is they start with the low-hanging fruit, right? They go after the defendants who they feel are either under-resourced, can't really defend themselves,

• 9:06Speaker 01

  or who have so clearly violated the law that of course the SEC or the regulatory agency bringing the action is going to win the case. And they do this in order to establish what they view as precedent that they can then take and use in the next case against a slightly harder target, and then take that and use it against a slightly harder target than that. And we've seen that from the SEC ever since, I want to say, Ether Delta enforcement action. It was in like 2018, I want to say, right? So this is sort of a five-year process of the SEC going after these exchanges, the venues where digital assets predominantly trade. And after Ether Delta, they went after, I want to say it was Bixi, and then they went after Bitrex. And now here we are, the SEC taking a shot at the two

• 9:50Speaker 01

  by far largest crypto exchanges in the entire world, Binance and Coinbase. This really is, I think, the moment where the SEC has finally revealed in, you know, true color, the fact that they are not trying to bring this industry into compliance. They are trying to push this industry out of the United States by saying to these exchanges, "Come in and register", but then totally refusing to provide any way for the exchanges to do that, and then running to federal court to say for the first time ever in a complaint that what those exchanges are doing is, at its core, unlawful and cannot continue in the United States. So like you said, in your very good rant to start this out, I think we're, you know, we're in the fight now, and we know where the SEC is coming from, and we have our work cut out.

• 10:35David Hoffman?

  So the image that I'm getting Jake is that the SEC started with Ether Delta, which I don't think very many people who are new to bankless or new to crypto will remember, but it was the first, they call it decentralized exchange prototype that we ever had. And it was the smallest fish in the ocean. Things have gotten bigger and bigger and bigger ever since Ether Delta had a centralization vector, which is where the SEC got its first foothold. And I think what you're saying is it's, it's just gone from there. So first the small fish, then some medium fish. And now we are at the two biggest fish in the ocean Coinbase and Binance. And it's been just a progressive escalation of trying to take down these exchanges one by one by one.

• 11:16David Hoffman?

  And I think what you're saying is just like the, the, we are now seeing the SEC's true colors and that they were never in trying to allow these things to find a compliant path forward. They were always trying to eliminate these players from the game. Is that, is that a fair way to summarize this?

• 11:33Speaker 01

  It's exactly right. And I think it's, it's worth noting that the reason that the SEC would go after exchanges specifically is because of the disintermediated and decentralized nature of the crypto ecosystem. Right? What they need to do if they want to ban this industry and this technology in the U.S. Is they need to find those central points where if they can control those points, they can make it as hard as possible for Americans to get access to the system. And that right now is still through those custodial centralized exchanges like Coinbase or like Binance. I think they'll have a much tougher fight on their hands if they decide they want to go after the folks who are actually working in the decentralized environment within crypto. But yeah, I think that's exactly what they're up to.

• 12:17Speaker 02

  And I think to both of your points, if you want more of an indication of the motivations here, like without putting any gloss on it, like, let's just look at the facts of the timeline of the past week, right? We get a draft market structure bill on Friday, which would purport to actually Prospectively regulate the things that the SEC says that it wants to be able to regulate. And then on Monday, we get the Binance complaint and on Tuesday, we get the Coinbase complaint and 10 states. I think it was 10, maybe, maybe a few, a few less. Send cease and desist orders to Coinbase at the same time, right? Those facts alone, without any gloss, look like a coordinated attack on the industry. Amanda, that's.

• 12:58David Hoffman?

  Yeah, go for it, Jake.

• 12:59Speaker 01

  Oh, I was just gonna say, I think the timing is remarkable. And I know we all like to wear our tinfoil hats in crypto and be paranoid and hurl conspiracy theories around. But I would not put it past the SEC that they saw the market structure bill come out. They do not like it. The SEC, I'm guessing, is going to oppose that bill. This, you know, you see Gary Gensler go on TV saying, we don't need new legislation. We already have all the authority that we need under federal law to regulate this industry. And they may well have timed these complaints for the purpose of distracting from the market structure bill. It's sort of a sad state of affairs that we have to think that that's how one of our regulators is acting. But I, I wouldn't put it past this SEC to be acting that way.

• 13:37David Hoffman?

  Yeah, the, the other thing about this is the Coinbase and Binance suit that dropped one after another, like first Binance, then Coinbase the next day. And it really, um, it really takes kind of some wind out of Coinbase's sails because then Coinbase is, is placed right approximately to Binance. And Binance does have some like things that Coinbase would have never done, right? Like funneling customers' funds through private, uh, uh, entities controlled by CZ. Coinbase, to the best of its ability, has been as buttoned up as possible. And it's, and the, the SEC placed Coinbase's suit right next to Binance's suit. And now Gary Gensler gets to go on Squawk Box and say, this entire industry is based on non-compliance. When really it was just Binance that was playing that game.

• 14:21David Hoffman?

  And so the, it seems to be that Gary Gensler and the SEC are playing dirty. And I think the question that everyone is asking is. Why? Does he? Because he doesn't have to play dirty. He could be a more amenable regulator. He could be more accepting. He could do his, what we would feel as doing his job better. And from, from my perspective, we have the, the crypto lawyer commentator, Metta Lawman, and many others who think that the SEC is going to lose this case against Coinbase. I don't know if that's, if you guys share that opinion, but that seems to be the conclusion that, I mean, my limited legal brain can, can come to, but also others.

• 15:03David Hoffman?

  But why, what gives Gary Gensler the confidence to be so bold and to be, and from my perspective and others, unconstitutional? Why does he have so much confidence? Jake, do you have a perspective here?

• 15:15Speaker 01

  Yeah, I, um, I think it comes down to, as everything in life does, knowing what game you're playing, right? What you want from the SEC and from its leadership is to be playing the game of coming up with good policy and good regulation that addresses risks in financial markets while also encouraging innovation, protecting investors, facilitating capital formation, and ensuring fair and early markets, right? That's what it's supposed to be doing. I do not think that is the game that Chair Gensler is playing, right? I think the, the game that he is playing is rather to seize as much authority for his agency as possible for the purpose, frankly, of bolstering his own credentials as an effective regulator. The, the rumor about him, and you know, of course, the favorite game, you know,

• 15:59Speaker 01

  parlor game in DC is, is psychoanalyzing Gary Gensler from a distance. I try not to do that too much, but you know, the, the word on him is, um, he has significant political ambition. For a long time, the rumor was that he wanted to be the Treasury Secretary. The way that you become the Treasury Secretary in perhaps his mind is you make headlines and you satisfy a core contingent of people who can help you to achieve that role. In this case, that may be crypto skeptics in Congress and potentially in the, in the administration, in the White House, who feel very strongly that there is no value to crypto. And so for him to advance his career, he would not follow the stated mission of the SEC,

• 16:41Speaker 01

  but rather to use every lever that he can pull to attack the industry. I guess the other piece I'll add, and then I'm curious what Amanda thinks about this, is... I do think the SEC will lose the case against Coinbase. I don't think Chair Gensler will lose that case because I think he will be long gone by the time there is a resolution to this case, right? So what he gets is all the benefits of the headlines in the press and his day on Squawk Box, right? Chair Gensler loves going on Squawk Box. We always get to hear him on CNBC when these things happen. But then he does not have to suffer the consequences of the embarrassment of the commission losing the case once that happens three, four, or five years down the road.

• 17:21Speaker 02

  Yeah, I mean, I think a few things, like just to add on to what Jake is saying. I think you don't have to look any farther than what Gensler said yesterday, right? We don't need more digital currency. We already have digital currency. It's called the US dollar. So I think to purport to regulate an asset class that you don't think should exist would be really inconsistent, right? But I think in terms of whether Coinbase will win or lose, I think we're here to play the long game as an industry, and I'm sure Coinbase is here to play that as well, right? They are very well-funded with excellent legal counsel, and I am sure they will mount a full-throated defense to these allegations.

• 18:02Speaker 02

  And I think that, as Jake said, Chair Gensler may not be around to see the outcome of the case, but Coinbase is really going to give them a run for their money. And they're going to be in a district that is actually pretty well-versed in cryptocurrency. The judges in the Southern District will, you know, have had some experience with it. And I think that they'll be able to explain why this complaint was not drafted with the best interest of the market or the efficiency of the market or the promotion of capital formation in mind.

• 18:37David Hoffman?

  So there's a common trope in the crypto space and just really about politics in general, that the short-term incentives of four-year election cycles, I don't know how long, I think the SEC chair is five years. But either way, the reelection or the constant churning of seats of power gives people short-term time horizons, right? Gary Gensler only needs to have a short-term victory. And he doesn't have to deal with the consequences of of long term losses. Uh, and so I I see that that playing out here. Um, Jake, you said, uh, uh, no, the we like to wear our tinfoil hats and here in the crypto world. I definitely do. Um, the I'm reminded like Gary, there seems to be the Gary Gensler Elizabeth Warren axis.

• 19:19David Hoffman?

  That's part of like very connected to the Biden administration and not too long ago. Elizabeth Warren to did her famous, I'm building an anti crypto army tweets. Uh, which I mean, is obviously super unpopular with the crypto world, but I'll probably probably fair to say that like her base is like, nice, like it. Uh, and and so that's, that's the Elizabeth Warren side of things. Gary Gensler and Elizabeth Warren have been like rumored to be shoulder to shoulder. And this is all part of the Biden administration. And, uh, interestingly, Elizabeth Warren, a very anti bank politician, has started to find the alignment of the banks. And so my can my tinfoil hat goes, there's this whole like axis of power, which is

• 20:01David Hoffman?

  the Biden administration, Elizabeth Warren, Gary Gensler, the Treasury Department and the banks. And all of these incentives are amalgamating into this force that gives Gary the confidence that we see when he goes on Squawk Box and says, hey, we already have digital assets. It's called the digital dollar. Amanda, I'll, I'll run that that conspiracy theory by you. How does that land with you?

• 20:22Speaker 02

  Um, historically, I have not been a huge fan of conspiracy theories, but I will play the game. Um, I think that I, um, I don't know if I would have put it in exactly those terms. I think that what's really disappointing to me, especially in the case of progressives like Elizabeth Warren is, and Jake and I talk about this all the time. I think there's actually a lot of progressive values in crypto that they should be aligning with. Right? So the idea of democratizing finance, the idea of bringing access to finance to underserved communities in this country. You know, there's representatives like Richie Torres, who does recognize that, who is a traditionally very progressive politician. I am disappointed that Elizabeth Warren and AOC and those who want to serve underrepresented populations who historically have not been treated well

• 21:07Speaker 02

  by banks, um, are not jumping on board for crypto that like this is crypto was here to solve these problems and to provide, uh, more access to people. So I think, um, to the extent that there is that conspiracy, uh, in existence, I am disappointed that that is the case. Um, but I don't know if I. I think it might be giving people a little too much credit to say that they're so coordinated with the banking system. It feels a lot like they just don't understand the technology and they don't understand its capabilities.

• 21:39Speaker 01

  100% agree with that. And I'll follow you maybe partway down this rabbit hole, David, but not all the way. I think, look, yeah, there's a group of people in different parts of the government who have this view, either number one, that they genuinely think crypto is a scam and should not exist in the United States, or number two, that it is politically advantageous for them to take that position, whether they believe it or not. I think like really interesting question, whether Chair Gensler believes any of what he is saying now. The man taught a class at MIT about the value and interesting aspects of crypto, and then goes on TV yesterday to say there's no value to it at all, you know, which which one is true? I think interesting question. But I also think that we're going to see a change as we get toward the next

• 22:21Speaker 01

  election in that approach, right? For Senator Warren, it's one thing. She's in Massachusetts. She is going to win her reelection. There is no question about that. She can say whatever she wants about crypto. It's never going to hurt her. I think what you want to do, though, is look at other Democrats who are not following that view. Representative Torres, who Amanda mentioned, great example, very progressive Democrat in the House on the Financial Services Committee, very active in crypto. I wouldn't call him necessarily a champion, but he has a very intelligent, well-informed take on the value of this technology and why we should support it rather than kill it. I also think we have to look at Senator Sherrod Brown, who is the Chair of the Senate Banking Committee, an extraordinarily important position for

• 23:02Speaker 01

  our purposes. He's up for reelection in Ohio, very different from Massachusetts, right? You could call it a swing state. You could say at this point, it's actually leaning on the Republican side. And I think for him, he's going to have to ask himself and get some advice from folks working with him as to whether this same message, building an anti-crypto army, is going to be palatable to the Ohio voters, the way that Senator Warren may think it is to the Massachusetts voters. And I think once that calculus starts coming into play, we might see a shift in tone from some important Democrats who thus far it may be seemed in that camp, but actually will not.

• 23:39David Hoffman?

  So let's move forward in time here and let's, let's assume that Gary gets what he wants and he gets to be Treasury Secretary. And he threw crypto in the trash bin as a means to an end to get there. Does that mean that like now that he got what he wants, he gets to like go easy on us because now we don't matter anymore? Or do you think he like double down, he doubles down and be like, oh, I'm going to continue to hammer on crypto. Cause that's what got me into this seat of power. And so I'm going to just continue that activity. Like should, should, how can we think about like the temporal nature of Gary Gensler in the chair of the SEC? If he ultimately does get what he wants and become secretary. And then also, does that depend on the administration? Cause this is only a Biden administration conversation, correct?

• 24:24David Hoffman?

  Play forward us in time, Jake.

• 24:27Speaker 01

  Okay, so I'm, I'm going to do some real speculation here, but, but I'm happy to, to give you my best guess at this. I think first of all, he will not be Treasury Secretary anytime soon. That's not going to happen. So his best bet would have been if Secretary Yellen, the current Treasury Secretary, had decided to step down after the midterm elections. There were rumors that she was going to, she decided to stay. She's actually been not bad at all for crypto. She doesn't like crypto, but she's not trying to kill crypto in any way, shape or form. So the next time that that might happen would be in 2025. After assuming President Biden is, is reelected. Chair Gensler could either, you know, take the Treasury Secretary position.

• 25:11Speaker 01

  Or, you know, decide to, to stay at the SEC or maybe just step down and do something else. I think, you know, if President Biden doesn't win reelection, Gary Gensler is out for sure, right? No Republican is going to keep him around. I also think it is just unlikely that he will get that position in a second Biden term. Probably if, and again speculating, what he's doing is trying to make a name for himself. So that the next Democratic president, whoever that is and whenever that is, will consider him for the Treasury Secretary position. Consider that he was the CFTC chair before he took some time out of government and then became the SEC chair. He's not, you know, an old guy. He's got plenty of time left in his career. So that would be my guess in terms of timing. What would he do?

• 25:51Speaker 01

  I have no idea what a Treasury Secretary Gensler in 2029 thinks about crypto, right? I would say, don't underestimate the willingness of folks like this. To pivot if it is to their advantage and maybe by that point it will be more advantageous for him to be pro crypto than anti and I wouldn't you know say that anything he's said on Swapbox you know this decade would stop him from saying the opposite next decade just like his MIT courses and what's going on today so that's my best guess of that.

• 26:21David Hoffman?

  Amanda, does that resonate with you as well?

• 26:24Speaker 02

  Yes, I'm not sure I can add a lot to what Jake just said. I think that he's better at predicting predicting the future than I am but I will tell you that we have a very fun graphic at DEF of the things that Chair Gensler said years ago and things he has said recently and I think we are going to be adding to it for years to come so that is the only prediction that I feel confident making.

• 26:50David Hoffman?

  Oh, the fact, the idea that the story arc of Gary Gensler is only at towards the beginning, definitely, definitely scares me. There's a few other topics that I want to get to and now Coinbase and Gary now has a date with a federal judge so that is pretty cool and then there's also just legislation in Congress. We had this market structure bill go through the Agricultural Committee so I want to talk about these two subjects in the second half of the show but first before we get there, I want to talk about these fantastic sponsors that make the show possible. Learning about crypto is hard, until now. Introducing MetaMask Learn, an open educational platform about crypto, Web3, self custody, wallet management, and all the other topics needed to onboard people into this crazy world of crypto. MetaMask Learn is an interactive

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• 29:01David Hoffman?

  So transform your employment and token payroll operations with Toku. You can reach out to Toku at toku.com/banklist or click the link in the show notes. Introducing ETHX from Stater. ETHX is a liquid staking token designed to maximize rewards, all while securing Ethereum. With Stater, you can run an Ethereum node with just four ETH. An 85% lower capital requirement versus the 32 ETH required for solo stake. With Stater's four ETH nodes, you can get a 35% average higher yield since you charge fees to those who use your node to stake their ETH. By running a node with Stater, the ETHX staking derivative token can get minted on your validators and can flow into the world of DeFi, which Stater is actively building integrations and partnerships into to increase the utility of ETHX.

• 29:46David Hoffman?

  Stater allows for both permissioned and permissionless nodes to join the network, maximizing its potential scalability for ETHX, while preserving the values of decentralization and openness behind its liquid staking token. Go to staterlabs.com/eth and sign up to get access to the Stater staking protocol. Arbitrum One is pioneering the world of secure Ethereum scalability and is continuing to accelerate the Web3 landscape. Hundreds of projects have already deployed on Arbitrum One, producing flourishing DeFi and NFT ecosystems. With the recent addition of Arbitrum Nova, gaming and social dApps like Reddit are also now calling Arbitrum home. Both Arbitrum One and Nova leverage the security and decentralization of Ethereum and provide a builder experience that's intuitive, familiar, and fully EVM compatible.

• 30:31David Hoffman?

  On Arbitrum, both builders and users will experience faster transaction speeds with significantly lower gas fees. With Arbitrum's recent migration to Arbitrum Nitro, it's also now 10 times faster than before. Visit arbitrum.io, where you can join the community, dive into the developer docs, bridge your assets, and start building your first app. With Arbitrum, experience Web3 development the way it was meant to be: secure, fast, cheap, and friction-free. Bankless Nation, we are back. And something that's exciting to me is that Coinbase and Gary Gensler, they've got a date in front of a federal judge, hopefully a neutral federal judge. And so, when I was talking to Paul yesterday on the show, he said, "Well, don't necessarily hold your breath for that, it could take a while."

• 31:16David Hoffman?

  But what might we get out of that? What clarity could we get out of what would ultimately become a court date between Coinbase and the SEC? Amanda, what are you hopeful for?

• 31:28Speaker 02

  So, I am hopeful for a fair analysis of the issues. I think that you're right, that it could take some time before we actually get into the substance of the issues, right? So, the complaint just went in. Coinbase either has 21 or 60 days, depending on procedure, most likely 60 days before they even have to respond, right? So, we're talking about two months before we even get a response, and most likely, that's probably going to be a motion to dismiss, which will just test the allegations of the complaint itself, right? Just like, is there enough in there on first glance to even sustain those claims? So, at that point, it's not about even what's like true or supported by evidence, it's simply about have they alleged enough to get past a motion to dismiss.

• 32:11Speaker 02

  Then we enter some kind of discovery phase, which could be limited, could take a long time. And we won't actually get to the substance of the issues until we get all the way, all the way to summary judgment. Which I'm sure your listeners are familiar with because Ripple is currently awaiting a summary judgment decision, right? So it's not until we get to summary judgment that we actually hear from witnesses, hear what the evidence might say and might show. And actually get into the substance of the issues. Um, so I think it could be months to years before that happens, but I am hopeful that at the point that we are at a summary judgment decision. Um, that the judge has had a full hearing of what this technology does, what Coinbase does.

• 32:52Speaker 02

  Has fairly considered all of the evidence and has rendered a decision based on all of those considerations.

• 32:59David Hoffman?

  So I think the crypto industry, myself included, is largely ready for that date just to happen, just because we can have our, finally have our opinions validated. Yes, this is good technology. No Coinbase isn't doing anything wrong, et cetera, et cetera. I think the, the thing that might be new here that I'm hopeful for is that we actually get a window of transparency into the SEC. Cause the SEC has to come to the table and be like, here's our thought process. Here is, uh, what the internal operations of the SEC is like. I, I don't know what we could get. And that's kind of my question to you is. What, what could we glean from the internals of the SEC that might provide us insight as to the motivations and aspirations of Gary Gensler? Is there anything to, that we might get out of this?

• 33:38Speaker 02

  Yeah. So I don't want to be too much of a downer here, but I don't know how much we're going to get on the internal machinations of the SEC. There is a discovery period where Coinbase can seek that kind of discovery from the SEC and ask for documents. I expect the SEC to fight and claim every privilege they can over their internal documents and their internal conversations. Um, but I would also just flag that anybody can send a FOIA request to the SEC and ask for that information under the Freedom of Information Act. Um, and that is something that DEF will be exploring in the future. And I know BA has also sent some FOIA requests, um, and probably will do more. So, um, we don't even have to wait is my point. Um, there could be, uh, ways to get at that information sooner.

• 34:20Speaker 02

  But in this litigation, I think that the discovery period could give us some internal communications, could give us some memos. Some non-privileged documents about what the SEC has considered. Um, in the way, and the way they've talked about securities, right? For all these years that we've all been talking about the way they talk about securities.

• 34:40David Hoffman?

  I don't know if it was a FOIA request that I saw, but I saw a request go out to the SEC Gary Gensler's office, asking for information about the financials around the Gary Gensler influencer videos. I don't know if you guys saw this tweet, but it was like, hey, how much did those cost? I think was the request. And the SEC responded like, we don't have any of those records. So like, no, no transparency there. But I think that goes as a, you know, a plus one to the idea that Gary Gensler is trying to become a very public figure using these influencer videos, trying to get like the limelight. And that makes me a little bit bearish on the idea that when we open up the window into the SEC, that there will actually be something to look at there. Because if it's just Gary Gensler and his motivations,

• 35:23David Hoffman?

  he gets to kind of keep that internally inside of his own brain, right? Like if he wants to be influencer Gary, he doesn't need like to inform the rest of the SEC about that strategy. Can you check my, check my reasoning on that, Amanda?

• 35:37Speaker 02

  Sure. So yeah, I mean, thinking about what like he documents could look like, right? That would actually get to what you're talking about and give us some insight. I think there could be internal communications or memos that are prepared before Chair Gensler or any of the SEC commissioners go to a meeting, right? Or go to a public appearance. So there's the possibility that we will get some of that. But I take your point that a lot of this might not actually be communicated to anybody except Chair Gensler and his, his closest non-work colleagues. And I, I think that ultimately, if we can get some insight into how the SEC has either been inconsistent about their takes on securities, or that

• 36:18Speaker 02

  they have predetermined before even, before rulemaking, right? Because that's where we are right now. They've predetermined what is a security and what is not a security without a full and fair analysis of that, that would be really helpful.

• 36:31Speaker 01

  Yeah, I guess I would just add, well, first of all, Amanda is one of the absolute best litigators I know. So I would never doubt her, her assessment of the likelihood of us getting something out of discovery. I will validate for you, though, David, how important this issue is, right? We have this problem with the SEC, which is they make all these decisions behind closed doors rather than through a public process. What they should be doing is engaging in a public process, right? Either through rulemaking or otherwise, to find out what do people actually think about this, right? We're the taxpayers, we pay their salaries, they should be listening to us. And they also, like I was saying before, should be making decisions that are aligned with their mission

• 37:12Speaker 01

  rather than decisions that are aligned with advancing the political careers of specific unelected leaders of that agency. And the problem is, we don't know what's really going on because the SEC is not forthcoming about what happens behind closed doors. And I think that's why my hope is Coinbase will fight aggressively, even if the likelihood of success of getting that information is pretty low. But I think Ripple set an extraordinary precedent for the industry by fighting so hard to look behind the curtain as to, you know, what the SEC was thinking about XRP, what the, you know, the genesis of the very important watershed speech that, that Bill Himmend gave a long time ago. You know, sort of what sort of led to that and what the thinking was.

• 37:56Speaker 01

  I would hope that Coinbase will try to push the envelope on this as well and try to figure out what is the SEC really thinking in bringing these enforcement actions.

• 38:04Speaker 02

  And what Ripple has done will help in the Coinbase case because they're in the same district, right? While it's not precedent that this Coinbase judge would have to follow, it is supposed to inform what the judge is considering. So they, Coinbase will be able to use any win that Ripple has experienced to say, you should do something similar here.

• 38:24David Hoffman?

  Is there any world where this actually turns into the crypto industry being able to bite back at the SEC? Like right now, like Coinbase is on the defensive, Binance is on the defensive. But many people in the crypto world have said like, hey, what the SEC is doing is unconstitutional. It's against its, its stated purpose. I don't know if this, if the world, the world illegal is relevant here, but just like, is there any world where Gary Gensler gets in trouble? And we can take him down. Is that, is that possible? Is that within the realm of possibility at all?

• 38:58Speaker 02

  Jake, I think you should jump in here, but I will just say upfront that I'm glad you asked that because we, I think that, and I know Jake shares this view, the industry should be looking to do something proactively instead of reactively, and that is something that like B A N D E F is currently thinking very hard about and something we were planning to work on. So there is the option to bring a pre-enforcement challenge against the S E C to accuse them of like an Administrative Procedures Act violation, right? That's available. And that is something that we are going to be working on. In terms of taking Chair Gensler down personally, I'll let Jake comment more on, more on that. But I think that as an industry, especially if

• 39:40Speaker 02

  we could work together to do it, I think that there are proactive measures we can and should be taking.

• 39:46Speaker 01

  Well, Amanda gives it to me to give the bad news, which is I don't think there's, there's anything we can do to Chair Gensler himself, right? If you're, if you're out for revenge, I don't think, I don't think you're going to get satisfied by anything we can do in court. But the point that she raised is an extremely important one. So let me, let me give you some thoughts about this. As an industry and as a community, we have a problem right now, right? The problem is, we have an enforcement agency that wants to destroy our industry, and we are sitting ducks. We wait to find out which cases the S E C wants to bring, and then they bring them, and then we try to defend ourselves in a reactive stance. And the, the issue here is, the S E C picks cases that are favorable to it, right? Fact

• 40:29Speaker 01

  patterns that are preferential for the S E C. They bring those suits against defendants that they feel good about going after, and they bring those cases in courts where they think they will get judges who are susceptible to their arguments, or where the case law in the circuit court that those district courts are bound by is more favorable to them than in other courts, right? So we are sitting ducks. What is the solution to this problem? It's for us to go on offense, right? For us to basically run the exact same type of playbook, which is to pick issues we feel good about, and then bring those issues to courts where we feel good about the judges and the applicable law. And to bring those cases on fact patterns where we feel confident that we can tell the best

• 41:12Speaker 01

  possible story about that case, right? This is not a new idea. This is called impact litigation. It's been going on for decades and decades. It just hasn't been going on in the crypto industry. And I think to the extent that we are going to fight an existential battle over this technology in federal courts, we cannot win if we are only on defense. So a very important thing that both the Blockchain Association and the DeFi Education Fund are working on is figuring out where can we get offensive, where can we bring our own cases to start clarifying that in fact, the SEC's view of the law is wrong. It turns out that an airdrop is not an investment of money. If you get something for free, then that is not a security, right?

• 41:54Speaker 01

  The, the idea that any asset with a shared market price equals a common enterprise is a preposterous idea, and we just need to get those issues in front of the right courts and start getting rulings that go our way, and that will change the dynamic here in a huge way. And hopefully not too long from now.

• 42:14Speaker 02

  And I think something that motivates both BA, the Blockchain Association and the DeFi Education Fund is we are trade association, so we are particularly well positioned to be able to do that. We are, you know, fortunately not facing the existential threat that many people in the industry as a protocol or blockchain company are facing. So we're able to take those positions and make those arguments. And I think that's what makes us feel passionate. That's what makes us feel like advocates and what we are, what we're, you know, really motivated to do right now.

• 42:43David Hoffman?

  So I, I think I heard your guys' answers be bucketed into two categories. There's, there's the, hey, we're going to go on the offensive about the rulemaking of the way that the SEC treats crypto, our industry, our platforms, our companies and our assets. And then there was the other answer is like, can we get Gary Gensler in trouble? And so it sounds like we have tons of optionality with going toe to toe with the SEC offensively and trench warfare, courts by courts, court case by court case, to make sure that our industries are treated appropriately according to the rule of law. That sounds like there's like a green light. We should totally be doing that. And no, not only should we be doing that, we are doing this with the Blockchain Association and then the DeFi Education Fund.

• 43:25David Hoffman?

  And then I just want to go back to, cause like this is the part of the conversation that excites me, the getting Gary Gensler in trouble part. Jake said you're bearish on this. I just want to check the understanding of just like the the odds of we we can point towards Gary Gensler and he and say that this man is using the SEC to promote himself as a political figure as an increase to to run up the ladder of political offices into a bigger and bigger position of power and he has just not been the he has misused the chair of the leadership of the SEC in that end. That is not something that Jake, you are particularly optimistic about, correct?

• 44:06Speaker 01

  Okay, because you asked so nicely, let me give you the the more optimistic, hopeful version of this, or at least some ideas. I'll give you a few, okay? First of all, I think the best way for us, if we want to, you know, make a point about Chair Gensler's conduct, is not in the courts, it's in Congress, right? He answers to Congress and I don't know if you watched, but he got dragged in front of the House Financial Services Committee for like a six hour hearing during which a lot of people berated him for how horrible he was doing. And that is at least a little bit soothing for the soul, right? I think we can expect more of that, but I also think we can push further in Congress. Representative Torres, who we were talking about earlier, sent a letter to the SEC basically

• 44:47Speaker 01

  accusing Chair Gensler of, I can't remember exactly what the nature of the letter was, but explaining his doubts about how Chair Gensler was doing. I think to the extent that we can put not legal pressure, but political pressure on him, that is where we are most likely to be successful. If he feels like, you know what, this approach to crypto is actually not winning me friends among Democrats in Congress, that's where we can make a change. And that's why I mentioned Senator Brown, right? The Senate Banking Committee is the Senate committee that has jurisdiction over the SEC. If Senator Brown was to start changing his tone about crypto and about how Chair Gensler is acting, that is a way to really make a change. So so put that in one bucket is is a congressional strategy. In court, I do think there are two things that are at least worth talking about,

• 45:32Speaker 01

  although Amanda, who's a real lawyer as opposed to me, will tell me I'm crazy. One of them is, I believe Chair Gensler should have to recuse himself from any vote related to crypto. And you should watch for a paper that I and my policy counsel, Marissa Koppel, are planning to publish, hopefully in the next few weeks, that makes this legal argument that Chair Gensler has prejudged all digital assets as securities. And as such, he is not able to neutrally and impartially decide how the SEC should approach enforcement decisions and perhaps other decisions about this industry. So stay tuned for that. I think that's a novel, interesting argument, if nothing else. The other is, I think we can embarrass him by winning some of these cases, right?

• 46:16Speaker 01

  If he doesn't leave before Coinbase wins some great victory, if Grayscale wins its case over GBTC, if we can bring some other type of case, not related to the SEC's interpretation of the Howey test, but instead, for example, that the SEC has violated the Administrative Procedures Act by making all of these decisions behind closed doors instead of through a notice and comment rulemaking process that involves the public. That's another way that we can put pressure on him through the courts. So I think there are a lot of options. I just, usually you don't get at the individuals, you go after the agencies. And I think ultimately, that's probably what happens here.

• 46:51Speaker 02

  Yes, I was hoping that you were going to mention the paper that I know that you're working on, Jake, because I think that that is really helpful. And even though it may not be that like, that is a formal affirmative defense in a court case to say he's prejudged what is a security and what isn't. I do think optics matter, and I do think judges do like, like, listen to that stuff, right? I think that it is important to socialize a judge to what your adversary actually is motivated by and what they're actually doing behind the scenes. I think it does matter. And there are some lawyers who stage much of their war in the press, right? As opposed to in the courtroom. So I think that all of that stuff matters.

• 47:28Speaker 02

  But I will say that I've always thought the best revenge is living well. And I think if we are playing a long game and crypto flourishes and we win the day like ultimately like that's probably going to feel the best and really piss off Chair Gensler, right? So that's kind of where I'm coming from.

• 47:44David Hoffman?

  Oh, I 100% aligned with that philosophy. I think crypto, as soon as we can get our feet under us and making meaningful progress with good, strong innovation that doesn't strike fear into the hearts of founders and developers, that would be great. And I will say, Amanda, I do think that that might begin with a pantsing of Gary Gensler in a court. But that is just my, my opinion. Guys, this has been a really great conversation. There's one last conversation piece that I want to talk about before, before I let you guys go. And that is the, um, the, the bill that is in, uh, in going to be proposed in front of Congress, the McHenry Thompson Hill Johnson. They released a digital asset market structure bill on June 2nd. Just quick vibe check on that bill. How does that make you feel inside Jake? We'll start with you.

• 48:29Speaker 01

  Yeah, vibes are good. Vibes are vibes are strong. We're feeling good about this. So the, so the market structure bill is a discussion draft. It's in its very earliest phases, but it's a very serious effort. One of the most serious we've seen and definitely the leading bill now to actually solve some of these problems that we've been talking about for the last 45 minutes or so. The purpose of the market structure bill is to say, here is an actual app for a digital asset exchange to register with the SEC and address some of the very valid concerns that the SEC has about risk in crypto markets.

• 49:05Speaker 01

  And here's how token creators and distributors can also register their tokens and handle all the types of risks that come up with that without also throwing out all the benefits of decentralization and disintermediation. This has always been the problem with the federal securities laws. It's not that we think the securities laws shouldn't exist unless you're an anarchist, which, you know, I say that with all due respect, but I think most of us think that regulation is appropriate to address issues like. A token creator having special access to information that really should be disclosed to the holders of that token in order for them to understand the purpose of their investment. Or for an exchange that creates a secondary market for digital assets to have market surveillance, right, to make sure that wash trading and manipulation aren't happening, right,

• 49:50Speaker 01

  to address illicit finance risk and all other, you know, types of issues like that. Everyone supports that. The problem is the federal securities laws as they exist today are incompatible with crypto. Because they assume the presence of an intermediary in a very particular type of arrangement that just doesn't work for crypto and is totally unnecessary to destroy the benefit of this technology. The market structure bill is an extremely serious attempt to create a path for compliance that actually works for crypto. It has the support of the chairs and ranking members of the digital asset subcommittees in both the House Financial Services and House Agriculture Committees. The fact that they are working together on this is extremely notable. And they are looking to move this forward very quickly.

• 50:34Speaker 01

  So I think it's probably not worth, you know, for the the audience of non-lawyers and non-policy folks, probably not worth digging too deep into the details of the bill unless you want to right now. Because I think a lot of it will change as time goes on. But I think this is a really exciting development and something that should give us hope that maybe we can get this legislation done ideally before the end of this Congress, maybe in the next Congress, but long before the SEC can destroy this industry by bringing enforcement action after enforcement action.

• 51:03Speaker 02

  Yeah, I will just quickly echo what Jake said. I think vibes are good. I think the industry has been asking for regulation and clarity for a long time. And I am really happy to see a serious effort being made that we can all start a conversation around. Like Jake said, this is going to change. We're going to go through many drafts of it. And but at the very least, it is the reason for us to be doing what we keep, what we've been doing, which is educating lawmakers about digital assets and D5 for DEF and having those conversations around an actual piece of proposed legislation. And it may be a long time before it's resolved, but that means we have a long runway to be having those conversations and continuing that conversation.

• 51:45Speaker 02

  So I think that it's, I think it's, it's just a great beginning, even though there is kind of like this, what feels like a crisis point this week. I think, like we've been saying, we're playing a long game. And this bill is one reason to have a wider perspective than just what's going on this week.

• 52:02David Hoffman?

  Jake, Amanda, this has been just a fantastic conversation. I've learned quite a lot in this last hour or so. And I will say, while there does seem to be a shift of the crypto market out of the United States towards, towards the East, towards Asia, I feel like there's so much to be optimistic and excited about inside of the United States. While it does seem dark and gloomy, it also kind of feels like a bottom. As in, don't sell the bottom of the United States. Don't paper hand the United States, especially when things seem to be just turning around. We have a lot of things to look forward to. So Jake, Amanda, thank you for helping me just walk through this conversation and giving me so much to be optimistic about, about the state of regulatory affairs inside of the United States.

• 52:44Speaker 02

  Thank you.

• 52:46David Hoffman?

  If people, if listeners feel moved about some particular part of this conversation, maybe they want to help pants Gary Gensler, maybe they want to help this bill get moved along. How, how might you guys suggest that they can take action and actually help move the needle in favor of the crypto industry? Jake, I'll throw that one to you first.

• 53:04Speaker 01

  Um, yeah. So, um, if you're a company working on crypto in the US, join the blockchain association. If you want to support the extraordinary efforts of the DeFi education fund and you have a few dollars to spare, please donate. Every dollar matters a huge amount. Follow Amanda on Twitter. She's the most important crypto lawyer that you're not following right now. She's going to be a huge part of winning the battle.

• 53:25Speaker 02

  Jake doesn't need any more followers. He's just saying that.

• 53:29Speaker 01

  And that too. And yeah, and stay tuned because you know, the day is going to come where we say to everybody, we need you to call your senators and your representatives to tell them to vote in favor of this market structure bill. And when that time comes, everyone needs to be paying attention and needs to get active. So stay tuned. Keep listening to Bankless and, uh, and we'll make it happen.

• 53:49David Hoffman?

  Amanda, same question to you. If people feel moved, where should, where should they go? What should they do?

• 53:53Speaker 02

  Jake just covered everything in that answer. Um, I would just, I don't have a lot to add. I think that Jake's right. He is obviously like one of the best people to follow and to get up to date news from. And the blockchain association is doing great work. As is the DeFi Education Fund and we're hoping to work together to do some of that impact litigation we've already been talking about. So if you want to know more, please get in touch, defieducationfund.org. We also have been asking for developers to reach out to us. We want to know what you're concerned about, what your questions are. We want to speak for developers in the space. So please get in touch if you have questions or want to talk through anything. And we look forward to continuing the conversation with you, David. Thanks for having us on.

• 54:34David Hoffman?

  Thanks for coming on, Jake and Amanda. This has been great. Bankless Nation, you know the deal of risks and disclaimers. ETH is risky, crypto is risky, DeFi is risky. While these are some of the smartest lawyers in crypto, they are not your lawyers. You can lose what you put in. We are headed west. This is the frontier. It's not for everyone, but we are glad you're with us on the bankless journey. Thanks a lot.