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Ep 22: Unpacking Crypto: Use Cases, Decentralization, and Regulation
224 Plays1 year ago
Teana Baker-Taylor (Circle) and Ari Redbord (TRM Labs) delve into the intricate world of crypto regulation, anti-money laundering, and blockchain's transformative potential. They discuss how decentralized finance challenges traditional frameworks, the evolving landscape of policy-making, and the impact of tokenization on established financial systems. Explore the societal and financial shifts instigated by groundbreaking blockchain technology and recent policy developments.
Find out more in our explainers at owlexplains.com
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Transcript
Introduction to Owl Explains Hootenanny
00:00:06
Speaker
Hello and welcome to this Owl Explains Hootenanny, our podcast series where you can wise up on blockchain and web3 as we talk to the people seeking to build a better internet. Owl Explains is powered by Avalabs, a blockchain software company and participant in the avalanche ecosystem. My name is Silvia Sanchez, project manager of Owl Explains and with that I'll hand it over to today's amazing speakers.
Meet the Speakers: Tina and Ari
00:00:32
Speaker
Hey, everybody. Welcome to the Owl Explains Hoot Nanny. This is going to be a particularly fun hoot nanny for me because Tina and Ari are two folks that I really enjoy talking with. And we're going to try to prognosticate and pervericate and otherwise do any... Oh, perambulate. No, we probably won't perambulate, since that's a little hard to do while you're sitting talking on a podcast.
Regulatory Changes in Europe with Tina
00:00:55
Speaker
But Tina, Ari, why don't you introduce yourselves?
00:00:59
Speaker
I'm Tina Baker-Taylor and I'm the Vice President of Policy and Regulatory Strategy in EMEA for Circle. Hi everybody, Ari Redboard. I am the Global Head of Policy for TRM Labs and really excited for the conversation. Lee and Tina are both luminaries and people I admire and respect in this space. So really, really excited for the conversation.
00:01:22
Speaker
And I'm Lee Schneider. I'm the general counsel at Ava Labs and one of the wise owls behind Owl Explains. We've been having a lot of fun with it over the last year and we hope you have been too. So Tina, Ari, and Tina, you'll answer first. What is the key thing that you are focused on right now from a policy slash regulatory standpoint?
00:01:48
Speaker
Yeah, that's a great question. So because my focus is on the Europe, Middle East and Africa, there is a lot going on in the regulatory space in this region right now. So I think the most important is the implementation of MIGA, which will come into full force.
00:02:10
Speaker
in July basically of next year, 2024. And so firms all over Europe and firms looking to operate in Europe are readying themselves to be compliant with that new legislation, which entails becoming licensed in one of the EU member states. And the regulation itself covers many different facets of crypto asset
00:02:36
Speaker
Business activities it's the most comprehensive of any of the crypto asset regulatory frameworks that we have seen to date so there is provisions for stablecoins for custody for Trading platforms there's conduct requirements Prudential requirements, etc
00:02:57
Speaker
So it's a heavy lift. It's very positive in that it enables 27 member states to have a similar playing field across the entirety of Europe and it affords
00:03:11
Speaker
businesses certainty to be able to cross sell from one country to another. So it will open up a trading block of again, 27 different countries that will be on one regime.
Global Crypto Regulation Progress
00:03:25
Speaker
So there's clarity there and there's the ability to passport licenses, which I think is really positive.
00:03:31
Speaker
But it is a very comprehensive set of rules, which are not like touch by any means. So that's probably the key development. And then I think in the UK, we have seen recent legislation evolve into discussion papers from the FCA and the Bank of England on how stablecoins will potentially be treated in the UK, which
00:03:58
Speaker
is from a circle perspective very promising. And the FCA has also indicated that crypto asset regulation more broadly will be forthcoming in a phase two early next year. So progress is being made there from a previous position of kind of hurry up and wait.
00:04:18
Speaker
So that is something to look forward to. And then I would say in the Middle East, we're seeing a lot of developments in Abu Dhabi and Dubai specifically around continued clarity and real opportunities for businesses to obtain licenses.
00:04:37
Speaker
and operate both onshore in the Middle East and export many different types of use cases out of the Middle East as a hub. So, lots going on in EMEA.
Changing Crypto's Narrative through Education
00:04:50
Speaker
All right, Eri, if you can follow up that, I'll be impressed. I love the journey around the world in crypto policy and regulation. It is. It's happening absolutely everywhere. And that's kind of what's so cool about it. But for me, for me, I'd say most top of mind is almost always around education. And this is why I kind of so admire and respect the way you have made it. I'll explain sort of, you know, education, playful and fun, but also
00:05:16
Speaker
meaningful. For me, it's around anti money laundering and the conversations that regulators and policymakers have really almost always had globally in the crypto space. And that is this narrative that crypto is used or only used for money laundering and other types of illicit activity. When the reality is that anti money laundering is a use case for the technology. It's a it's a feature, not a bug. And what we're seeing is
00:05:44
Speaker
regulators and really law enforcement use blockchain technology, right? The native qualities of public blockchains, transparent, traceable, immutable, to actually mitigate the risk of fraud and financial crime by tracing and tracking the flow of funds on blockchains to build investigations really in ways you never could in the traditional world, to follow hacked funds, to follow and then ultimately seize funds associated with terrorist financing
00:06:14
Speaker
And then there's the compliance angle. Circle and many others use TRM for transaction monitoring and wallet screening and to understand who you're sending funds to. That technology doesn't exist in the traditional world to the extent that it does in crypto.
Complexities of Token Classification
00:06:31
Speaker
So it's really sort of that education piece explaining to policymakers who are just focused on the illicit finance risks and not as focused as understanding on how the technology
00:06:43
Speaker
can be used to mitigate those risks. And we're having those conversations everywhere, I think, to differing degrees of success. But I think it's just so important to understand that the technology enables so much more in anti-money laundering than we really ever had before. I think both of those things are definitely things that everybody should be paying attention to. I know that I am. I'll add a third thing, and this is Lee's pet
00:07:08
Speaker
pet project, which is token classification. And I think we've moved to a world where we don't just talk about cryptocurrencies. We've moved beyond everything's like Bitcoin, ETH, Avax, you know, layer one tokens to a world where lots of different things are getting tokenized and regulators and policymakers to my ear don't have good tools for how to think about that yet.
00:07:36
Speaker
And they're not making good distinctions to understand that Bitcoin is nothing like, you know, my favorite NFT collectible fart jars, but choose crypto punks or crypto kitties or board eights if you like.
Tokenization of Assets: Challenges and Innovations
00:07:54
Speaker
Fart jars is new to me. I mean, I might not be like through NFT degenerate or whatever, but that's a new one. I got to go check that out.
00:08:00
Speaker
You have to look up the backstory. It's absolutely hysterical, especially if you are about five years old. But then we're also seeing tokenization of, quote unquote, real world assets. We're seeing tokenization of stocks and bonds. We're seeing tokenization of things like gold and other physical commodities.
00:08:26
Speaker
We're seeing tokenization of loyalty points, event tickets, and all kinds of things that existed before blockchain, and hence why they're called real world assets. I was joking with somebody the other day saying, you realize that under some people's interpretations, if StubHub
00:08:51
Speaker
were to go all NFT with its tickets that it would need to register as a national securities exchange in the United States, which of course is completely absurd because most tickets are already just digital representations of the thing. And because you put them on blockchain doesn't change that, doesn't change their essential nature.
00:09:14
Speaker
And so that's been the area that I've been focused on. But in full disclosure, I have been a lone voice yelling in the woods about this issue for a long, long time.
Diverse Types of Stablecoins
00:09:25
Speaker
Well, I was going to say, Tina is engaged in the most successful and prolific tokenization project that we have to date, and that is tokenizing US dollars. Tokenizing US dollars, that's right. Yeah. I love when people talk about stablecoins and, you know,
00:09:43
Speaker
stable against some other asset. And everybody says stablecoins, and they mean fiat-linked or fiat-backed stablecoins. But I can have a stablecoin, quote unquote, that's an ounce of gold. I can have a stablecoin that's concert tickets. I can have a stablecoin. It depends on how broadly you're defining stablecoins. So a lot of the terminology is in need of more precise definition.
Ensuring Consistent Application of MICA
00:10:10
Speaker
But let's jump back over to Europe, Tina, because I sort of find that really fascinating to see what's going to happen when all 27 countries are sort of under the same regime. Are there any cracks in that sameness or is there the ability for some countries to either gold plate
00:10:36
Speaker
Mika, or perhaps interpret Mika in a more favorable way that makes it easier for projects to conduct their activities.
00:10:48
Speaker
Well, interestingly, the EBA and ESMA both have come out with their, I think, second and third respective tranches of level two technical standards for the industry to provide feedback on. And at the same time, there has been discussion both within the European Parliament and the Commission around ensuring that there is
00:11:17
Speaker
equal distribution or equal application of the tenants of the legislation and a acknowledgement that historically the national competent authorities within Europe, so that's the regulator of the country, have had a a fairly significant scope
00:11:39
Speaker
to be able to interpret the legislation. And so something came out literally last week and there was an article in Politico, if somebody wants to Google it, around the regional regulators trying to ensure that every single country applies MICA in a consistent way.
Regulatory Maturity Differences in EU
00:12:02
Speaker
um, to prevent that kind of regulator shopping across Europe. So I think the, the, you know, the check is still on the post, as we say, in the UK, um, around what those regimes look like, um, because of the process by which new laws come into, into force, that kind of a rulemaking process that you would be familiar with in the U S.
00:12:26
Speaker
is essentially this technical standard process that we're going through now. So nothing within the level one, the actual legislation can be changed, but there's a number of areas that we require a little bit more clarity on. One of them, for example, from a stablecoin perspective is around transaction caps. So there's been a lot of discussion around non
00:12:53
Speaker
European-denominated stablecoins having transaction caps. And those are based on a number of transactions, a value and a volume over a period of time. But what exactly constitutes a payment is still a little bit up for debate, right? And where those payments originate and where they end up.
00:13:17
Speaker
is also still a little unclear. So if I send a payment to Uli and I send it from Germany and it ends up in the US, that to me would not be a European payment, right, or an exchange of value. So those are the type of very technical nuanced nits that the regulators and the industry are working through now. I think
00:13:44
Speaker
On the other side of that, we have a few jurisdictions that have had some maturity in their regulation of crypto assets.
00:13:54
Speaker
existing, right? So we have Germany has rules. France has a pretty holistic regime, Malta, et cetera, right? And so some jurisdictions have taken this stance of regulating specific activities. Others like France have a little bit more of a holistic regime. And so there will be, for those jurisdictions, I think less roomed or less distance to kind of bridge
00:14:21
Speaker
the existing regime into kind of meka conformity. But there will be other jurisdictions that don't have that existing baseline, and there'll be a lot of work to do for those countries.
Anti-Money Laundering Standards in Crypto
00:14:33
Speaker
So, Ari, I know that many countries, including the European Union, are thinking about illicit finance and anti-money laundering efforts, et cetera, et cetera. FATIF hasn't done a report this year, but they have plenty of other reports out there.
00:14:51
Speaker
And I know that the illicit finance and anti-money laundering and, frankly, the terrorist financing, as we saw with some of the reporting in the US about Hamas, that has been subject to some criticism.
00:15:08
Speaker
So how are you all thinking about what makes sense from a regulatory standpoint here? You know, I take your point about the transparency of blockchains and really the ability to trace things, but how are you all looking at sort of the world from that perspective?
00:15:30
Speaker
Yeah, no, really, really appreciate the question. Obviously, watching me implementation very, very closely. I think it's an exciting moment in Europe, to be sure. I think we're so focused on the passage that now it's like, it's sort of like, you know, I don't know if this is a good analogy. But I remember when I proposed to my wife, I was all fired up about the proposal.
00:15:48
Speaker
And then like a couple hours later, she starts talking about the wedding. And I'm like, what? We're also getting married, right? Like, and it's, it's, I feel like we're in that stage of MIFA right now, where it's like, Oh, yeah, we did this great thing. And it's like, then it's like, uh, we need all these member states to kind of, to get on board. And I think, you know, obviously watching that very, very closely, what implementation looks like across the block.
00:16:11
Speaker
One thing, and I'll address Hamas in a moment, but one thing about anti-money laundering for the most part, and you mentioned FATIF, the Financial Action Task Force, which is the UN of anti-money laundering, the Global Standards Center, and that is it's actually a lot more clear than a lot of aspects of the crypto regulatory policy making space.
00:16:31
Speaker
In most countries, in most jurisdictions that have really sort of dug into this, per fadif, if you are a VASP or a CASP, a virtual asset service provider, a crypto asset service provider, depending on where you are located in the world,
00:16:46
Speaker
then you are essentially required to have anti-money laundering controls in place today. If you are a cryptocurrency exchange, a custodian, a broker, a dealer, all these sort of, these entities, more centralized cryptocurrency, you're required to have controls in place. And that means compliance professionals use tools like TRM to monitor transactions and screen wallets to respond to law enforcement subpoenas and other types of process.
00:17:15
Speaker
you have to have that in place today. So when we talk about crypto or regulators talk about crypto as the wild west, this is an area that's not so wild, right? You essentially have the same requirement that financial institutions have. When we delve into the truly decentralized space, right, DeFi and sort of what the promise of the technology there, peer to peer value transfer, I think we're in a little bit of a different world when it comes to anti money laundering and the sort of what is possible. We're just starting to see regulators, I think,
00:17:44
Speaker
try to have that conversation. There was a consultation in France. The US Treasuries put out a risk assessment on DeFi, as well as a notice of proposed rulemaking on mixers that get into some of that. But the reality is, we're still at the very early stages of that conversation.
Regulating Non-Financial Institutions as Financial Entities
00:18:03
Speaker
Look, on- Ari, sorry. I want to interrupt you for a second because I want to unpack something that you said, and I'd also like to get Tina's reaction to this.
00:18:13
Speaker
One of the things you said about where there is clarity is, hey, you're just regulated like a financial institution. And yet, some of us are not financial institutions. And figuring out what it means to be regulated like a financial institution when you are not a financial institution does pose significant problems.
00:18:41
Speaker
And so I'd wonder if you could just comment on that. And Tina, you should also comment on that. I'll take a crack at that and feel free to jump in. I think this is one of the largest challenges we have in the space, right? It is the definitions. And I think typically over the last, you know, less than a decade, six, eight years, something like that, policymakers globally have looked at crypto and they've thought to themselves of the sort of large centralized exchanges.
00:19:06
Speaker
And to regulators, they look and feel a lot like financial institutions, essentially intermediaries, the way we've always done anti-money laundering, right? You've relied on siloed financial institutions, right? If you're a Bank of America, you've got to send your siloed SAR report, your suspicious activity report to FinCEN. And such is true with Citi and Wells Fargo and all these other entities. And that sort of works fine because there's an obvious hook there. You have an intermediary, you have
00:19:35
Speaker
Executives you have lawyers you have the sort of that that typical thing I think it gets a lot more complicated when you talk about other types of crypto businesses or services that are less centralized that don't feel like financial institutions and I think that to me actually is the most interesting question and one we're sort of it's still at the very very early stages of how do you treat different types of entities in the space and
00:19:58
Speaker
And I think we're seeing that play out right now in the United States, but really globally. And I think it goes to, hey, if you're centralized, if you're an intermediary, we know how to do that.
00:20:07
Speaker
If you're not, we need something very different and it's a total paradigm shift. And I think both of you who beat your head against the wall on a regular basis know how hard it is to shift a paradigm. And I think that's the real challenge
Potential of Tokenized Identities and Privacy in Regulation
00:20:21
Speaker
right now. And the reason I keep coming back to the native qualities of blockchains, right, is that they allow us to regulate potentially in a very different way without intermediaries where regulators have a bird's eye view.
00:20:34
Speaker
in real time of their regulated financial system and don't have to rely on intermediaries, but that would be a sea change in the way we think about anti-money laundering regulation in particular. Yeah. I think that if I go back to your statements around tokenizing real world assets and- Yes. Thank you.
00:20:54
Speaker
you know, where we hopefully, you know, sooner than later, I think it would solve a lot of our AML, you know, CTF KYC challenges. If we were able to truly tokenize in a constantly upgradable way, identity that was portable and permissionable, meaning that I can use it for a variety of different verification points where I might need to prove that I'm me.
00:21:24
Speaker
and only provide you with the information that is relevant to the service I'm undertaking from you. So you don't need my healthcare records if I'm trying to get a cell phone contract, for example. I think that's one of the key things that really kind of solves a lot of these challenges that we're having. The second thing I would say is that when we're looking at tokenizing
00:21:48
Speaker
potentially data or different types of value that may or may not be financial in their nature. And so, you know, we go back to maybe NFTs and collectibles, you know, are you buying something because you want to essentially hang a piece of art on your wall because you love it, you know, and that could happen in a digital way, or because you have an expectation that that piece of art will increase in value.
00:22:14
Speaker
Well, that's intent, right? And an intent is very difficult to kind of quantify and prove legally, right? And so I think that
00:22:24
Speaker
We do have issues around taxonomy, which remain. I know between the three of us been involved in probably numerous taxonomy projects where we have tried to articulate what these things and what these activities are and how they work and what they do in a way that a policymaker can understand them.
00:22:48
Speaker
But at the moment, I think some of these things just kind of lack context in a real world environment.
Real-World Context in Asset Tokenization
00:22:54
Speaker
And so when you apply the real world context to something that is entirely not new, there's asymmetry, right? There's a gap there. And so to Ari's point, you just kind of cut and paste. This is how we do things. I mean, I would argue that the way that we
00:23:12
Speaker
Prevent money laundering today is willful and an awful lot of it gets through. And the ability to be able to see things on chain does provide a level of transparency and insight that we have never had before. However, that education piece around bringing policymakers up to speed I think is the critical kind of gap. I think the second thing or the third thing that I would say is that
00:23:41
Speaker
When we're trying to bring policymakers up to speed, one of the most important things that I think that the industry can do is talk about either client stories or case studies or use cases in a really tangible way, right? So one of the key questions that I get all the time is what is this good for anyway? Isn't it just used for, you know,
00:24:03
Speaker
financial misconduct isn't just used for speculation. And we're really entering this utility period. And a lot of these tokenized assets are being used for a myriad of things.
00:24:18
Speaker
For example there's a big luxury brand that is looking at how they might be able to we're talking earlier about loyalty really engage with the customer through the life cycle of their portfolio of companies so when you're twenty and you have.
00:24:34
Speaker
Disposable income and spend of a hundred bucks and then when you're 30 Maybe you have a disposable income of 500 bucks someone you're 50 of a disposable income of a thousand bucks. How do they? nurture that customer relationship through the life cycle of the relationship but over the course of time as they graduate through the different
00:24:54
Speaker
types of offerings that they have within their portfolio of companies. So I think that there's a lot of different ways that businesses are looking to kind of evolve how they engage with people, how they provide value, whether it be financial or otherwise. And I think that we as an industry aren't great at articulating what those
00:25:15
Speaker
value propositions are and those use cases are. And I think that then kind of puts up a little bit of a barrier with those policymakers to say, no, you're just trying to skirt the existing system and come into compliance, or we're going to take enforcement action against you.
Blockchain's Role in Tracking Terrorist Financing
00:25:30
Speaker
This is a huge point, right? I think people ask me all the time, what is the most pressing issue or the biggest challenge in crypto? And they expect me to say like, is it a security or is it a commodity? It is not that it is these use cases, right? Regulators will care about this technology if we can come up with or argue or articulate compelling use cases.
00:25:50
Speaker
And I could not agree with Tina more about that point. I think it's absolutely critical. And it's interesting. I sort of started this with to me when I talk about use cases, I talk about anti money laundering. Right. It's a feature of this technology, not a bug. And I'll give you an example. Right. You asked about Hamas. You know, over the years, Hamas has fundraised in cryptocurrency.
00:26:13
Speaker
It is a very, very small part of the overall sort of terror financing puzzle that involves hundreds of millions from state sponsors like Iran, networks of Hawalas sending funds, a diaspora of individual donors all over the world, investment portfolios, things that are impossible to track. I was a prosecutor with the Department of Justice for about 11 years and did money laundering cases involving
00:26:40
Speaker
high value art and real estate and, you know, investment portfolios. It is impossible to track those things. Right. But what crypto has allowed for is investigators to track and trace donations to Hamas and other terrorist organizations. And about two years ago, DOJ seized about 150 addresses associated with just Hamas, others associated with Al Qaeda and ISIS.
00:27:03
Speaker
They took down their fundraising infrastructure all because they were able to track and trace funds on an open blockchain. Over the last few years, Israel has seized hundreds of wallet addresses associated with different terrorist types of organizations. Again, like an only in crypto kind of story, right? We can't do this in their traditional world.
Challenges in Regulating Decentralized Finance
00:27:21
Speaker
So I think that there are so many great examples of wins instead of sort of focusing on the very tiny amount of funds that have gone through, you know, really sort of
00:27:31
Speaker
Again, this use case of anti-money laundering is something to really sort of focus on or at least think about when we're crafting regulation. But Lee, to your point, I think around, you know, who is an intermediary, right? So again, coming back to trying to put activities or market actors into known boxes, right? Are you a money service business, for example?
00:27:57
Speaker
when we look at that same activity through the lens of peer to peer exchange or DeFi exchange, the ability to be able to tokenize and transmit value on a near instant global scale just does not exist in traditional financial services, right? Because of those. In any, in anything, like even Amazon,
00:28:21
Speaker
When you're in the US, you're using Amazon US. When you're in the UK, you're using Amazon UK. And when I want to send Flaming Hot Cheetos to my daughter in London, they are not available on Amazon UK, even though I can get as many boxes of them as I would like here in the United States through Amazon. So there are differences, but with blockchain and tokenized assets,
00:28:50
Speaker
It's anytime, anywhere. Lee, we need to unpack that. So you're sending boxes of Flaming Hot Cheetos to the UK. I love this. Did you see the movie on Disney Plus? It's amazing.
Blockchain's Global Impact on Trading Paradigms
00:29:00
Speaker
Flaming Hot, it's about this guy who was a janitor for a Frito-Lay plant and wanted his community for snacks to taste more like the traditions in his culture. And he's become the father of Latino marketing globally.
00:29:18
Speaker
Um, and actually as an executive for Frito-Lay or was for a number of years before you, I don't know, did something else, but just an amazing, like, you know, love the entrepreneurship story. Like it has everything in there, you know? Yeah, that's a, it's a great story. Um, and there was actually an episode of some podcast that I listened to that, that told his story and, uh, really fascinating stuff. Right. Uh, you start out with an idea of, Hey, I want something that tastes like something I'm familiar with from home.
00:29:48
Speaker
And you finally convinced the company that you're working at to do it. So it's great. I think there's some cool parallels to what we do, right? You're trying to educate people about something new and different, and you have that entrepreneurial spirit to build it. Yeah, I think it's just an awesome story when I'm thinking about entrepreneurship and building. Yeah, totally agree. Tina, back to the point that you made. The other thing I would add here is
00:30:18
Speaker
because everything on chain is now available everywhere and it is everything or it's slowly becoming everything with tokenization of quote unquote real world assets as we were saying before, it's really very difficult for people to conceptualize what that means.
Complexity of Regulating Tokenized Assets in DeFi
00:30:41
Speaker
And it's particularly difficult for policymakers and regulators
00:30:47
Speaker
because they're used to saying like, okay, stocks trade over there and healthcare is done over here and Flaming Hot Cheetos are done over there. And now we're in a world where because of the internet and because of tokenization,
00:31:07
Speaker
All of those things are just all together on chain. And that means you can move them everywhere. That means they can interact with each other in ways that people have not traditionally thought of. And it poses huge challenges.
00:31:28
Speaker
partly in the context of DeFi, like how do we deal with DeFi for stocks? Nobody's thought about that, but when you tokenize stocks, that's what it's gonna be. DeFi will trade stocks. How do you deal with DeFi for collectibles? You create these trading markets for collectibles where the collectible trades against the stock and you have all of this stuff that people are just not used to thinking about.
00:31:58
Speaker
And there are no good legal precedents for how to think about it. And I think you both have made the point that this autonomously functioning code on the internet creates challenges for regulators and policymakers.
Cultural Shift Towards Decentralized Finance
00:32:18
Speaker
And I totally agree with that. And I would take it one step further by saying, also, when you've amalgamated all of these
00:32:27
Speaker
these items that have not traditionally traded together, and I use traded in the broadest sense possible, you're in an even more confusing world for policymakers and regulators, but they're going to have to figure it out sooner or later because that's where the world is headed. Well, and I think to your point about innovation and entrepreneurship,
00:32:56
Speaker
people will create cool stuff, right, regardless of what neat little box it fits into. And I think, you know, 13 years into the crypto journey, we've seen lots of interesting things attempted, some certainly more successfully than others. We've had some, you know, pretty interesting tests and fails along the way. But I think that there are, you know, kind of key tenants that that we can
00:33:26
Speaker
agreed to. I think one of the most compelling things that happened when the Financial Action Task Force first took a look at how they were going to bring crypto assets into their recommendations. We're going back to 2018, 2019. One of the things that I felt was most profound about that
00:33:48
Speaker
was that it was a potentially existential threat or would have existential impact to almost every single market actor in the space. Certainly at that time, right? If we look at kind of the evolution of what we were doing then to kind of what we're able to do today with the technology.
Intermediaries vs. Self-Managed Responsibilities
00:34:06
Speaker
And so it brought everyone together. I remember I was at a very well-known industry event and somebody introduced me to the then editor of one of the top
00:34:18
Speaker
Crypto media companies and said you should really talk to Tina. She's just been at a fat f, you know conference
00:34:27
Speaker
And they didn't know what fat off was. And so I explained it to them. And then they said, but why would my readers care about this? And so I spent the majority of the time explaining to this, this journalist why this mattered and why it would absolutely matter to everyone imminently. And so it took a little bit of time for the community to rally, but once they kind of got their head around the impact that this could have, if they didn't show up,
00:34:52
Speaker
and contribute to the conversation and have it seated at the table, that it could potentially be catastrophic. And equally for the regulator, I think that they, or the standard body, they understood too that there was a lot that they didn't know and has now taken this same stance and been very considered and careful to over-recommend
00:35:14
Speaker
what people should be doing or what regulators should be doing or legislators should be doing around DeFi because there's still a lot we don't know. But what we do understand is that we understand how to regulate intermediated markets, right? Where there are multiple players and there is some form of, you know, custodial responsibility if you're holding onto somebody's assets or you're moving somebody's assets in the same way that like
00:35:40
Speaker
The mover that comes to move you from Philadelphia to Dayton, Ohio is responsible for your stuff, right? And we expect that they're going to take care and that your stuff is gonna get there. And if something breaks or goes missing that they're gonna be responsible for it, right?
00:35:55
Speaker
So that kind of fiduciary responsibility exists across many different types of the transfer of value, right? But it's critical that there's, there's people, there's people involved. And so I think we're entering this phase of, you know, what exactly is decentralization? How long does it take to evolve? Should everything be decentralized? You know, Circle is very, very, um, accounted about being a, you know, centralized entity.
Educating Policymakers on Blockchain Benefits
00:36:23
Speaker
We are a centralized business and that means that we take on a lot of responsibility and take our fiduciary responsibility very seriously. But as we move into the future, just by the very nature, I hate to bring up chat GPT, but let's leave all of that off the cards now, the ability to be able to do things for yourself, I think is not just about being your own bank anymore. There's a number of things that we will be able to do for ourselves
00:36:51
Speaker
that previously we needed a significant level of support to do. And so I do think that our culture will change so that some of this activity that is more decentralized and doesn't require all these intermediaries will be more normalized.
Predictions for Global Consistency in Crypto Regulations
00:37:11
Speaker
I think this has been a great conversation. So I do think, notwithstanding I said we were not going to perambulate, I do think we perambulated
00:37:21
Speaker
at least in the topics that we covered. I didn't sense any prevarication, so that's good. So now it's time for the prognostication, and I'll give each of you the opportunity to make one or more prognostications on any topic you would like. So let's see. We started with Tina at the very beginning, so Ari, why don't you take this one first?
00:37:51
Speaker
Terrific happy to and I think I'll continue kind of where Tina left off and that is I think something we've been seeing for the last year, year and a half is the development of some consistency really globally and across jurisdictions. And you know, none of us should be naive enough to ever think that we will ever see sort of, you know, standards or, you know, global
00:38:12
Speaker
legislation or policymaking in this space. But I think we'll see consistency. And we're already starting to see that globally. If you look at places like to imagine Dubai, if you look at the UK and the EU and Japan and Singapore and you really start to look across the globe, all different regimes, but can starting to see some consistent standards across them that I think will allow
00:38:34
Speaker
folks who are engaging in the space, crypto businesses and others, to start to feel a little bit more comfortable about engaging. And that really goes to the maturity of the space. I love Tina's mention of being asked at a conference, like, hey, what is FADF and why does it matter? I think the industry now knows why it matters. They know why regulation matters. But also regulators are starting to understand why the industry matters.
00:38:59
Speaker
You want to be a crypto hub in the UK, in the EU, in Singapore. We're hearing that type of language. I think we'll certainly see that continuing into 2024 as we put the events of the last few years, the early days of crypto maybe behind us with the FTX trial and other events that are going on. I think we'll put that world behind us and move maybe more towards this ecosystem where we have regulators and industry working more closely together.
Community Involvement in Policymaker Education
00:39:29
Speaker
to develop consistent standards across the globe. All right, Tina. Yeah, so my prognostication would be, I like to always kind of end with throwing it out to the community. I spend my time trying to be the advocate and the interpreter for the industry with policymakers. And I think that one thing is clear to me that
00:39:55
Speaker
While policymakers are getting their arms around the assets and the activities, there is still quite a lot of scrutiny and uncertainty and a genuine level of discomfort around open source technology.
00:40:12
Speaker
Um, specifically, I think we kind of, if we can look back, you know, I'm dating myself, but you know, I was in banking before everybody switched to cloud. And at the time it was like, we're not going to turn off our data centers. There's no way this data is leaving this building. Right. And obviously that, that isn't the way that, um, data is housed today. So I think there's hope, but I think that if we look at the fundamentals around what
00:40:37
Speaker
will enable this technology to continue to thrive and serve more use cases is really the education showing up and speaking to your local policymakers and having really good examples of why open source technology is the way forward.
00:40:57
Speaker
um, walled gardens have taken us to, to where we are today and what the possibilities are around, you know, safe, secure, resilient, open source protocols and platforms. Um, and then I think the other area where I think that the community, much like when we rallied together, um, to approach, you know, having balanced recommendations from fat F we've got a real challenge around privacy.
00:41:22
Speaker
there is, I think, a brewing attack on privacy as a concept that somehow privacy and secrecy are related. Situations like the one that is happening now with Hamas and other terrorist organizations, I think, exacerbate that scrutiny. And so for me, I just think we can argue about, I can
00:41:47
Speaker
I can get almost anybody regulated. You want to come to the UK? You can hire me. I'll do your application. I know what they want to hear, right? Um, and, and, and that, you know, is, is, is my day job. But fundamentally, I think if we want this industry to, to progress, to really, um, realize the potential of what is possible, we, we all as a community need to be, um, defenders with, um, facts, quantitative, qualitative facts around,
00:42:17
Speaker
What is this open source technology good for?
NFTs in Political Campaigns: A 2024 Prediction
00:42:21
Speaker
And how can privacy be preserved in a way that doesn't harm consumers or the state? Well, I am going to go way out on a limb with my prognostication. I am going to say that some federal candidate for federal office in the United States in 2024
00:42:44
Speaker
is going to issue an NFT in conjunction with their campaign. I have no idea who it is. I don't think it will be Joe Biden, but I'm willing to stretch out here and think that there is some member of Congress who's going to issue an NFT in connection with their campaign for election. So, and I for one,
00:43:09
Speaker
For posterity purposes. They're not going to, it's not going to be for sale. It's going to be, remember like the old pins that you used to get for, uh, for campaigns. It's going to be like a pin or a bumper sticker or something like that. The campaign will give them away for free. It'll be part of the swag, uh, for, for the additional yard sign in the meta. Exactly. Exactly. Um, anyway, we'll see if that comes true. It has been an absolute pleasure talking with the two of you as I.
00:43:39
Speaker
suspected it would be. And we will definitely reconvene again sometime in the new year and see whether any of our prognostications came true, but more specifically, see how the world is progressing when it comes to policy and regulation of blockchain and crypto.
Podcast Conclusion and Audience Engagement
00:44:00
Speaker
So Tina, Ari, thank you both very much. Absolutely fabulous.
00:44:08
Speaker
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