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- [00:00]
A
In my opinion and everyone feel free to disagree. We are watching the real time deterioration of the prospects of crypto market structure law being passed.
- [00:09]
B
If it's true that eventually everything will be on chain, like everything will be tokenized, I think you could see a world where it's really just one regulator overseeing everything.
- [00:20]
C
I just want to say that I hope that CZ's conversation, which was truncated but also really got at to what it's like. There isn't just a meme, but something that is taken seriously.
- [00:38]
A
Hi all and welcome to Dex in the City where the wallets are cold and the takes are hot. First we have Jesse Web3 prosecutor turned Web3 protector at rivet Capital.
- [00:49]
C
Hi guys, Good afternoon.
- [00:52]
A
And v, from the SEC to Web3.
- [00:56]
B
If my voice is raspier than usual today, I'm a little under the weather, so bear with me. But happy to be here.
- [01:03]
A
She looks great. And I'm your Host, Catherine or KK, fluent in TradFi and conversant in deep tech over at starkware. Before we get going, remember, as always, we're lawyers, we're not your lawyers. 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 if crypto.
- [01:26]
D
Taxes feel overwhelming, you are not alone. That's why Crypto Tax Girl, a team that's been helping crypto investors since 2017, is offering $100 off on one on one crypto tax help. To get $100 off your crypto tax services, go to CryptoTaxGirl.com Unchained Again, that's CryptoTaxGirl.com Unchained.
- [01:51]
A
So we have a great show today. It is jam packed as usual. We're actually going to be very ambitious and try to cover four topics today. First, Trump and unbanking. Second, a very spicy take on theft that we're going to go into in a minute. Third, the CFTC SEC joint coordination. And fourth, CZ's interview in Davos and what this means for crypto executives and going to jail. And then we'll end with some crypto good news. So I don't want to take any more time. I want to jump right into my favorite of the topics. Quite juicy. Last week, Trump sued JPMorgan Chase and Jamie Dimon on Thursday for actually $5 billion. And I'm just going to say, every time I hear numbers like this, I think of Austin powers and the $1 million scene. I feel like 5 billion. What's insane. Okay, so yeah, just. Yeah, he stood up for $5 billion, no big deal, along with a few other plaintiffs and he sued JP Morgan and Jamie Dimon, the CEO personally for closing accounts belonging to him and related entities back in 2021, for political actions. And of course JP Morgan has come back and said the closures weren't for political reasons, but were due to federal rules and regulations. So I want to give some background here. Banks debank customers. It is a fact they do this to manage risk. They'll debank customers if they hit certain anti money laundering related flags for reputational reasons, suspicious activities and often they can't or won't tell customers why they were debanked because the customer service reps don't even know why the customers were debanked. There's a series of confidentiality restrictions. I don't want to minimize this because I think debanking is incredibly devastating, particularly for normal people and individual users. Katherine Minarek, who is the former chief legal officer of Uniswap, she's a good friend of ours, she wrote a fantastic article a couple of years ago about her own experience with debanking. She's the primary earner in her family. I would definitely recommend people check that out. But imagine one day waking up ineffectively within days or weeks, having no mechanism to pay your rent or your bills, no credit cards, no ability to operate in a world where banks unfortunately are necessary to navigate a day to day for better or for worse. And I think why does this relate to crypto? Right. This lawsuit is triggering for crypto because it harkens back to choke point 2.0 where there was an alleged government strategy to limit crypto's access to the banking system. And to be clear, our perspective, my perspective, debanking itself is not illegal. This is surprising to people. It could become illegal depending on who's doing it, why and how. Meaning basically, banks, like any other business, can serve anyone they want. They can lawfully debank someone if that person or business no longer fits their risk profile. But they are not legally able to discriminate based on protected characteristics, which actually vary based on state or federal law. One other degree of complication is political views are not protected characteristics under federal law, which means you can actually discriminate against someone for being a Republican or Democrat. Banks could arguably debeag someone for being a Republican or a Democrat, but they can't debank if it's in retaliation for free speech or political positions. For example, if, if they lie about the reason, which is why they often won't say a reason. And government coerced debanking, like what Trump alleges was happening is very legally complicated and arguably illegal because it could violate a whole host of rights. So this is a spicy take. This is a huge headache for J.P. morgan. And I will tell you, it's not easy being a bank because sometimes they're put into a lose, lose situation with this sort of thing. Thing. Jesse, what is your take on this? I think you had a spicy take or V, from your experience with financial services, jump in here.
- [06:02]
C
Yeah.
- [06:03]
B
So, yeah, yeah, I, I was just going to say like my, my take on choke point 2.0. Right. Which is what this whole, like, episode as it relates to crypto is referred to as. Like, my take has always been. And not to defend the big banks or anything, but they were also sort of caught in the middle of all of this too. Right. And in some ways they were also victims, like the regulators. I don't know if you guys remember, but the regulators put out a bunch of guidance in early 2023 that were basically veiled threats that don't, you know, like, don't even think about touching crypto or you're going to pay for it. And then we've seen all of this stuff come out, which is messed up, by the way.
- [06:47]
A
Super messy. Right.
- [06:49]
B
And then we saw, like, even more explicit threats or directives come from all of these FOIA requests, like in the last few years, right. Where banks actually got letters that were more explicit than that. So I think that put banks like JP Morgan in a really difficult position. And honestly, they did what any business would have done in that situation, which is to comply with what they saw as implicit or explicit directives from their regulators. Like, they didn't really have a choice. And so that's why I, you know, like, I don't really know if lawsuits like this make sense. Like it, it, it really was something that was driven by the regulators and not necessarily the banks themselves. But I don't know. Jesse, do you?
- [07:36]
A
Before Jesse jumps. No, I just want to explain one quick thing. V. Reckon V mentioned FOIA requests that those are Freedom of Information act requests. And I think a lot of people know about this, but others don't. You can actually file as an individual citizen a FOIA request to get all of this information that you might think is private. It's actually not private.
- [07:59]
C
Yeah. But good luck getting it within a few years.
- [08:03]
A
And you might have to litigate over the real sensitive information. But these FOIA requests are routinely used for example, in crypto policy to kind of lift the curtain on what's happening in government.
- [08:14]
C
Sorry, yeah, this is not debanking. This case is not about debanking. Debanking isn't when powerful people lose treatment, like preferential treatment at a bank. It's when ordinary actors lose access to financial rails, which is something I care deeply about. I know you guys care deeply about. There were crypto companies and crypto adjacent companies that could not get access to bank accounts. That is a conversation we should have. Planned Parenthood many times has not been able to get bank accounts. Gambling, cannabis, you know, even like creators that might be doing something that's a little bit salacious, might not be able to get a bank account. That is a conversation to be had. This is not about debaking. And so the thing that bothers me here is, is that it conflates the conversation, when in fact the real conversation is should banks be put in this quasi regulatory position where they have to make these decisions based on competing interest of the commercial side of the bank, plus regulators telling them, we want you to be the first line of defense in order to help us stop, like, access to finance for bad guys essentially are bad people. And so they're definitely in a tough spot, but we put them in this spot. And so the question is, do we want to continue to rely on them in this quasi regulatory space. But conflating this lawsuit, which I don't know if people read it, but essentially, like, it's pretty limited in terms, and I could see it being dismissed and having to be refiled with more facts in it, but it's just takes away from the real conversation that I want us to be having of is this the right position to put a bank in?
- [09:58]
A
Well, I. I have to disagree with you a little bit, Jesse, because I do find the concept of banks illegally cutting off anyone, whether it's an individual person or a giant powerful person or a corporation, disturbing. Like, there is a lot of allusion to retaliatory action, like for free speech, which is obviously one of the things that I referenced as e illegal. It's one thing to cut someone off because they're doing something really risky. It's another thing to cut someone off because you disagree with them or find them repugnant, for example, like, that's very anti American.
- [10:34]
C
I agree with you, but there's no evidence of that here. And that is my problem, is that we should be having a conversation about whether banks should be given the power to cut off an industry or cut off Someone for what they might disagree with. And that's a real conversation because the, you know, are they quasi regulatory? Should they have to comply with certain constitutional amendments? Like how do we think about them in the realm of either the First Amendment or the 14th Amendment? And I know you mentioned discrimination statutes as well. That is a real conversation to be had. And I want to have that conversation. And I don't want it to be overshadowed by the President of the United States suing a bank because he's upset at them and turning it into like a fight against Republicans and like this system against rolling kids. There's debanking on both sides. Yeah, right.
- [11:26]
B
So you, I think you're saying this lawsuit is a distraction from the real issue. Right. And so like touching on things that both of you guys said, I think the real issue here is that banks have too much discretion to make these decisions. Right. And coupled with that, there's just like a complete lack of transparency. Like when customers get cut off, they're almost never told why and in some cases they're prohibited by law from being told why. Right. And there's no process to like appeal it. Right. So before I joined Veda, I was the GC of a crypto custodian, which was OCC regulated. And our CEO testified multiple times before Congress about their own experience being debunked, even though they were a federal bank themselves, which like that, that's like very ironic. So he testified about how they had good relationships with all of their banking partners for years, so no risk issues were ever identified or raised. They were even actively in talks to like expand to new partnerships with the banks when they got a call one day basically saying, we need to off board you within 30 days. And we, we can't comment further. No explanation, no appeals process. And you know, this was just for their corporate account, like to do payroll and, and admin expenses and things like that. So they had to scramble after that. Speaking to over. I think they spoke to like 30 or 40 banks to try to get a new account. Most of them ghosted them. Others said we can't thank you, but we can't give reasons why. Right. Like I think that is problem. Yeah, that is the issue. Right. It's like we have to make, we have to make it so that banks can't just cut you off because you're in a politically disfavored industry and not for any of the legitimate reasons because you present like actual like AML risk or something like that. And I think there needs to be more transparency when Something like that happens so that there's accountability.
- [13:18]
A
Yeah, preach. They can't cut you off because they don't like you. They can't cut off crypto because they don't like crypto.
- [13:23]
C
I think that's such a good point. Yeah. And like we had CCI get cut off even though they had nothing to do with crypto in their banks, but just because they had crypto in their name. And so I think that's such a good point. It isn't that sort of why we're building crypto. Right. Because don't want to have these central institutions telling us who can have access to finance. So this fits on a crypto podcast.
- [13:48]
B
I love it.
- [13:49]
A
So. And by the way, CCI is Crypto Council for Innovation, another great crypto trade group. And V previously referenced the occ. The OCC is the Office of the Comptroller of Current of the Currency. Word salad right now. And it basically is the federal entity that the Treasury Bureau that charters and regulates and supervises national banks. So the OCC has definitely been part of the crypto conversation, especially as a bunch of crypto companies seek trust charters, which is a topic for another episode. But yes, absolutely debanking really important conversation as part of crypto holistically. So moving on to our next topic, and this is an interesting one and I actually think a lot of people miss this. They did not miss it if they follow David Bailey on Twitter. So he tweeted, I think it was late last week. Basically the son of the CEO of the company hired by the US Marshals to safeguard the nation's Bitcoin, stole 40 million from it and now appears to be running Treasury. Must secure the private keys from the Justice Department ASAP before more is So I want to kick this to Jesse as our former federal prosecutor. I also want to say Dex in the City is not attesting to the accuracy of any of this. So this is all secondhand information. But it seems pretty horrifying if this is true.
- [15:13]
C
If you're not watching the video, my face was in my hands for 10 seconds there. This story is so chaotic and it really makes everyone look bad. There's theft, there's goading, there's screen shared wallets, there's stolen government funds. Like this is going to be a Netflix movie. Let's start at the beginning so we can walk through what actually happened and then question the allegations. So back in October 2024, somehow we're in 2026. So a while ago, roughly 20ish million was drained from a US government seizure wallet. Now that wallet had been holding funds that had been taken from the Bitfinex hack. Something near and dear to my heart because I worked on that case for a long time. At the time, there was no clear explanation for this draining and in fact like it was just reported because people saw it on chain. Most of the money went back. Pretty much all of it, not all of it, but like 90ish percent. And so the whole thing just faded into the background. Now we fast forward and we know more and honestly you couldn't make this shit up because on chain, investigator Zach XBT is sort of the person that put it out there initially and he's amazing in many ways. He uncovered that the drained funds of this 20 million were tied to a guy known online as John. That's all we knew about him at the time. And Zach is alleging that John is the son of an executive at a place called CMDSS, which is a government contractor that worked with the U.S. marshal Services. Now we won't go into it here, but people Google this company and you'll see like a pretty torrid past and how they got this government contract. But let's just pause here for a second. So the government hired a contractor to help manage seized crypto. Now that's not shocking, that makes sense. But there's evidence suggesting that the contractor's kid, and look online at this kid may have been stealing from a government seizure wallet without anyone catching it. And it gets worse because it didn't come to light because like the government discovered it or there were audits or controls. No, no, no. It's because John, maybe this sun guy outed himself on a live screen share where he was bragging about how much money he had tying himself to the stolen government funds. So what happened on this screen share is that John publicly demonstrated control over wallets holding tens, possibly hundreds of millions of dollars. Some were tied to the government seizure funds I was talking about, some tied to other thefts. And he moved the funds online between his wallets during something called a Band for Ban Challenge, which I had never heard of. And I feel less happy knowing what this thing is, but it's these competitions online.
- [18:17]
B
Are you going to make all of.
- [18:18]
C
Us about to make all of us.
- [18:20]
B
Less happy that we now have to.
- [18:22]
C
Know competition online, where people show their wallets and prove who's richer.
- [18:27]
A
Oh my God.
- [18:28]
C
I know.
- [18:28]
A
Sign of the apocalypse.
- [18:30]
C
So they're online live, screening, showing addresses and moving money. And that's what John is doing online. And Zach XPT is able to look at what he's doing online in the screen share and tie it back to a government controlled seizure wallet, namely the 20 million taken from the Bitfinex hack funds. And like I worked on those cases for freaking years. I spoke to those victims, people who are waiting for this money and this guy is just bragging about stealing it. And then there are records of this guy, the son, flexing with cars and watches and money. Just like the worst possible stuff you want to see online. So this didn't require hacking, as I said, it required access and weak process around what happened. And I guess what I want to get to here because this is salacious and it's interesting and I'd love to hear your guys's thoughts, but I just want to make sure people understand how the government holds crypto assets and why it's so scary, especially when we talk about the bitcoin strategic reserve. Because there is not this pristine Fort Knox for digital gold that does not exist. So the government seizes crypto and how it worked in my time, I don't even want to tell you because it's gotten better. No, tell us are getting accounts like Coinbase or those kinds of centralized exchanges to be custodians for it. So essentially they freeze it at an exchange and they say send it to our address at Coinbase. But Coinbase can't hold everything and they can't hold all NFTs. They can't hold like second third tier tokens. And so that's why they use these government contractors in order to be able to hold sort of the lower tier crypto. And these are huge contractors.
- [20:17]
B
Right.
- [20:18]
C
And it's, but it's all just supply chain and keeping track of where things are. And we should have seen it coming though, because there have been years of IG reviews, warnings like the Marshall Service has not been able to tell the government how much crypto they have right now in like development of the strategic reserve. So I just sort of wonder like we can debate the strategic reserve and whether it's a good idea and what it actually is, but has the government shown that it's ready for this and should this make people step back and question it? And interestingly, like this morning, Patrick Witt commented on this and said they're looking into it and it's being investigated. And it has been, it's been investigated before. It came to light yesterday or the day before. But it still just makes me wonder like, can the government keep our bitcoin safe from state actors, let alone online trolls?
- [21:13]
A
Well, and a couple things to this, like, I will say, so the U.S. marshals are at the crux of this. I'm a little bit of a history nerd. I would like to point out that the U.S. marshals are actually the nation's oldest federal law enforcement agency, like, established in literally the 18th century, which is kind of cool by George Washington. So, that being said, I think I actually fully support the US Government using third party contractors to handle areas where it is not the epicenter of their expertise, like, particularly when it comes to technical challenges. That being said, if the contractor process is not airtight and they don't know the questions to ask vis a vis the vetting of these contractors or the technical limitations or implementation of the security of crypto assets, that is. That is troubling. And I'm not saying that happened here, but it certainly raises some questions. And this is also kind of new to the US Government, to be fair, because prior to the establishment of the reserve, it was routine that the US Government for years conducted public auctions of bitcoin. Like the. The story that I love is Tim Draper bought something like 30,000 Bitcoin in 2015 for some very tiny amount of money, like less than 20 million. And his returns made him, in part, who he is today. That doesn't happen as much anymore. We need to do an entirely separate episode on the crypto reserve and how that all functions, because there's a lot to unpack here. But now we have a scenario where there needs to be effectively a technical Fort Knox for the US Government's crypto. And this situation raises some serious questions around that. Yeah, it's.
- [23:00]
B
For me, it sort of raises the question of, like, is maybe this is something that the government should build itself? Like, should this be in house infrastructure? Yeah, like, kind of the way Fort Knox is. But even. Even if not, right, because something like that, I don't know, might require, like, a congressional mandate or would take time at the very least. Even so, if it requires, there's no reason this should have. Yeah, but like, there is no reason this should have happened. There are plenty of secure crypto custody solutions out there. I really don't understand why they were not using those where stuff like this does not happen. So there was no reason for this. I'm actually just kind of shocked that this happened.
- [23:45]
C
I mean, and.
- [23:46]
B
And it's hilarious and ridiculous the way that it came to light, especially when.
- [23:50]
A
You look at the photo of this guy that's circulating. I don't know if this is an actual photo of him, but he looks like 14 years old. So this is troubling on a whole different level.
- [23:57]
B
Disturbing.
- [23:58]
A
Yes, all of that. It's also a great point in that look, I agree with you, V. I would love for the government to build this in house, assuming they have the right people to do it, which is a big question mark, especially don't get.
- [24:13]
B
Me started on the ethics.
- [24:17]
A
I guess especially as we've discussed before, there still exists like certain limitations within the US government of people engaging with crypto. Didn't get that. I did see news, I want to say like a month or two ago about Trump creating a tech core where they're actually using certain individuals on effectively. Second men from various tech companies, including crypto companies. I actually got really excited about that. I was like, yes, this is the beauty of the government and the private sector working together. Like the government should be mining the best mines in the private sector.
- [24:52]
C
I like the mining rap.
- [24:53]
B
Yeah.
- [24:53]
A
For the mining. Get it, get it. For they. The government should be mining the best and most brilliant minds of the private sector for the betterment of all Americans. Right, you brought that up.
- [25:04]
B
Yeah.
- [25:04]
C
I love that initiative as well. I love it and I was really excited about it as well. But I think that something that people don't quite understand is how decent, centralized the government actually is. And I don't just mean like state by state. I, I focusing just on federal like these cases are happening all over the country increasingly so. And some states have to rely on the marshal service as well to try and understand what to do. Otherwise they're just holding in a ledger and then someone quits and then they lose sight of the ledger after that. But like the government has been doing this for 10ish years now. It is time to get your act together and figure out what's happening here. The truth is, is that if you look at non crypto storage of funds, how the government works, we could probably find 8 million of these more ridiculous stories as well. And that goes more to government contracting than anything else. And I worked with the government for a long time. I have strong faith in institutions. I do worry that we would expect them to be able to build something strong enough to avoid hacking, let alone state actors, let alone this kind of activity.
- [26:19]
A
Absolutely. On that depressing note, I have been on a rant.
- [26:24]
C
Let's move, let's shift topics, please.
- [26:26]
A
Just actually something far more positive and brighter.
- [26:31]
D
If you're looking for help with crypto taxes, Crypto tax girl is offering $100 off for Unchained Listeners. They Provide personalized crypto tax reports and returns and spots before April 15th are limited. Go to cryptotaxgirl.com Unchained to save $100. Once again, the link is cryptotaxgirl.com unchained.
- [26:55]
A
As everyone is aware who probably listens to this podcast, there's two big financial regulators in the United States, which is also very aggravating. I kind of wish we had a jurisdiction where there was just a lot of. But there's the securities and Exchange Commission, which V was with with the SEC for many years. There is also the Commodity Futures Trading Commission, commodities securities. These two agencies do not always work well together, but they're working more and more together. V Tell us more about what's happening this week.
- [27:24]
B
Yeah, so the big news that came out was that the SEC and the CFTC announced that they're co hosting a joint public event on crypto regulatory harmonization with both agency chairs doing a Fireside chat. And I don't know, on its face it might seem kind of just procedural and maybe a little dry, but I, I think it's actually pretty interesting. So, you know, for many years, as we all know, crypto regulation was defined by a lot of jurisdictional ambiguity or like what some people refer to as a turf battle between the two agencies. And you know, like, I specifically remember cases where like the CFTC and the SEC would characterize like literally the exact same token as totally different things and then asserted jurisdiction over them. So, you know, that sort of thing was a problem. So I think efforts like these to work together are signaling that the turf battle is over and they want to focus on making the U.S. competitive and, and you know, making sure we have good capital formation and just clarity between the two agencies. So I think that is really positive. I do think one very difficult task that they're going to have to sort out is how they treat the trading of crypto securities versus non securities in on chain markets. Right. So I think ideally, and you're hearing about this more and more, I think ideally platforms out there are going to want to offer everything. Right. As much as they can on the same platform, or at least in a way that is seamless to the user. And so the question for me is, are the SEC and the CFTC going to agree on how this will be allowed to happen? And honestly, I'm not sure how this is going to play out. And of course this is a question for Congress as well. Right. So I don't know if you guys have noticed, but Chair Atkins, like for months last year he referred many times to this idea of a super platform or a super app and I think what he is subtly asserting there is that he wants SEC registered platforms to be allowed to offer everything. Right. So not just crypto securities, but also crypto commodities, stablecoins, NE, coins, NFTs, like you name it, and equity I think in the mix.
- [29:57]
A
Yeah, right.
- [29:57]
B
Crypto securities first and foremost. Right. And I actually think Congress is inclined to give the SEC that power. Right. They're well resourced. They have like a century of experience overseeing very deep like retail facing markets. I think on the other hand, the CFTC does not. Right. Commodities markets are much more lightly regulated than the securities markets. The CFTC historically has not been retail facing. So this might be a really controversial take, but my prediction is that Congress will be comfortable allowing the SEC to oversee all kinds of crypto assets, but it's not going to give the CFTC reciprocal authority. Right. Like I think there's no way they're going to say, okay cftc, you can oversee crypto securities now. And my even spicier take before, like I hear from you guys, my even spicier take is that this is actually the fight happening behind the scenes right now. And this is just like pure speculation by the way. It's not actually based on anything, but I think one of the things that might be holding up the market structure, Bill, is that one or more of the major crypto exchanges is pushing to have the CFTC be allowed to offer everything. What do you guys think? Actually kk, I would love to hear your take about whether you think the CFTC would be equipped to oversee more than just crypto commodities and Jesse too.
- [31:25]
A
They need a much bigger, well, more well funded CFTC to do so. Like as I believe I've said in the past, like I have the utmost respect for CFTC staff. I worked closely with them when I was the chief legal officer of a registered DCM and dco, which is a derivatives exchange at clearinghouse they work their butts off like and, and, but they're really like a bit of a skeleton crew already with their mandate, so they would have to grow significantly. To reiterate your point, B, there's two really important things that you mentioned. One is that particularly during the Gensler years as the chief legal officer of a centralized exchange, it was really scary. We actually only listed five tokens. But having to be in a position where the CFTC was saying like Ethereum is a commodity and the SEC was effectively saying it was not, that was a horrible situation for A regulated entity and everyone was just trying to do the right thing. It was not only confusing, it was scary, frankly. So I'm so glad we've moved on from that point in time and we have the two agencies communicating like that is just a blessing that I don't want to take away away from. Secondly, the other interesting thing is you alluded to this, but there currently is no legal mechanism to allow a platform to trade securities and commodities like it does not exist in the law. There's no path forward. Theoretically you can make that happen through exemptions. Maybe, maybe not. It gets a little sticky. So we would need legislation to okay that. Now if we look at clarity, which we're not, the crypto market structure law, which we're not even to talk about because frankly I don't want to talk about it. It's depressing right now like we are in my opinion and everyone feel free to disagree. We are watching the real time deterioration of the prospects of crypto market structure law being passed and the Republicans are saying that there are some big holdups including developer protections. I'm hearing different things from the Democrats. There's a lot of finger pointing. It's devastating. And I'm here to tell all of you people blocking crypto market structure law that when you come crying to me in three years and we're all getting prosecuted. Thank you. Like that's.
- [33:36]
C
Don't say that. Well, definitely.
- [33:43]
A
You know I'm not going to get prosecuted. That's what I'm going to move back to a law firm and do white collar defense again. No, that's.
- [33:50]
C
I thought you meant to another country which could be a conversation for other day. Everyone moves. I think you guys are both so smart and I learned a lot from you all in this conversation. One sort of overhang on this which links both of Yalls comments together is kk you sort of started by saying like I sort of vote the CFTC and SEC were one and we were only regulated by one like other countries have. Not all of them but many of them. And then V you're sort of suggesting that there might be a way that the SEC just sort of runs the whole show in crypto. In specific, I wonder if there's ever a future where they are meshed a little bit more or you think there would ever be a time where that would happen and maybe that's very, very far off. But do you think it sort of happens in a soft power kind of way?
- [34:39]
A
At least that was a conspiracy theory for a while that they were going to combine the two agencies like that was. I don't use them theory.
- [34:47]
B
Yeah, you know what, honestly, I mean this is like very futuristic sounding but like I don't think it's as far fetched as people think. Right. I said this before. If it's true, which I think many of us believe this, if it's true that eventually everything will be on chain, like everything will be tokenized, I think you could see a world where it's really just one regulator overseeing everything.
- [35:13]
C
I respect that.
- [35:14]
A
But right now I think it would be a terrible idea. Two agencies have a different set of laws, different stakeholders, different constituents, different mandates. One is rules based, one is principles based. I could go on and on. And the other thing that people forget, we're all obsessed with crypto. Right? But realistically, if we take a step back, crypto is a very small fraction of, of markets. So although it theoretically, I agree with V, it makes sense for crypto to be regulated by one agency and not two. It does not make sense for TRADFI to be regulated.
- [35:50]
C
Yeah, look at Silver this week. I mean, right?
- [35:53]
B
But what if all markets become tokenized? Right. Then it, then I think there becomes less reason to have.
- [36:00]
A
That's, it's a good question. But then the other question is if all markets become tokenized, do those tokenized markets completely replace the trad markets? Query whether that's even going to happen on our lifetime. I could see a scenario where it is. I could see a scenario where it doesn't. So yeah, I know all the boomers with their hard metals right now are like dolla dolla bills.
- [36:22]
C
I think it's boomers. And then like what's after gen A? Gen Alpha. Those people, they love their commodities.
- [36:31]
A
All those people that were buying the gold bars at Costco. Do you remember those articles where you could buy gold bars at Costco?
- [36:38]
C
I remember my Bubby and Zadie doing that. Absolutely.
- [36:42]
A
I mean my husband loves Costco. I'm surprised we don't have any gold bars. We do not. But I'm surprised we don't because if the man by Costco, I was like, why not? Okay, so on that note, we have one last very, very interesting topic to cover. So I think the interesting thing is we're moving on to what I would call a very spicy. Like there was some very R rated language in this interview. But anyway, so everyone knows cz, former head of Binance, he was interviewed at Davos and he was interviewed basically about his experience in dealing with jail and how he felt about that. And just Generally kind of banking executives going to prison versus crypto executives going.
- [37:31]
C
KK can you explain for our viewers what Davos is and how you think about Davos? Because it's obviously changed a lot through the years, but I'm sure everyone's heard of it, but maybe a sense of what people can imagine at Davos.
- [37:46]
A
That is actually a great question, Jesse. I'm going to give you an overview and then I'm going to pass it to Jesse to give us more info about this CZ interview. But okay, so Davos is basically the who's who of not crypto, tradfi and the world. Right? Like, so it's a conference every year and it's really fascinating because it's the one kind of event where you can see all of the biggest financial titans. And I'm just talking about financial. There's also a big government component on a panel together. Like Ken Griffin, the CEO of Citadel doesn't do panels, but he's sitting on a panel with other titans. So the most important thing about Davos is it, it gets basically all the most powerful people in the world together for a few days and a lot gets accomplished. I think both, you know, kind of obviously there's an agenda, there's content, but more informally like there's a lot of deals, there's a lot of meetings, there's a lot of brainstorming. Like Brian Armstrong specifically said he was going to, you know, re raise and try to work through, through clarity, the market structure bill at Davos because all of the stakeholders are physically there. So it's a great opportunity for people to kind of raise like kind of macro issues with within crypto, but also crypto, tradfi, crypto, government, national security, everything kind of all in one place. Yes, Jesse, now that I've explained the kind of the background of and why CZ was there, tell us more about this interview.
- [39:14]
C
Yeah, I think that explanation really helps highlight why this was a fascinating interview that happened. But essentially everyone's talking about this interview that CZ had on cnbc. He was at Davos. He talked on a panel about crypto for a while. Then he also went on CNBC and talked to the cutie of my heart, Andrew Ross Sorkin about federal intake. So he talked in detail about what prison was like and he talked a lot about the federal intake process and got pretty graphic as you said. And I don't think it's important to detail the words. People can look online for that and Andrew Sorkin's face sort of part of the story, because CZ did go into detail and Sorkin didn't know how to react. They were on TV, et cetera. And just to highlight, based on KK's explanation, like why this is so important.
- [40:09]
A
And by the way, not to hide the ball, but there was mention of balls in the.
- [40:15]
C
I thought we weren't going to use that word. But you know what, Jesse? We're at this place with the richest, most powerful people who descend on this expensive town in Switzerland, and CZ is going on TV and talking in detail about what it was like to be in a prison and not a white collar prison that people joke about on tv, not the ones that maybe a lot of white collar defendants have heard of. Although I think a lot of the narratives associated with that are quite unfair because most prisons are pretty bad places. Yes, but the reason why it was such a compelling conversation, in my view, is that people who experience the terrors of prison and what it's like to be there don't normally get to sit at Davos and force a conversation about what prison is like. And even just one tiny sliver of that can't capture what it's actually like. But at least it puts it into the conversation. Because crypto has spent years treating prison like content, like laws, code. There are no rules. We're built different. Not everybody, obviously, but that has been a narrative. But people going to jail and people being held accountable or being put in jail because rules are unclear is a real human condition that has happened, not even just talking about cz, but just more generally for crypto and for understanding why these rules are so important, is we can't continue to operate in a gray space and assume we're going to be fine because there will be people that end up in prison and have to deal with the physical and mental reality of it. And you could see it affected CZ and he wasn't. He was there for a period of time that was meaningful, but not as long as many, many people that are in prison now and were in prison before for crypto, for other things. And even though the Internet tried to metabolize it as humor and turn it into like, oh, look at the funny things he said. It's a reminder that, like, the state has power and whoever's in power, they are going to have power and they are going to utilize it. And so jurisdiction and clarity and market structure aren't just academic, they're going to have a real impact on people.
- [42:25]
A
People. He was in prison for four months before he was pardoned. And that's also really important, like not everybody's going to get the pardon from the President so he could have served a lot longer. We were talking about this earlier. Caroline Ellison also just got out of prison and I believe she had only served about 60% of her time. If you go to federal prison, it is commonplace to serve 60, 70% of your time. Whereas if you go to state prison, you usually serve the entirety of your time. Either way, I want to reiterate with Jesse, I did a fair amount of pro bono work which required me to be in jails or in prison. Jails is kind of temporary while you're waiting your sentence. Prison is permanent. It's a dark, scary, depressing place. It is awful. Even the white collar prison. So it's something to be taken very seriously. Also, if you are a felon, you lose the ability to do a lot of things. I mean, for example, ever touch a regulated entity of any kind? For example. The other thing I'll just note on this is I have to say personally, CZ had an excellent lawyer of us all know Teresa Goody Gill and I'm going to butcher her last name, but she's fantastic. She was one of the for SEC chair. She obviously did a really effective job at his advocacy. He said also in the interview or he referenced the fact that no banking executive ever went to prison for violating the Bank Secrecy Act. I want to click on that for a second because he's not exactly right. Look, I will say after many years of doing white collar defense, the reason individuals don't usually go to prison, I'm talking about individuals within financial services or C suite individuals is they usually turn over because they cooperate against their employers. So they get a deal. Basically you cooperate whopper, you testify, you don't have to serve prison time. They definitely have other repercussions because it makes more sense strategically for the government to nail the entity versus the individual. However, this has been a point of contention for years and years. Like post financial crisis, there was a bit of a reckoning where it said okay, after the dust settled and I'm Talking about the Trad 5 financial crisis, river said why didn't any of these guys go to jail? And there was a very famous memo in 2015 called the Yates Memo or Individual Accountability for Corporate Wrongdoing issued by the deputy deputy Attorney general at the time, Sally Yates, she was actually my former king and Spalding for many years. She is a boss where she basically said this needs to stop, the bad guys need to go to jail. And she specifically Issued six directives to federal prosecutors relating to, like, an enhanced focus on individual prosecution, but nothing ever changed. We really do not see a lot of individuals, C suite individuals, serving prison time. And I think CZ's takeaway is, why don't we ever see these tradition guys go to prison? But I went to prison, so why was it me? Why was it me and Arthur Hayes and other individuals in crypto? So it's a good question. Jesse's making faces and I know what she's going to say, because as a federal prosecutor, it's really hard to generalize that too, because you have to look at the individual charges and allegations at issue, and some of them are spicier than others.
- [45:43]
C
Yeah, I think the facts that underlie cases are very important too. And, you know, I unfortunately had to go to prison in order to visit defendants and talk to them. Jail. Prison are not a place to really be joked about, even though people love to hear about it and it's fine to do that. But like, any good prosecutor is not thrilled with the idea of making someone go there. I guess, like, I was never. That wasn't something I was excited about when I was putting, like, murders and rapists away when I was doing crypto cases, it was much more financial based. But what I would say is there's always a lot more of a story. So it's sort of hard to do these generalizations. But I think the conversation about the Yates memo is really, really relevant. And I just want to say that I hope that CZ's conversation, which was truncated, but also really got at to what it's like. There isn't just a meme, but something that is taken seriously. Because what he went through is, and what lots of people go through is a traumatizing experience that people need to understand because there are a lot of people in prison. There's a lot of rules out there. There's a lot of criminal statutes that we need to make sure that people understand and we need to be able to question as lawyers and think about what the right thing to do here is. And a real understanding of, like, this is not just something to joke about, but there's real state power issue here.
- [47:11]
A
Yeah. And to be clear, I do want to say I do believe bad guys should be in prison, if anything. I once worked for the public defender very briefly, and I had a problem despite that very vital importance of public defenders, because I just wanted to put some of my clients in jail, to be frank. And even if it was a bad jail, I wanted them to go to jail and to suffer in jail.
- [47:33]
C
Now, not everyone feels that way, but.
- [47:34]
A
Like personally, the jails overcrowded. Oh, too bad. You're. You did a really bad thing. But that's not fair because on the other side of the coin is Jesse's point is these prisons are terrible places. So people need to understand that there are serious consequences for serious violations of the law, especially when that law occasionally within crypto might appear gray as opposed to black and white.
- [47:58]
C
And lawyers have a real responsibility to their clients. And you mentioned CZ's lawyer, who is just an amazing lawyer. She really is. And every lawyer should take on the responsibility of educating their client and educating them on what could happen and what prison is like. And so this is just part of that conversation.
- [48:18]
A
Absolutely. So moving on from a very dark prison note, we want to wrap, as always, with our crypto good news. And V, who saw this fantastic piece of news, is going to give us the overview. This is.
- [48:31]
C
Yes, this is my first time doing.
- [48:33]
B
The good news segment and I'm so excited for today's. And thanks to Paul Graywall at Coinbase actually for drawing my attention to the article. But I think it's one of the coolest examples I've seen of crypto's real world positive impact and in this case, in a really tough environment. So the New York Times reported over the weekend on how blockchain based technology that was developed in Afghanistan is now being used to transform humanitarian aid delivery in conflict zones. So, you know, as you guys may know, like, one of the challenges of distributing humanitarian aid, especially in places where traditional banking and aid systems are either broken or just don't exist, is that you don't know what happens to it after it goes out. Right? Like, is it getting to the right people and being used for its intended purpose? So this article talks about organizations in Afghanistan, Afghanistan that are distributing aid on chain, which is making it not just faster but more transparent. Right. So you can directly trace the aid to the recipients and how it's being used. So I mean, I think honestly this is like a real game changer. And the other thing that I thought was really cool about this story is that it isn't just like a tech use case and a really amazing application of crypto, it's that this is coming from a country that you don't typically associate with like fintech or crypto innovation, but they saw a need and figured out a solution that was just really useful. So for me, this is just yet another example, a crypto meeting. Just a really basic human need where legacy systems have failed and, you know, different than some of the good news we typically cover. But it's such a cool story and I really hope that humanitarian aid organizations and governments around the world take a look at this and study it as a model. So that's the good news for this week and we'll link the article in the show notes for you.
- [50:44]
A
You guys, I love that. And you're right. That and keeping people from being too reliant on banks.
- [50:51]
C
Full circle.
- [50:52]
B
What a great also good news. Yeah, right.
- [50:55]
A
So keep your good news suggestions coming. Just a reminder, it's not just news articles. It's also incredible organizations within crypto that you want to spotlight. Tweet at us, send us your ideas and send us anything you want us to talk about. So. So we're happy to have our brains mind for the betterment of our Decks in the City listeners. On that note, thank you so much for joining us. That's it for today. We'll see you next week.