Loading summary
Transcript84 lines
- [00:01]
A
Hey all, before we begin, I've got some exciting news to share. We've been working on something a little wild behind the scenes. It's called Unchained on Air, a revamped live stream series and podcast feed that takes you way beyond the headlines. It features sharp, maybe even controversial takes on major events and the kind of on chain intel that never makes it to your feed. Way more shows way more often, each one laser focused on a different slice of crypto and finance. First up is Dex in the City where the wallets are Cold and the takes are hot with Jesse Brooks, Katherine Kirkpatrick, Boz and V. Lee, three powerhouse lawyers gathering to dish about the latest. From defi enforcement to token regulation and everything in between it livestreams every Tuesday at 12pm ET. Second is uneasy money because what happens on Chain never stays on Chain with Luca Netz, Kane Warrick and Taylor Monahan, three OG DeFi builders unpacking everything happening on Chain from tokenomics to daos, from hacks to yields. It airs Wednesdays at 3pm ET. And finally, bits and the Interview, an addition to our group chat show in which our Executive editor Stephen Ehrlich takes you deeper with one on one conversations. This streams on Thursdays at 12pm ET. To catch the live streams, follow Unchained on x, subscribe on YouTube or find us on your favorite streaming platform now. And don't forget to hit the bell icon so you never miss a show. And if you can't make the livestream, these episodes will show up in your podcast feed the very next day. Thanks as always for your support.
- [01:46]
B
We spend so much time putting on suits, going to the hill, spending time with regulars. A lot of the people on crypto Twitter do this and put so much, so much time into this and we think about what we're going to say. We go on these panels and we talk about these issues and we spend so much time to be like we are a responsible industry. We care about the same things you care about. And then the regulators just have to open their Twitter X app and see all this like really inappropriate conversation.
- [02:15]
C
Hi all and welcome to the second episode of Dex in the City where the wallets are cold and the takes are hot. There are a lot of boss women in crypto and we want to make sure you hear from some of them before we get going. Remember, we're lawyers, but we're not your lawyers. So nothing you hear on Decks in the City is legal or financial advice and it doesn't create an attorney client relationship for the fine print as always, check unchained crypto.com first we have Jesse, Web3 prosecutor turned Web3 protector over at Ribit Capital. Next we have v from the SEC to Web3. And I'm your host, Katherine or KK, fluent in TradFi and conversant in deep tech over IT starkware. We have a lot to cover today, so we are going to jump right in. So first, I want to start somewhere that we've all been gossiping about through the week. Not on air. This week's Twitter fight. This week's crypto Twitter fight, I should say. This was something that was super disorienting to me when I went full time into crypto. The realization that pretty much every major GC policy thought leader was on Twitter or X. Apologies, kind of talking all day and fighting with each other. And this has also been a source of frustration for some of us in seeing, you know, kind of major thought leaders in the space occasionally get into fights with each other. Now, this is a little different because what we observed this week is basically crypto critic number one. There's a few others that have popped up here, here and there over the years, but this week's critic, it is actually Amanda Fisher, who's the policy director and chief operating officer for this organization called Better Markets. And I'll just note that Nick Carter calls Better Markets bitter muppets. I don't call them that. I'm just stating a fact. So Amanda Fisher hates crypto. She's kind of made it her mission to criticize crypto very vocally. She spent the past four years, I believe she was chief of staff and senior counselor to Chair Gensler. And what has really happened is she's been fighting with everyone on on crypto Twitter about the uniswap changes that we haven't talked about yet, but we probably will at some point. One of the material changes, in addition to the fact that UNI effectively proposed to turn on their fee switch last week, was there was a certain consolidation of work between the Devco and the Foundation. So, of course, Amanda was drawing parallels to centralization and as usual, kind of calling everything and anything in crypto a security. So I want to pause there and pass this off to V, because V, you were X sec. You understand how the agency worked. Why don't you tell us a little bit more about the dynamics here?
- [05:07]
D
Yeah, sure. So I was at the SEC from 2016-21. The first five years there, I was an attorney in the enforcement division under Chair Jay Clayton. But for the last nine months, There I was chief counsel of the Legislative affairs office. So most of that was actually under Gary Gensler. And Amanda was Gary's right hand woman during that time. So I'm limited in what I can say, but what I will say is I think Gary came in there with a really strong vision and agenda for what he wanted to do. And the way that he staffed and structured his office I think kind of reflected that. He structured his team a little differently than most chairs and commissioners do. Typically, chairs have an attorney to cover each of the main divisions at the sec. So enforcement, corporation, finance, exams, trading in markets, IM and so on, and then a chief of staff. So these people are almost always lawyers and typically they're even plucked from like the staff of the SEC itself. Right. So Gary did something really different, which is that he's. He set up kind of a little policy shop within his office and Amanda and a few other people were a part of that. So like Gary, Amanda is not a lawyer. And also like Gary, she does not have a specialized background in securities law. And then he had another policy director. She was a lawyer, but she also had no background in securities law. So she, I believe came from the AFL cio, which is like a federation of labor unions. So I thought that was really interesting. And I think what this showed us in hindsight was that Gary had a policy agenda that he was going to carry out and that was going to be his priority. I think looking back at it, this is probably dangerous for a few reasons. Just under basic separation of powers and how the administrative state works, agencies are not supposed to make policy, they're supposed to carry out Congress's mandates. You can say that's naive because agencies can do things like prioritize certain things, de emphasize other things, and that has a policy like effect. But I think to elevate policy above all else is really dangerous because it risks really politicizing an agency's work. And then the other thing I'll say is, I believe now more than ever, just given how things played out, is that SEC chairs and commissioners and their top staff should not only be lawyers, but, but people who actually have a background in the securities 100%. I mean, it sounds obvious, but this is complicated. I think we saw what happened. Yeah, I think we saw what happened when that was not the case. Right. I mean like the SEC's mandate is to enforce the securities laws and one of the most powerful tools they have to do that is to bring enforcement actions.
- [08:14]
C
Right.
- [08:15]
D
And I would say, you know, the other big thing they do of course, is rulemaking, which is also very legal in nature. So, you know, you're taking legislative mandates and figuring out how they should be implemented in practice. So, you know, like, why do I think being a lawyer and having just like a profound respect for the law and the power that you wield to bring the law to bear down on, like, a person or a company, why do I think that's important and why do I think it is misguided to let, like, your policy preferences be the driving force with crypto? You know, I think we saw the SEC take all kinds of positions in different cases that conflicted with each other. They got reprimanded by judges in multiple cases for inconsistent and misleading representations. And then like, if you guys remember, in the famous debt box case. Debt box case, out of the Salt Lake office, the judge actually found that they lied.
- [09:07]
C
That was. Yeah, that.
- [09:09]
D
That actually.
- [09:09]
C
And that office was ultimately closed. Yeah. Which.
- [09:12]
D
Right. So, I mean, pretty. Pretty shocking. Right? So for me, this show just a lack of appreciation for the. The law and how to apply the law. And I also think it showed a lack of understanding of how the individual cases that you bring can impact your longer term litigation strategy and really affect your reputation as an agency and your credibility long after, like, the chair has vacated that seat.
- [09:45]
C
Absolutely. And, you know, just to interject, because before I turn to Jesse, I think the interesting thing about this dynamic and about Amanda's comments in particular, is there's a sense amongst the crypto GC bar that we need better critics. And look, I welcome critics because we all need to get out of our bubble. And I love speaking to crypto skeptics because it really hones my ability to advocate. And you need to understand all perspectives to essentially factor that into your advocacy, your education. Crypto's really, really bad about that. But I think the problem arises is when certain individuals go on Twitter and then make factual misstatements or they misstate things based on a lack of understanding of the law itself. And I'm not saying that always happens, but it has happened and it probably will continue to happen. And then they're effectively spreading misinformation, which is not productive.
- [10:44]
B
Okay, I'm going to push back here a little bit because I. I could listen to V talk about this all day. Like, that was a very nuanced take that I really, really appreciate. But I'm very torn here because I disagree with everything that Amanda Fisher said in her tweets. Although I'm not one of the GCs on crypto Twitter, so I do miss out on a lot of it. So no part of me is, like, standing up for that rhetoric in any way.
- [11:09]
C
It's a dark place, Jesse. It's a very dark place.
- [11:12]
B
I just think crypto Twitter is where nuance is going to die. Like, it is incredible to me that we talk. Spend so much time talking about it and that people are going to argue about, like, the precise meaning of these very complicated cases and securities laws that Bea spent much of her career getting such expertise on and trying to fit it into a few words or characters. I don't even know what the limit is, somewhere in the 200 range or whatever, because I just don't think that gets us anywhere. And to me, like, we talk about wanting better critics, but, like, there's. And I agree with you. However, I don't feel like we've ever embraced any criticism at this as this industry, even internally, like what we were talking about last week, like, when we don't all agree, there's criticism and it's like an attack of each other. Because for me, like, so much of this dialogue is on crypto Twitter right now, which is all about fighting and not about persuading. And I just think we need to get back to persuading because Amanda Fisher is not going to convince any of us with her tweets. I don't know her. Like, I don't want to speak to that at all. But you know who else is not convincing? Amanda Fisher or anyone who disagrees with us, Any of the tweets that are in response. Because it just becomes like a fight rather than a let's just try and accomplish something and move things forward. And I live in this, like, idealistic world where it's something that I want, and I fully appreciate that that's not how everyone lives. And some people like to fight, and that's just not always how you move things ahead. But I just think if we keep talking about crypto Twitter, we keep moving our dialogues onto crypto Twitter and it being the basis of how we convince the world that crypto is the best way forward. Like, that's going to be a problem. And V, I think you said to me offline some time, like last week about how much people on the Hill actually look at Twitter and they, like, think through what the crypto industry thinks and probably many other industries and regulators.
- [13:14]
C
Regulators look on Twitter.
- [13:16]
B
Totally. And so I'm like, like, we spend so much time putting on suits, going to the Hill, spending time with regulars. A lot of the people on crypto Twitter do This and put so much time into this, and we think about what we're going to say. We go on these panels and we talk about these issues and we spend so much time to be like, we, we are a responsible industry. We care about the same things you care about. And then the regulators just have to open their Twitter X app and see all this, like, really inappropriate conversation. And it's not all just about crypto, but it's a lot of it is just really angry rhetoric that I don't know if it serves us. And I know that's a bit of a spicy take as someone that isn't prevalent on crypto Twitter, but I just don't really know how we got here.
- [14:02]
C
Well, also, your point, like, I hate the mudslinging and name calling on Twitter. I think it's really sad to see these highly intelligent professionals call each other names. And we even saw that with the Amanda Fisher debate. It really made me sad because I'm like, you're so much more effective without the mudslinging. And there are also a lot of emotional people in crypto. Maybe that's a hot take. Most of the emotional people are actually men. I'm just going to put that out there. And you can see them emotionally melting down in real time. And I want to be like, okay, everybody calm down. Go write this in a letter and then throw it away.
- [14:39]
B
Like, take a beat.
- [14:41]
C
So I think your point is spot on. It's a dark place. So one of the things I think is really important to pivot from the crypto Twitter is a wasteland conversation, because we could spend all hour talking about this. I'm with you. Is this whole conversation, the Amanda Fisher conversation has also raised just a broader conversation of the securities risk and regulatory environment more generally in the United States right now. Okay. And some people have observed that there is a little bit of a what I'll call a YOLO mentality in crypto, which is somewhat disturbing because we all need to continue to build responsibly. But of course, the SEC has lowered the temperature materially in the past year. And so there's certain projects taking on more risk and being more aggressive with their regulatory strategy. And I think some of the best examples are arising real time in the ICO environment. So just as background, we had absolutely massive, over oversubscribed mega eth ico. They did block US Investors in the past. We also recently, I want to say something like six months ago, had a Venice token ICO where US Individuals were permitted to participate. We had the Monad ico, which I understand Monad, is taking the position that it was not an ico, but it was a public token sale via Coinbase yesterday that was somewhat disappointing. As reported by Unchained, a lot of the early momentum had fallen, fizzled, and I believe they only raised something around 100 million against the 187 million worth of USDC the chain was looking to raise. But all of this conversation is. Big question, V. Are we back to ICO season?
- [16:34]
D
Oh, my gosh.
- [16:35]
C
Is this a bad thing?
- [16:37]
B
Like, what the hell is going on?
- [16:39]
D
Okay, so I'll just start by saying that this, like, gives me massive ptsd, because this is literally, like, I worked on, like, different kinds of securities cases when I was in enforcement, but a lot of what I did was, like, during the ICO boom, right? We investigated and, like, went off, went after all of these ICOs, not all of which were scams, but you were seeing people raise, like, gobs of money without really disclosing, you know, like, the right kind of information to buyers.
- [17:09]
C
Oh, and sorry to interrupt you. I should obviously stop and define what I'm talking about. With an ico, we're going to try to avoid using acronyms. Initial coin offering, which was a massive fundraising mechanism for crypto projects where the company sells, usually newly created tokens to investors in exchange for funding. And it was. There was a huge ICO boom years ago, which, after that, there was a regulatory reckoning. So that background is important. Please, vy, go ahead.
- [17:37]
D
Yeah, so ICO is basically just a play on, like, ipo. The word ipo. Right. So back then, we were seeing all of these teams raising tons of money. Most of them had not built anything. It was sort of unclear whether they would ever build anything. And, like, you know, not to. Not to defend, like, Amanda or the SEC or anything, but. But, like, I mean, I think, like, I sympathize with what the SEC was going through at the time, right? Like, I was a part of that. Like, one of the. One of the first crypto cases I brought. I kid you not, These guys raised $4 billion. And what happened to that money? To this day, I have no idea. What I do know is that one of the founders just bought a $170 million mansion in Sardinia. So that's cool, right? Do I regret bringing that case? No, I do not.
- [18:28]
C
Hopefully partners and inviting all the investors.
- [18:31]
D
Yeah, I mean, I. I take issue with the way that the SEC pursued it programmatically. Right. So instead of trying to come up with, like, hey, here's how we could get these token issuers to come to register, make sure that disclosing the right kinds of information, which might be different than what like a traditional IPO would require. Right. Instead of doing that, they brought like over 150 enforcement actions over like four years or something. So I think, you know, we all agree that was not the right approach to regulating the industry. So it is interesting, right, because their crackdown on ICOs during those years worked. You basically did not see them anymore in the US and so it is interesting to see, I've been told that they're not calling them ICOs, they're calling them public token sales, so I'll use that term. It's interesting to see projects now, again, raising money directly from the public and doing it on both centralized platforms and decentralized ones.
- [19:31]
B
Right.
- [19:31]
D
I think we, we saw two big ones, including the ones you mentioned.
- [19:34]
B
May I ask you a question V in particular, but I'm sure, Catherine, you have a perspective here. Like, I think there's one argument here that this is like a much more mature, compliant, transparent, potentially version of the former ICOs. So like, we are learning, like I know that Coinbase was publishing its market makers for the Monad non ico. You know, there was like a lot of rules about how much you could hold it for, what kind of users could get, how much allocation, etc. There's a lot more transparency than there was in the past with like the million dollar Sardinia purchase. And the decentralization part is, is interesting. But on the other side, like, are we just not learning from our mistakes of the past either? It seems to me like I don't want to be the one that's saying like, oh, that's not a good solution, this is another bad thing. And just like throwing mud and sludge at ideas. Because there's something here and there's something about growth here in the industry that I don't really want to ignore there.
- [20:40]
D
So you know, what I'll say to that is there was never a problem with ICOs, right? Like, they're actually a very efficient and some would say like, fairer mechanism, like for fundraising.
- [20:54]
C
As long as there was never there. Yeah, yeah.
- [20:57]
D
There was never anything inherently wrong with it. So I think what you're seeing now, right, to, to your point, Jesse, is that the, the platforms and the teams that are doing this now, they actually are putting out all of the kinds of disclosures that like the SEC probably should have created a tailored regime for. Right. And, and potentially what Congress is going to tell the SEC to do if and when it passes.
- [21:21]
B
You guys think it's too late, though. Like, I know there's been a lot of reporting about Monad. Not like only having fewer subscriptions than they thought, but it's still in the open window. But obviously people always like to criticize, like, do you think we're too late? Do you think it's a market issue? Do you think it's. Nobody wants to be, you know, in the centralized platform with all these rules, like, how. How do you think it's going to play out? And it could just be that, like, Bitcoin is down a lot.
- [21:46]
C
Well, that's the, the chatter is that it was the decision to list on Coinbase. I don't know if that's true though, because comparing the two. Look, Monad has a great team. There's a lot of buzz around Monad. But speaking from the Ethereum perspective, the buzz for Mega Eth had been percolating for years. So it's hard to compare the two projects. And everyone is comparing the two projects. So I think it's really difficult to just say, oh, it's. It said it was on Coinbase. Nobody wants to deal with Coinbase. I think that may have added friction, but maybe that's triggering me a little bit because I also hate crypto's response to like, oh, we're not doing kyc. Like, everybody hates kyc. And it's like, I get everyone hates kyc, but sorry, you can't deal with Bank X unless you have kyc. So this whole UX friction, we need to acknowledge it. Of course, a lot of people would, for example, do things like sacrifice privacy for ease of UX and maybe not participate. But if you really wanted to buy Monad tokens, you would put some money on Coinbase to do it. On that note, okay, one of the other things I wanted to say to Jesse's point before we move topics, I always think about the paternalistic aspect of ICOs and our regulators in that the. One of the biggest criticisms consistently levied at crypto has been crypto is risky. Crypto is volatile. People lose money in crypto. And I completely understand and acknowledge that. And I'd love to hear your thoughts on this too. But I have to tell you, I spent like a chunk of years as a junior associate working with fx and if you want to talk risky, like, let's talk about FX trading, okay, so. And let's talk about gambling and let's talk about buying cannabis and all these other things that are legal in America that people can Lose money and I mean smoking, I could keep going on and on and on. So I always very sensitive to that particular criticism because as long as there's appropriate disclosures and information that is available to the individual investor, they should have every right to engage and spend their hard earned money in something where they might lose it all. The disclosures is of course the missing point. This actually segues right into our next topic very well into prediction markets. But before I move on. Jesse V. Anything else you want to add to that?
- [24:12]
B
I think that correct. I just also think that saying disclosures as like a broad term just lets people get away with things a little bit because I think the disclosures have to be like pretty easy to read. Very understandable because we just have to remember like public markets are turning into private markets, not just in crypto. And it's something that in many ways I support and a lot of the companies that Ribbit invested in IT support. So like I'm a fan of the idea of giving more access but we have to appreciate that it can't be the same kinds of disclosures that you know, a sophisticated investor would have time to look through. I mean like nobody reads terms and services like except for me because I have to for my job. But like it is like a com, it's a complete cluster fuck if I can say that to try and get through some of these. So disclosures, we need to hone in on what that means. Yeah, I think I.
- [25:11]
D
But you know the securities laws and what the SEC does, it's, it's a very disclosure based regime. Right. So they are really important. But I agree like they need to be like relevant and material and specific enough so that like investors can actually make an informed decision. So I just, I wanted to close this out just with one more point which is Jesse, you and I were on a panel recently about what other tech lawyers can learn from crypto's experience. And so you know, we both made points to the audience about that. But I think one sort of underappreciated lesson that I think like we should all take away from this and that I hope the regulators take away from it is that when it comes to emerging tech, the first mover advantage doesn't just belong to the startup. Right. It belongs to, to the regulator that can demonstrate that it's able to constructively regulate something new. And if they can't guess what, they risk losing not just their credibility but like their power over that industry or whatever. And like I know this is a total counterfactual But I firmly believe that had the SEC shown over the last five years that it could regulate crypto in a way that actually worked and wasn't a de facto ban, that literally, Congress would never have gotten involved. I know that's controversial, but I really don't think Congress ever would have gotten involved. Because it's like when you're at work, right, if you do a good job, you'll be given more responsibility and maybe a raise, and if you don't, you'll get fired and maybe they'll give your job to the cftc, and then maybe they'll even throw your party out of office. Okay, so maybe I'm going to.
- [26:54]
C
That's not bad. I love it, though. I love that take.
- [26:59]
B
I just think that they might have only had to get involved on the AML side and cybersecurity side, because obviously the SEC and CFTC don't oversee that. That's more like all the. That are coming through. And I.
- [27:12]
D
But now they're doing everything.
- [27:13]
B
Yeah. And this is sort of like a speculative, like, game, so I'm not sure how useful it is. But, like, I wonder if we would have gotten something there that really wouldn't have worked because they would have felt like they need to get something out to control this space. But I'm not really sure. I mean, like, I'm not. I'm watching what's happening on the Hill and with regulators, with AI, and they're not. No one's learning their lessons right now.
- [27:39]
C
Well, I also always laugh when I talk about crypto in the world of tech, because I think of that movie, if you recall, like, thank you for smoking with Nick Naylor. It's probably, like, 20 years old or 10 years old at this point. And there's that scene where he speaks. He's sitting with, like, the spokesperson for Tobacco and Alcohol and Firearms, and they're.
- [28:00]
B
In the corner together and they're like, you're our only friend.
- [28:04]
C
Sometimes I feel that way with crypto and cannabis. Like. Like shunned.
- [28:10]
B
We talk about pot twice on this.
- [28:13]
C
I mean, I. Yeah, I don't know. The theme of today is cannabis. Who knows?
- [28:18]
B
Okay.
- [28:18]
C
But, you know, if there's something. Something to be learned from emerging tech and volatile industries that are not always universally embraced from day one. Okay. And it's certainly not all that. Yeah. So one of the things that we're talking about, like, volatility, what's good for individual investors, obviously also raises questions vis a vis gambling. Because, look, if we're sitting in the corner with Cannabis gambling is probably not sitting that far away from us. Right? And that's also a criticism that is consistently levied annoyingly at crypto. It's gambling. It's gambling. And it's like, well, not exactly gambling. Prediction markets, are they related? And just to give some background here, obviously prediction markets are exploding. You know, my former company CBOE just announced this week that it's launching its own prediction market. The Kalshi and poly market valuations are truly eye popping. It really seems like this is Wall Street's latest kind of fomo. How do I get there? A lot of long term sustainability theoretically with prediction markets, but there's always a question that people that are not lawyers do not understand is how are prediction markets functioning in the United States? How are they okay, how are they not gambling? How are they not licensed on the state level by state regulators as gambling? And why is this making the gambling companies so furious? So Jesse, tell us about the legal environment that has led to the status quo.
- [29:52]
B
Well, the ultimate metric for me that like prediction markets are so hot right now is I turned on the news this morning that Sunday morning and CVS morning this Sunday, which is like the ultimate boomer show, had its first segment on prediction markets, which wasn't very deep or that thoughtful, but I was pretty amazed. Like I don't know anyone except like my Bubby and Zadie that used to.
- [30:15]
C
Watch that, like the cartoon sons on the logo. Yes, yes, my grandfather.
- [30:22]
B
But then I was like, I learned nothing. But anyway, I really am fascinated by this topic because I think people talk about the valuations a lot and how exciting it is and what the future prediction markets can be. But like there's this underlying bubbling problem and showdown that's happening right now over what these markets are and how they should be regulated. So it's like states versus the federal government, It's Indian Tribal Gaming Associations versus the cftc. Sometimes it's like prediction market companies versus like gambling companies, as you said. Although yesterday two gambling companies said that they're leaving the gaming association to join prediction market. So that's sort of interesting, but it's all playing out like across the country, like case by case, cease and desist order by cease and desist order, competing rules coming out. And like even this week one judge sort of went against a ruling that he had given before to a different prediction market, sort of showing how further it's unclear even in one district. And it's all about the argument of our prediction markets, futures under the cea, the Commodity Exchange act, or Is it just sports betting, especially the sports part of it in particular? And why this is so important is that federally the CFTC would regulate these event contracts. But on the state level, states get a lot of revenue and have a lot of control over sports betting. And Indian tribal associations that run the gaming groups, they get so much of their revenue from that in order to be able to sustain themselves. So the fight has really, really broken out. And so what's the answer? And it all really comes down to this very wonky concept called preemption, which I'm going to dive into because I think it's important. And also it is a foundational concept of American jurisprudence for anyone who thought about going to law school or went to law school. So it essentially means like, if federal and state laws conflict, their federal law is going to override or preempt the state law, so only the federal rule will apply. And this was like a very. This is going to get my history nerd dumb. But like, this was a really important compromise that was written into the Constitution. But it's created a turf battle between states and federal. We've seen it with lots of things. Let's mention cannabis again, obviously. But how the Constitution keeps states from regulating things that Congress has already decided to govern nationally. So in the prediction market world, platforms like Kalshi and Polymarket, they're arguing we're regulated by the cftc, look at the rules associated with event contracts in the cea. But the states are saying, hey, this is like our turf, this is just sports betting. And it's really interesting to think about how we got here because about a year and a half or so ago, the CFTC sued Kalshi saying, like, you can't offer these without our approval. It wasn't to do with sports betting, but it's a similar concept. And then earlier this year the CFTC dropped an appeal after they lost that case. And so after that point, states and Indian tribes, they all filed lawsuits or sent cease and desist orders saying that these prediction markets are encroaching on sports betting. Like, you need to be regulated by us. And so the real question here is like, as every company in the trading world is like seemingly melding into something that's like prediction markets, sports betting, crypto conglomerate and all the lines between speculation and hedging and gambling are sort of seemingly going away. Like, is this the right path forward? And there is this vision for prediction markets that like, it is a lot more than sports betting. It's a lot more than like betting on Taylor Swift's wedding or. And what, you know, what people, what politicians are going to wear to different meetings. Like there is a lot more to that in the future. But right now, if you look at what's actually happening in the space, it's a lot of sports and a lot of politics. So I think seeing how this all plays out is going to be really interesting. And also like we don't really know. And I, my guess is it goes to the Supreme Court. And I have thoughts about what that is going to look like based on how the Supreme Court's currently made up. But we can talk about that in a second.
- [34:49]
C
So one of the other things to note actually, if you recall, Kalshee attempted to offer political event contracts in 23 and the CFTC blocked saying they were illegal gambling. And then Kalshi actually sued. So the CFTC didn't sue. And you know, as you, as you noted, the CFTC ultimately dropped the appeal. So that kind of opened the floodgates. It's akin to the grayscale suit in the ETF context, where grayscale was the one who spearheaded litigation to actually, you know, create a path for others to follow. The one thing I want to note just from an educational perspective before we turn to B so my, I was formerly chief legal officer of a DCM or designated contract market, a CFTC registered basically exchange for derivatives for crypto futures. And people are always confused about what is a future. And this is so important with prediction markets because you're allowed to be a dcm, a designated contract market trading futures with preemption if the contracts itself are futures. But the Commodities Exchange act actually does not define what a future is. It defines a swap, but it doesn't define a future. And so that means that all we have now is US Courts precedent, the CFTC treating a futures contract as something with certain character characteristics like standardization, you know, trading on futures exchange and clearing through a clearinghouse and an intent not to deliver. So, you know, most futures contracts are closed out before expiration. That's a whole nother discussion on perps, which we'll have.
- [36:30]
B
I need you to say that all again.
- [36:31]
C
Oh my God. Okay, so anyway, tldr, there's some characteristics that make something a futures contract, but there's no clear definition. So parties have an incentive to go argue in front of court and take precedent that supports their position creatively. And that's what these prediction markets have done fairly effectively. But this all hinges on the Commodities Exchange act not providing a specific definition and allowing for kind of some Broad interpretation around the definition of these products. So, V, you look like you want to say something, I want you to chime in.
- [37:06]
D
Okay, so that like between the two of you guys, that was like the best overview I've ever heard. Heard of prediction markets and like the different legal issues that it implicates. So thank you because like, it's been like very confusing to me for a long time. Although that hasn't stopped me from sharing my hot takes with you guys over the weeks. I will complicate it just a little bit more, which is to say that there are some situations where like a prediction market could mimic a security and then potentially fall under SEC jurisdiction, right? And that's when the prediction has to do with earnings outcomes or like if you're betting on a company's future financial performance because that's basically what options and swaps and other securities based derivatives that the SEC has jurisdiction over, that's basically what they are, right? So like even if the platform calls it an event contract, if the economic reality is that like it's functionally a derivative based on a security, the SEC could like potentially get involved too. So not to, not to complicate it even more, but I think suffice to say, like, they implicate a lot of potential legal issues.
- [38:18]
C
And you know, it's really interesting, like I have noted, so Poly Market's chief legal officer Neel Kumar is really, really sharp. So these projects are investing in legal and regulatory strategy appropriately. So, because you're right, V, there's clearly a turf war amongst a number of regulators. Like so many aspects of crypto, Like I remember years ago explaining to people, well, the ftc, the irs, the doj, the CFTC and the SEC all take a different position on what this actually is. But okay, it's fine, it's gonna be fine. So there's a turf war here. A lot remains to be seen, but the outcome of all of this is theoretically existential for the growth of prediction market markets. And what is also a very interesting dynamic is now you have the legacy trad players effectively all in on these markets. Like we are seeing new prediction markets from legacy players. We're seeing really serious partnerships. Obviously the big ICE Intercontinental Exchange investment into polymarket, that was huge headline news, like a very significant investment. So obviously that makes it, in my opinion, somewhat cynically far more likely that the prediction markets are going to win in the end.
- [39:39]
B
But stepping back from the law a little bit, I mean, just to think about it, in like the economic reality, you know, of this all so let's say that Poly Market has an event contract platform and then being built on top of it, which there are startups like this are, is a platform that looks exactly like sports betting. It is the same sort of look so that somebody who sports engages in sports betting on the state level wants to use that, but they're leveraging. So it looks the same for the user. It pretty much feels the same, but they're leveraging the event contract platform. And arguably you could say I, I wouldn't speak necessarily to the different platforms, but a lot of them are non custodial. Right. And they don't have the central entity that these like gaming associations that actually sort of are a bit predatory in certain ways. And why states regulate them so much. Like is it the fact that people can engage in sports gambling in the way that we know about it or is it much more about like we have the event contract underneath and so the platform is less controlled by a centralized entity?
- [40:52]
C
Yeah, it's a, it's a great point. And look, you raise another interesting issue, Jesse, like at the crux of this. Is this really sports betting or is this actual futures or is there a reason for there to be a futures market in this? And that's been a debate I've had with other kind of derivatives lawyers where the Taylor Swift Wedding 1 is a great example. So arguably it kind of makes sense to have a futures contract where people bet on where Taylor Swift is going to get married. Because if Taylor Swift publicly announces that she's going to get married in Austin, that will probably contribute like $5 billion to the Austin economy, given the upswing in tourism to Austin around the time of Taylor Swift's wedding. So there's real economic impact and it actually is appropriate and market participants will want to hedge the dynamics of how that affects Austin. However, if you look on a micro level where it's like, well, what color are Taylor Swift's earrings at her wedding? It makes no sense for there to be a futures contract there. Because you know, if we go Back to history, 101 futures were originally created to solve the very practical and reasonable problem of price uncertainty in agriculture. So farmers had a major problem like they would plant a bunch of corn in the spring and then they had no idea what the price would be in the fall when they went to harvest. So they needed to create a contract to effectively buy or sell commodities at a fixed price for future delivery. And this also benefited the, the intermediaries or the, the sellers that, you know, bought the, the corn from the farmers. If you look at the current contracts, the futures contracts on all of these prediction markets, you have to ask yourself, like, is this really solving a practical problem? Like most of it is absolutely not. Like undisputed. Indisputably. Okay, so on that note, I think it's really important to shift to I think, what will be our last brief topic for the day. Let's take a temperature on generally the environment with crypto at the moment. It's the elephant in the room. I've been watching a lot of really funny memes about bitcoin prices. My. My personal favorite is taking the spot splice from the Wolf of Wall street where they're on the yacht and they're all partying and it's like bitcoin in October and then the yacht is in a storm and it's like bitcoin in November. People are freaking out. We are not here to talk about price activity. We are lawyers. But I want to share an anecdote. I am not worried about the price of crypto because I have to say I was at a ladies who lunch lunch at my nice supper the other day with five other moms, including several of these moms were stay at home moms. And one of them asked me how work was and I was. It just said something about work and no joke, the waiter actually swung back to our table and said, I'm so sorry to interrupt, ladies, but did I hear one of you say crypto? Because I just really wanted to encourage all of you to check it out. It's, it's been something I've been really exploring lately and it's really fascinating. There's a lot more to it than meets the eye. I was absolutely dying. All of the mom friends were kind of shocked. And then one of them, who I love her, said, oh, she's in the industry. She has a podcast. And I would like to, you know, basically say that this waiter is now my first and maybe only fan because he got so excited he wrote down the name of the podcast. He was literally like fangirling around.
- [44:32]
B
Yeah.
- [44:32]
C
Thought he was going to offer me a free dessert. So. Point is, I loved this. I love that we're now at the point where we're literally in the suburbs and the waiter feels passionately enough about to interrupt like a mom's lunch.
- [44:46]
B
So I to put that family's Thanksgiving is like our Christmas because we're Jewish and we invite between 60 and 70 people over to my parents house. It's pretty extreme, but every year people want to talk about Crypto. Unless the price is really low or it doesn't seem that exciting. So, I mean, I think my Thanksgiving will change a lot, depending on what the price fluctuation is the next week. But I just think the three of us have lived through this so many times, right? The ups and downs of it. Like, is this too low? Is this too high? What's happening? Why is this happening? And none of us would survive if we overanalyzed each of them. And there's still waiters in suburbs of Chicago asking about it. There will still be very uncomfortable conversations at my Thanksgiving when I have to sit in my assigned seat. So, like, I feel like we're still moving forward and trucking along.
- [45:42]
C
Do you have, like, a Jesse, though? Do you have, like, a drunkle or an aunt that makes fun of you when the prices are low? Like, is that a problem like that? Are you gonna be walking into that are.
- [45:52]
B
I don't think their knowledge has quite reached that ability, but it's much more like, are they going to ask me all about Bitcoin? Are they going to ask me whether they should buy Ethereum, or are they going to talk about Coinbase? Like, it just sort of depends on what's happening on the front of the Wall Street Journal.
- [46:07]
C
No, it's xrp. All of the boomers only want to talk about xrp, so I don't know why that is. Like, hey, give them a lot of credit for Mindshare.
- [46:17]
D
But you're right, it's like, that's. That is the number one token that, like, Uber drivers ask me about.
- [46:24]
C
I don't understand that.
- [46:25]
B
So.
- [46:26]
D
Interesting. Yeah. I don't know why that is.
- [46:27]
C
Like, I guess they're doing something right in time in terms of, you know.
- [46:31]
B
Kind of brand and mind marketing.
- [46:32]
C
Yeah.
- [46:33]
B
Yeah.
- [46:33]
C
Okay. V. Any thoughts to close us out before we round things out?
- [46:38]
D
Not really, other than, like, I'm actually really excited for the holidays because, like, last Thanksgiving and Christmas when I was going to, like, holiday parties with friends and family, I taught so many people how to onboard, like, onto the Coinbase app and, like, even Uniswap. So I. I think there's going to be more requests this holiday, and I'm excited for that. I think it's always a cool sign of.
- [47:05]
C
I love that far we've come live, what we preach. I mean, I give my nieces crypto for pretty much every holiday. And I gave my brother and my sister a hardware wallet, a ledger wallet, which I just add to on the holidays. And so you have not lived until.
- [47:21]
B
You walk through operating a ledger wallet on a dex with your siblings. Oh, my God. No. This is the worst thing. I set my parents up with a centralized exchange account and I'd say at least once a week I have to help them get back into it.
- [47:37]
D
Oh, my God. Kk, how long did it take you to set up your account on Mirror?
- [47:42]
C
Like, way too long.
- [47:44]
D
It took me, like three hours.
- [47:45]
C
Like, episode three, Crypto has a UX problem.
- [47:48]
D
We need to work on the ux.
- [47:50]
C
Yes, work on the ux.
- [47:52]
D
Okay.
- [47:52]
C
That's like a. A point of growth for the ecosystem. Oh, well, thank you everybody. That's it for this episode of Decks in the City. If you like the show, make sure to follow us on your favorite podcast app or on X, formerly known as Twitter, for live streams, updates and clips, assuming Cloudflare is working. And thanks for listening and we will see you next week.