163 - What SEC Commissioner Hester Peirce Thinks About the SEC

Hester Peirce is one of five SEC Commissioners. She's been a Commissioner since 2018, with her term ending in 2025. Peirce, a previous podcast guest of Bankless, consistently makes first principles statements and is known to often dissent for her colleagues on crypto-related actions…we talk about that in today’s episode. These are a couple of many reasons why we enjoy her and her guidance so much. ------ ✨ DEBRIEF | Unpacking the episode: https://shows.banklesshq.com/p/debrief-hester-peirce ------ ✨ COLLECTIBLES | Collect this episode: https://collectibles.bankless.com/mint ------ We’re three months into 2023 in one of the worst regulatory environments we’ve seen for crypto in the United States. In today’s episode, SEC Commissioner, Hester Peirce shares some insight on what crypto could be like if we had a first principles SEC, what a security is and how we can define it, and how can crypto take its share of the responsibility to move this industry forward. Commissioner Peirce was on the show two years ago…Apr 12, 2021. Today’s second appearance is one you do not want to miss. ------ 🚀 JOIN BANKLESS PREMIUM: https://www.bankless.com/join ------ BANKLESS SPONSOR TOOLS: ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://bankless.cc/kraken 🦄UNISWAP | ON-CHAIN MARKETPLACE https://bankless.cc/uniswap 👻 PHANTOM | #1 SOLANA WALLET https://bankless.cc/phantom-waitlist 🦊METAMASK LEARN | HELPFUL WEB3 RESOURCE https://bankless.cc/MetaMask ------ Topics Covered 0:00 Intro 8:25 Thoughts on Bank Crisis 9:30 Why We Need the SEC 11:40 Information Asymmetries 13:20 Healthy Crypto/SEC Relationship 17:15 SEC Security Definition 20:52 Security Catch-22 25:40 Expanding Jurisdiction 28:35 SEC Advocation 35:03 Dissent SEC Sway 39:36 Kraken Staking 43:36 Guidance vs. Enforcement 46:15 Stablecoin Status 47:43 What Crypto Could Be Doing Better? 51:12 Decentralization 53:49 Self-Regulation 55:24 Duke Speech 57:59 Closing ------ Resources: Hester Peirce https://twitter.com/HesterPeirce ----- 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.

• 0:00Ryan Sean Adams?

  Welcome to debrief after episode with Hester Purse, the second episode. Man, she's great, David.

• 0:04David Hoffman?

  Well, there's a reason why she's called crypto mom. We didn't talk about this in the episode. We did the first time, but

• 0:08Ryan Sean Adams?

  She doesn't mind that, by the way. That's not demeaning in case you're not aware.

• 0:12David Hoffman?

  That's a, that's an endearing title that the crypto industry has given her.

• 0:16Ryan Sean Adams?

  And she's also accepted.

• 0:17David Hoffman?

  And she's also accepted, yes. And I just think that it's deserved, so deserved.

• 0:23Ryan Sean Adams?

  I like what you said in the intro about her being an archetype for a regulator that actually works. Like every time I talked, every time I see Gary Gensler's face, it decreases my faith in government.

• 0:36Ryan Sean Adams?

  Every time I read a speech by Hester Purse, it increases my faith in government.

• 0:43David Hoffman?

  Right.

• 0:43Ryan Sean Adams?

  She's absolutely, she's absolutely the model of how a regulator that is actually serving the people should be, should be serving in an institution and should be serving American citizens.

• 0:58David Hoffman?

  She is a public servant. I think somebody like Gary has succumbed to temptation of power, right? It's like, what's that line of like, you people that want power aren't people that you want, that you want to have power, right? And Gary is somebody who wants power and we don't want him to have power because he wants that. Hester doesn't want power. Hester is a first principles person who wants to facilitate capital markets. And she's not interested in increasing her scope.

• 1:30Ryan Sean Adams?

  I think there are other people like that in government. Maybe there's other people like that in the SEC. We just don't really know them because the other, you know, not only is she kind of a first principles thinker that really actually, and people are going to be annoyed that we said first principles so many times in this episode. I'm going to say it again. First principles.

• 1:45David Hoffman?

  You can't say those words enough.

• 1:47Ryan Sean Adams?

  Right? So like down to the bottom layer, the base layer, the layers are the foundation. That's what first principles are. Anyway, not only is she oriented towards that, she's also willing to engage with the community. She's not shy. She's like in that episode, she's like, hey, I want to talk to you. I show up at your conferences. I go on your podcast. I engage with the community and I want to talk to you. I want to meet you. I want to like, Gary Gensler does not do this. He is Ivory Castle. I'll only talk to CNBC, like maybe, and do my like Gary office hours influencer videos. And I will never engage with these shadowy super coders because they're all scammers, aren't they?

• 2:25David Hoffman?

  Children that need to be in timeout.

• 2:27Ryan Sean Adams?

  Right? And the picture that Hester painted of like, David, it seems so simple.

• 2:36David Hoffman?

  It's night and day.

• 2:37Ryan Sean Adams?

  Why do we all meet in DC? Like, have a conversation about this, like freaking adults. Present your concerns based on first principles of like, hey, we're worried about this, this and this. Regulators do that. The industry talks about its concerns and the nature of this new asset class. And we kind of hash it out like adults.

• 3:01David Hoffman?

  Can you imagine just Hester Peirce and Gary Gensler in the same room together? There's no way that like, I'm sure they like get along because they're adults, but like they are just talking completely past each other. There's no way, there's no meeting, there's no meeting of the minds there.

• 3:16Ryan Sean Adams?

  But it just seems so easy to do.

• 3:18David Hoffman?

  Right.

• 3:18Ryan Sean Adams?

  Doesn't it like it just this, we could all do this. I mean, we can all like govern, right?

• 3:24David Hoffman?

  Right.

• 3:24Ryan Sean Adams?

  Like, I don't think that the portraits on both sides, we'll take some crypto responsibility for this, right? So the portrait on the regulator's side, I guess, of people like how I feel like Chair Gensler is addressing everyone in cryptos. They're scammers, they're frauds, they come to me to bend the knee. I tell them whether they get to do the thing that they're trying to do or not. I am the gatekeeper, I am the decider.

• 3:50David Hoffman?

  I am the SEC.

• 3:51Ryan Sean Adams?

  It's that whole vibe. And then I think there is a tribe.

• 3:55David Hoffman?

  That's a Star Wars reference, by the way.

• 3:56Ryan Sean Adams?

  Yeah, well, thank you, David. I think there is a tribe in crypto that is still a little like, all regulators are evil. But honestly, when I look around in crypto, I don't see much of that anymore. Really, all I see is people like Jesse Powell and Brian Armstrong and Jake Chivinsky and people that are like, yeah, when are we going to, when are we going to talk this over? Happy to jump on a flight and meet and discuss these issues and engage with you. We're not saying we don't want regulation. We're saying, don't regulate the things that are truly decentralized and don't do things in a ham-fisted way. And I feel like that engagement is there from crypto, but, but you know, maybe there are still some people that don't want to engage. But like, these are the adults that should meet in the room.

• 4:36David Hoffman?

  Right, the people who have big.

• 4:40David Hoffman?

  Organizations behind them are at the table waiting for Gary to show up. And the people that are like shadowies, like, well, they're the ones that are like causing causing like trouble for the rest of us, but like, no one really listens to their advice or leadership anyways, right? It's Brian Armstrong, it's, it's Jesse Powell, it's Jeremy LaRue, right? It's all of these people who are ready and willing and it's in their interest to. And then Gary Gensler is like absent from the negotiation table because he's getting his latest influencer video film.

• 5:10Ryan Sean Adams?

  But why do you think, can I ask you to, why do you think that? I mean, what more power can be derived by this position? If you are, if you are a chairman of the SEC, why do you care so much about growing your jurisdiction and like, is this trying to make your mark in history?

• 5:32David Hoffman?

  Yeah, I think so. I think it's something like that. I think Gary's rogue and you know that he's rogue in versus the SEC because he's not doing his job as an SEC commissioner. If we believe that his job should look something more like Hester's, he's not doing that. He's doing something else. So then you beg the question like, what is that something else? What does he want? So he's trying to increase his scope of power and influence. Like Ryan Selkis, I think is like, yeah, he's like trying to vie for some sort of treasury position, right? Some like sort of Janet Yellen after she goes. And so it's just like, he's climbing the ladder of government, playing that game. Because, I mean, like, why do you wake up in the morning and trying to grow a bankless? Like Gary's waking up in the morning?

• 6:13Ryan Sean Adams?

  It's power. It's all for me, it's all power.

• 6:15David Hoffman?

  It's all power, right? Some people wake up in the morning and be like, I need to do something today. And some people have good answers to that question, other people have bad answers to that question. Gary Gensler's answers to that question is like, I want to climb the ranks of crypto, or excuse me, of government. And I'm using crypto as the thing under my boot to elevate me.

• 6:33Ryan Sean Adams?

  I mean,

• 6:33David Hoffman?

  That's my answer.

• 6:34Ryan Sean Adams?

  We didn't talk about all this, but like the check on that power should be lawmakers, of course.

• 6:39David Hoffman?

  Right, but we already got away, they're not, they're slow.

• 6:42Ryan Sean Adams?

  Okay.

• 6:42David Hoffman?

  Gridlock.

• 6:43Ryan Sean Adams?

  Then all we have left is lawmakers or the court system, or else we're easy prey for somebody who is a power hungry regulator. If that's indeed what it, what he is. I, okay, so I was, I'm, I'm always kind of blown away when we have these conversations where it feels like Hester, like, we want to kind of dance around things at some points because we're, we're not sure what she can say or what she can't say. She flat out goes like,

• 7:09David Hoffman?

  She just fucking said it, dude.

• 7:10Ryan Sean Adams?

  Yeah, she's like,

• 7:10David Hoffman?

  She full set.

• 7:11Ryan Sean Adams?

  She's like, yo, it's a power struggle and what Gary's, he didn't, she didn't say Gary, but like what that SEC is trying to do is get more land, get more territory. It's a big land grab. That's what it is. She lays it bare. Like, I'm like, wow, you could say that? You could say that about your boss? Like, what kind of like courage does it take to do that in like,

• 7:31David Hoffman?

  Well,

• 7:32Ryan Sean Adams?

  To say, I dissent.

• 7:34David Hoffman?

  It does take courage, but also she's right.

• 7:37Ryan Sean Adams?

  Yes.

• 7:37David Hoffman?

  And so like, what's Gary gonna say? It's like, no, I'm not trying to do that. And so like, I know there's at least one other commissioner that dissents. There might be two. I can remember if there's one that she always has another one, another commissioner that dissents with her. There might be two of them total. If there is two, that's three out of the five.

• 7:54Ryan Sean Adams?

  Mark, Mark T.

• 7:54David Hoffman?

  Mark is one of them.

• 7:55Ryan Sean Adams?

  Mark's last name.

• 7:56David Hoffman?

  There's another one. I have to go double check, but like, I don't know, man, like, I think potentially like making waves as a result of regulatory conversations. These, these things don't really make waves, but like, she said it and it's explicit. And now other SEC commissioners are gonna perhaps listen to this. I'm sure they also already understand all of this dynamic, but like, it's out, it's out there now. And we can operate on that assumption that the, that Gary, everyone knows that Gary is just out here trying to increase his jurisdiction. I, I don't know. I wonder how big of a deal that that this will be when this episode lands.

• 8:31Ryan Sean Adams?

  I mean, that's one thing I heard from it is basically the SEC is trying to increase its jurisdictional power. And that's why you're seeing these power games and that's why there's a negative relationship with crypto. The other thing I heard her say is like, yeah, we can't really tell you what a security is. Thank you.

• 8:46David Hoffman?

  Right.

• 8:46Ryan Sean Adams?

  I thought that would be-

• 8:47David Hoffman?

  I'm so glad we did that, like, did that week of securities exploration at the beginning of this year, because I think it really equipped us to ask really good questions to ask to, and to talk about really good things like this.

• 8:57Ryan Sean Adams?

  But we don't know if a digital baseball card is a security versus a physical baseball card.

• 9:03David Hoffman?

  Right.

• 9:04Ryan Sean Adams?

  Like, it just, we don't know, you know, whether a Chuck E. Cheese token is a security versus, like, because the, the rules haven't been made clear. It's just this very vague Howie test and, but, but, but basically, um, was it Brian, uh, Frye? Who said-

• 9:21David Hoffman?

  Brian Frye, yeah.

• 9:22Ryan Sean Adams?

  The fifth prong of the Howie test is actually, does Gary Gensler want it to be a security or not? He said the SEC, but I'm gonna substitute Gary Gensler because it does seem like that, that the chair has a lot of power at that agency to bring about, um, you know, executive prosecution.

• 9:38David Hoffman?

  Right. No, that's, that's right. Um, I mean, like, that fifth Howie, that fifth prong of the Howie test is the only important one. There's actually only one prong, and it's binary, and does Gary want to regulate it or not?

• 9:51Ryan Sean Adams?

  Uh, Hester is optimistic, what, like, about this working, moving forward. Um, I guess I am too, but I, I'm a little worried that people like Hester, I said this toward the end, are the one, the very ones that you want, to your comment earlier, the very ones you want in power, those that kind of, you know.

• 10:08David Hoffman?

  Don't, don't seek it.

• 10:09Ryan Sean Adams?

  Yeah, flee from it. And so, she's done in 2025, who replaces her?

• 10:14David Hoffman?

  Gary's done in 2026. Um, Biden administration-

• 10:18Ryan Sean Adams?

  That's a long time.

• 10:19David Hoffman?

  Like, what's, what's the likelihood of the Biden administration getting reelected? I think, kind of likely, I think. I don't know. But like, I don't know, like, Gary Gensler's time running out at the SEC actually doesn't necessarily mean that, like, we just magically get this other, better administration on the other side of things. And so like, what are our paths forward? Gary Gensler Icarus is and Congress reels him in? How likely is that? Not very likely. I think, I don't know. I'm going with my gut here, per usual. If the courts do something, that seems to be happening. And so that is some sort of defense for us is like the courts rule in favor of logic and reason and not Gary Gensler.

• 11:03David Hoffman?

  So there's, but that's like serial processing, right?

• 11:07Ryan Sean Adams?

  Rein him in for like some small segment, right?

• 11:10David Hoffman?

  Right, but that's serial processing. That's one by one by one. That's like trench warfare, which isn't great. Congress doing a pro crypto bill.

• 11:18Ryan Sean Adams?

  I think we'll get stable coins though. I think we'll get stable coins.

• 11:21David Hoffman?

  Yeah, stable coins. Yeah, maybe that's the foot in the door that we need. Sweeping regulation that is favorable to crypto. That is what we want it to be. In this economy, in this environment, I don't really know about that. Like, man, I was kind of great, man.

• 11:34Ryan Sean Adams?

  Stay out of it then. Just like, we just don't want them to do what they're doing. Like shut down, you know, cracking staking without any kind of clarity.

• 11:42Ryan Sean Adams?

  The, the other thing that was very honest that she said was at the very beginning, I'm disappointed. It's been two years. So I remember talking to Hester two years ago, and I think it was like our first regulator. And like, in order to schedule these podcasts, you have to work through a whole office of kind of checking things like there are handlers, there are, there are people in the government that you kind of have to work through to, to schedule this. I remember being kind of nervous to have an SEC regulator on our podcast. And I was like, and at the end of that though, that was like two years ago. I was like, oh, this is a real human being. This is like an engaged citizen.

• 12:24David Hoffman?

  I like the sounds she's making.

• 12:27Ryan Sean Adams?

  But like to hear her coming to this episode, she's like, two years later, and we have no progress. It has to feel deflating for her.

• 12:35David Hoffman?

  Only enforced reactions.

• 12:36Ryan Sean Adams?

  I'm just my own personality, David. If I was in an institution and I kept like having to dissent and write things. And you know, do you think Gary Gensler even reads these dissents? Or like, does he care?

• 12:48David Hoffman?

  He doesn't give a fuck, dude.

• 12:50Ryan Sean Adams?

  Like, rip it up, like, you know, they're fantastic.

• 12:53David Hoffman?

  Oh, Hester dissented again? Great, moving on.

• 12:56Ryan Sean Adams?

  Throws it in the wastepaper basket. Like, that would be for me, in an institution like this, very demoralizing. I'd be like...

• 13:03David Hoffman?

  Well, one of the questions that I had, she kind of just answered it without me asking, is like, yo, when humans have goals that are consistently blocked, they become frustrated and sad and angry and just generally negative affect. Hester, are you frustrated? I didn't even have to ask her that. She just said, yeah, I'm frustrated.

• 13:23Ryan Sean Adams?

  I'm frustrated. I'm like...

• 13:24David Hoffman?

  I'm mad.

• 13:25Ryan Sean Adams?

  I'm mad. Also, I love the honesty of it, but like, when humans hit those, like, when people hit that block, and they keep hitting that block, you know what they often do is if they can, they exit the system.

• 13:37David Hoffman?

  Right, they ride around it. They find a different way forward, right? She doesn't have that option.

• 13:41Ryan Sean Adams?

  It's a kind of a reason.

• 13:43David Hoffman?

  She's waiting, she's sitting in front of this wall, waiting for this wall to have a door appear.

• 13:47Ryan Sean Adams?

  She doesn't, but she does in 2025. This is the thing, I don't think she's gonna stick in government.

• 13:54David Hoffman?

  You think she's gonna not stick around? I don't know what the... Can you just like re-sign as a commissioner? How does that work? You have to be appointed, right?

• 14:00Ryan Sean Adams?

  Yeah, I think you're, I think you're definitely appointed, but I don't know how it all works.

• 14:03David Hoffman?

  The big question is like, to what, does the Biden administration like Hester, or do they like Gary? Because I think they like Gary, dude. They're like choke point 2.0 bros.

• 14:12Ryan Sean Adams?

  Yeah, that's my big fear, and that is the bare case. So, I mean, what she said a few times, though, is, come and like to the crypto industry, prove the use cases, the value.

• 14:23David Hoffman?

  Right.

• 14:24Ryan Sean Adams?

  You know, I think we have one that, that US government can latch on to right now, though, David. It's just stablecoins. I mean, we just got off of a episode today with Jeremy Lehrer.

• 14:36David Hoffman?

  Right.

• 14:37Ryan Sean Adams?

  And there are very clear wins. I'm not saying this is decentralized, by the way. People are like, like, are you supporting USDC? That's not decentralized at all. No, that's fully, fully centralized.

• 14:48David Hoffman?

  We are aware.

• 14:49Ryan Sean Adams?

  We are aware, okay? We are aware that USDC circle can like blacklist your account, your account, and, you know, do all sorts of things. It's not decentralized at all. But there is clearly a win here. For the US government, I think.

• 15:04David Hoffman?

  Yeah.

• 15:05Ryan Sean Adams?

  It's just like the express train to getting a central bank digital currency out the door.

• 15:11David Hoffman?

  Right.

• 15:12Ryan Sean Adams?

  And that's a use case. I mean, like, export the most demanded US product in the world. It's called the dollar, and we could do it on crypto, and you don't even have to, like, do the hard work of building stuff because the internet's doing it for you.

• 15:26David Hoffman?

  Like, where else are you getting dollar demand fed?

• 15:29Ryan Sean Adams?

  Yeah. This is a use case, right? Am I right? Like, this is a killer app, a killer use case. If they can, you know, maintain the faith in the dollar. And I would think everyone in in kind of like a big G government would be a fan of this, but they're not. I don't know. That's the use case I would put forward as number one, because they're not going to understand why people like, you know, JPGs, are they?

• 15:52David Hoffman?

  No, no, that's right.

• 15:55Ryan Sean Adams?

  Well.

• 15:57David Hoffman?

  I have a meeting in three minutes. I must attend.

• 15:59Ryan Sean Adams?

  That's the SEC, right? CFTC. Maybe we'll do some of that. Should we talk to some other commissioners if we can?

• 16:06David Hoffman?

  Yep. Oh, always. Yeah.

• 16:08Ryan Sean Adams?

  Any commissioners?

• 16:08David Hoffman?

  Mines.

• 16:09Ryan Sean Adams?

  Yeah.

• 16:09David Hoffman?

  Trench Warfare.

• 16:10Ryan Sean Adams?

  Yeah.

• 16:10David Hoffman?

  One podcast at a time.

• 16:11Ryan Sean Adams?

  Podcast at a time. That's all we know how to do.

• 16:13David Hoffman?

  We're doing our part.

• 16:16Ryan Sean Adams?

  Bankless Nation.

• 16:16David Hoffman?

  Podcast.

• 16:17Ryan Sean Adams?

  We appreciate you. If you're a citizen. By the way, we're calling, anyone, if you are a premium subscriber, we're now kind of rebranding that to citizens, because we are all citizens of the Bankless Nation, and we certainly appreciate you for tuning into the debrief and for, yeah, for doing this with us, going on this journey with us. Thanks a lot.

• 16:35David Hoffman?

  Cheers.