Jill (2:14)

Awesome. Well, thank you so much for having me. Yeah, my name is Jill. I've worked in the industry for. For 10 years now. What are we still doing, guys? But here we are. The future of finance is almost here. It's coming. For the last five years, I've been working on a project called Espresso Systems. We've built many different tools and infrastructure products that we think are going to be a part of that journey to bring mainstream finance on chain. The main thing that we've built is a blockchain designed for high customizability. So we support rollups product primarily and super fast transaction finality time. So we confirm transactions in two seconds and we're targeting sub second next year. In the past, we've also developed privacy products. So we developed a product called Cape a couple of years ago, piloted it with a bunch of specifically stablecoin issuers and other asset issuers at the time. And privacy has always been one of my big kind of passions in this space. So thrilled.

Jesse (3:22)

How convenient.

Katherine (KK) (3:23)

How convenient.

Jesse (3:24)

Yes. We're so pumped to have you. And what you guys have been building at Espresso is just incredibly impressive and I think that everyone should learn more about it. And Jill, I know you've had like long podcasts where you've talked in depth about what it does and I highly recommend people listen to that. But what we're here for today is to focus on privacy. And two of the best are here to talk about it because they both got together yesterday to talk about privacy on a panel together and left me behind. So can you guys tell our listeners what you were doing yesterday and just a little about how it impacts our conversation today?

Katherine (KK) (4:01)

We had a. We had a party without you, Jesse. No, never. Never. So, yes, this was amazing. And I just want to point out something really cool. Okay, so this was the sixth SEC roundtable, I believe the SEC started holding these roundtables on topics the SEC Crypto Task force. So there's been one on DeFi, tokenization, etc. And it's absolutely fantastic. It shows their kind of transparency, their engagement. They did. One of the members of the task force did tell me that this was a very well attended or well watched panel which shows how much kind of talk and focus there is around privacy. But one of the coolest aspects of it is that the first half of the roundtable was builders, like talking about privacy tools, demonstrating privacy tools, and shout out to Jill for not only being on the builder half, but being the only woman representing the female power.

Jesse (4:57)

We're gonna do sorority snaps for that.

Katherine (KK) (4:59)

Whoa, whoa. Yeah. And then the second half of the panel was a policy focused conversation. So kind of these tools exist. We just saw some of them. Where do we go from here? So let's kick things off Jill, like, tell us more about your take on kind of from the builder perspective, your takeaways and your thoughts on how the first half went.

Jill (5:21)

Okay. I mean, well, I just have so many thoughts on this. It's so wild for any of us in the space, maybe especially as a builder in the United States who's been working in crypto again for like a decade, to be walking through the front doors of the SEC to give a presentation. I, so I actually, I had the privilege of it, of going in and doing another one of these round tables back in June. And I remember I pinged my co founders and my teammates at my company saying, okay, guys, I'm going to be off the, these two days in June. I'm applying to dc. I'm going to be going into the sec. And some of my colleagues were like, you're going into the sec? You know, kind of like, do you need a lawyer? Like, have we, yeah, have we been subpoenaed? Because that was the vibe for. I, I want to emphasize actually not just the Biden administration, the previous Trump administration, you know, for the better part of a decade. And I think that it is so awesome that the SEC is engaging with industry in this way. Everyone I met there yesterday, even the staffers who'd been around sort of through all of these different paradigms of the SEC were just so open minded and curious and positive about us coming in to present. And that was just, that was just a great feeling. So that was the first thing I wanted to acknowledge.

Katherine (KK) (6:48)

It was fantastic. And just to paint a picture for people, if you haven't been to the securities and Exchange Commission headquarters in Washington, it's right next to the beautiful and, you know, very, very kind of fancy old school Union Station. And then you see this like, kind of intimidating, gray, very angular.

Jesse (7:08)

Architecture is fascinating, scary building.

Katherine (KK) (7:11)

Like, it gives fancy jail to me a little bit.

Jill (7:14)

It gives like, yeah, dystopian science fiction. Yeah. Like the good guys are holding to, you know, testify in front of the Galactic Congress 100%.

Katherine (KK) (7:26)

So you go in, you know, you go through security, but I can't. I really want to echo Jill, sentiment, like every member of the task force that I've interacted with has been lovely. They're smart, they're intellectually curious, they want to do right by the industry, but they also want to do right by American investors, which, frankly, that's one of the reasons why the SEC has changed its tone. They understand that innovation in the United States is good for the market itself. So this degree of engagement is A dream. And I think that's the first step, it's the baby step to seeing real progress on the regulatory and legislative.

Jesse (8:01)

I just, Sorry, I just can't believe that the SEC had a panel on privacy. I mean, like, I was in the government almost five years ago prosecuting crypto cases and stuff involving illicit finance. And part of the reason I left is because I didn't feel like the government understood the value of crypto and spoke about it in a very anti privacy way. And to me, and in my nature, like, I think privacy is incredibly important and also it's perfectly aligned with national security, which were the cases I were working on. So to see a shift in just like 5ish years to an actual panel to talk about privacy and the importance of it, I mean, I was blown away by what you guys were saying and also by the fact that it was just happening.

Jill (8:46)

Yeah, 100%. And I was going to say, Catherine, there's been this kind of meme in crypto, at least in the United States for a long time of like, oh, thanks to the SEC for protecting me from this life changing airdrop that I could have gotten, right? Like, thanks a lot guys for protecting.

Katherine (KK) (9:05)

Me from this, protecting me from this money.

Jill (9:07)

Because there's been so many ways in which, you know, under the, the auspices of consumer protection, US people have not been able to engage in crypto. And obviously not all of that's changing. Like, I don't know, I'm, I'm not like a die hard libertarian who thinks that we should get rid of all consumer protection. I actually think it's very important. But I do think that this is kind of a, a sea change moment to reset some of the standards and paradigms. So, yeah, completely agree that it's a huge deal that, that it was even happening. And kind of interesting timing. I don't know. Did the New York Times article over.

Katherine (KK) (9:44)

The weekend, no comment.

Jesse (9:47)

It's just.

Jill (9:49)

So is this article that came out over the weekend basically, to me, okay, never actually said this, but the headline, all of it, it made it sound to the average reader, I think like the SEC has changed its tune on crypto and is inviting all of these crypto people to Washington and dropped all of these cases against crypto companies because Trump is somehow personally benefiting from it. And if you read carefully, of course throughout the article they keep saying, like, to be clear, we found no evidence of this. Like, we're just asking the question. And I'm just like, oh, you guys, this is, come on.

Jesse (10:29)

No. And also I Think it just, it. It negates all the work that people like us and our listeners are doing in the crypto space because you can have an argument about conflict of interest and whether the current administration and politicians should be involved in crypto and whether what they're doing is hurting the industry. And that is a conversation we can have, for sure. But that is very different than smart people like you guys going in and teaching about privacy and defending the human right to it. And the fact that it's conflated just like, puts us against a entire institution that we don't need to be against. And like, it put makes us very defensive. So I really appreciated that a lot of the panel wasn't about that defensiveness because it's very easy to go that way. You know, kk, you had talked about, like, the history of these panels, and Jill, you've been on one before, but, like, what is. Can you explain, like, what's the purpose of them? Like, are they tailored to a specific guideline? Like, did you get a sense of, like, what might come of this?

Katherine (KK) (11:29)

It's a great question, Jesse, because I've been asked that a lot, like, what are the takeaways? What are the changes as a result of this panel? And also to give people some inside baseball here, people can actually apply to be on these roundtables and. Or they're invited to be on the round table. So a lot of the participants end up there because they have engaged with the crypto Asset Task Force or they've published thought leadership, or the commission is aware that their products align with the educational goal of this roundtable. For example, there's no specific action item or deliverable that come from these round tables. And I don't think anyone should expect that. This is all a process of education and engagement and starting a conversation, particularly vis a vis privacy, which is not straightforward. Like, this is. There's not like an easy fix that you can turn on and off. Privacy is an acceptable thing to regulators. That was actually a big conversation point in the policy focus piece about how, like, what can we do to ensure that people can engage with privacy tools without immediately garnering suspicion and builders can build them safely. But the other point that was made that is spot on. Well, I should say this, because I made this point not to do my own part, is that everyone's been obsessed with stables, tokenization, and payments, right? So now we're seeing huge activity from legacy market participants in, for example, tokenized equities. All of this is moving on chain. What does that mean? Well, it means we need some form of privacy or secrecy or shielded transactions to mitigate market manipulation to ensure that we still have free market competitive strategy. Like there's a whole host of use cases for privacy, economic use cases that are unlocked by the growth in tokenization.

Jill (13:23)

This to me was one of the biggest kind of subtexts or themes of the day yesterday I think is that, you know, we have all of these applications that we in industry feel are basically there, they're ready for primetime and you know, even tradfi and you know, kind of legacy market participants are seeing this as well. And privacy is perhaps the most relevant actually to those parties. And so it was kind of this interesting mix of, you know, you had like Zuko Wilcox, the founder of zcash there. You had folks who really kind of espoused the like true cypherpunk vision of crypto. And then you also had a lot of the same people actually espousing this version of privacy that's like very corporate friendly and actually look like banks just in order to manage their own proprietary strategies. And banks and asset managers need privacy as well. And it's interesting to see kind of the marriage of those two things and also the ways in which I think strategically even those who are really in it for, for like the civil liberties or the cypherpunk values are kind of pragmatic at this point in 2025 saying, okay, well we can trojan horse those values in through, you know, privacy products built for corporates.

Katherine (KK) (14:53)

It's a great point. It was really interesting is the policy panel, half the policy panel was ex regulators. And I would say the least cypherpunk was Carol House, who's an ex regulator, but she kept agreeing with the representative Jay Stanley from the American Civil Liberties Union, which was quite interesting. And some of it was he was approaching this pragmatically. There was a lot of respectful disagreement on the policy panel, but I did think that they did a very good job of kind of bringing the spectrum of beliefs here in terms of okay, no, this should be entirely permissionless tooling, free if bad guys use it, too bad. To the other spectrum of no, we should build, you know, a holistic risk management compliance infra on top of the tools. And a lot of the, the topics that were raised in the paper Jesse and I published a couple months ago were discussed, meaning the existence of these cryptography based tools and what they can do for privacy, good and bad.

Jesse (15:57)

I think the fact that there was so much agreement is somewhat surprising, but also to me, like not that Surprising because we live in such a cyber world right now and privacy and national security are like pretty much bedfellows that need to work in conjunction together. Because like every major national security failure involving data in the last decade has come from too much visibility, not too little. You can think about the OPM hack with my data along with 21 million other federal employees, like PII was taken. You can think about like the Strava incident which like, I'm shocked how few people talk about that. But that's on the private side where fitness trackers revealed the layout of. I think about that every day basis. Soldiers are not leaking the information. The lack of privacy protections like really impacted our national security. So for me, like the fact that there was a grievance sort of shows that it's not just a philosophical debate, but rather an understanding that too much visibility is what can create attack services.

Katherine (KK) (16:56)

I swear if I had tin foil around I'd put on my tinfoil hat right now. But like, the more you learn about this, the creepier it is. And that was also a topic of yesterday that was really interesting. Like we talked about the economic drivers for privacy, we talked about privacy as a right. Those are not surprising. But the other things we talked about, frankly is the epidemic of data breaches in the United States and how to mitigate that using cryptography based tools. There was a lot of discussion around that. There's a lot of discussion about digital identity and there was a lot of discussion about the bank secrecy act and anti money laundering.

Jill (17:31)

Yeah, no, 100%. And I think this was, this was a point that got driven home by basically every single speaker, more or less. Is that with the tools that we have through cryptography generally, but then also through bringing assets and identity and things like this on, on chain and using crypto tools, we can still meet compliance goals, but with less data collection. And I think that that is like, if I could just tattoo one thing onto the brains of policymakers and regulators, it is that sentence, we can still meet compliance goals with less data collection. Because I think that that is, you know, it's so easy when you say the word privacy to have like all of this baggage around it. Forget privacy for a second. It's like it's, it's really that, that I think is going to be the driver of a lot of this adoption. And I said this yesterday, I'll say it again today. I think that this dynamic, again, the fact that we can still do risk monitoring in real time, we can still have the levels of transparency that we want and need that we've grown to love about blockchains. But while encrypting and obfuscating things about assets and identity and having selective disclosure like, these are some of the most compelling reasons to bring digital assets on chain. Like, okay, yes, like, we're, you know, we're helping to drop down clearing and settlement costs for, like, creating a global marketplace instead of fragmented one. Like, all of those great things about blockchains are true, too. But I think what you get in terms of this supercharged privacy risk, auditing identity tools are really, like, that is the main reason.

Jesse (19:23)

Yeah. Because it allows us to move past this false trade off between privacy and regulation because we should be able to design systems that. Where confidentiality and accountability reinforce each other and we have the technology to do it. And so you're making my heart very full with what you're saying because, like, privacy and risk management should not be fighting each other. And, like, maybe in the past they had to before we had the tech that we had. Now, like, I don't want to speak to that. But what's so exciting about right now, and I think part of the reason why we all like the space so much is that programmable risk management can be the mechanism that lets both privacy regulation and, you know, compliance exist together.

Katherine (KK) (20:03)

One of the points that I made loud and clear on the panel, Jesse, was a point that was grossly misinterpreted with our paper. It's like our paper, we run through all the tools or a lot of the tools that exist today that can be implemented for programmable risk management. But the point that I was making is these tools exist. We're not saying that regulators should mandate the implementation across the board. Like, there's a spectrum of privacy solutions. There's a spectrum of privacy protocols with different needs. So, however, just back up, though, for.

Jill (20:32)

A second, Catherine, and can you just, like, lay the groundwork for your paper because. And probably a lot of your listeners know about it, but some might not. So.

Katherine (KK) (20:41)

Yeah, yeah, we'll link it in the show notes. It is a. It is a dry academic paper, actually. It's really fantastic. And I read.

Jill (20:49)

Okay. I started reading it yesterday. I think it's very sexy.

Katherine (KK) (20:53)

Thank you. It was.

Jesse (20:56)

We were going for sexy. So we were going for sexy.

Katherine (KK) (20:59)

Yeah, yeah, sexy. It's a. It's a very sexy academic paper. But no, we'll link it in the show notes. Look, so it. I think we mentioned this on the first episode, but the whole point of it was we wanted legislators and regulators to be Aware of the existence of these fantastic cryptography based tools. Obviously ZK proofs are close to my heart. Starkware is the OG of ZK Proofs. Like the starkware co founders co founded ZK Starks and Starks. The starkware CEO Ellie is a co founding scientist of zcash. Like so that's our baby, right? So I was driven with the understanding of that tooling and Jesse and I put our heads together and created this paper that runs through the existence of these tools, how they're used, how they can be used. And my favorite part of the paper is in the appendix there's actually a chart that lists out the tools. So the dream is builders that want to build defi protocols like they have different goals, some just want to build defi for tradfi, that's fine, we shouldn't shame them for that. Like there's a place for them in the community. So the dream is they're looking at the paper, they're looking through the appendix and they're just making sure that they've considered whether the tool should be appropriate. That all being said, we were also quite clear in the paper that we are not mandating that any of these tools should be required. Yeah, there is a fear in the community that regulators given awareness of the tools are going to say, oh well this exists, you got to have it, you got to have it. And no, I don't think that's going to happen. I think we're not giving regulators and legislators enough credit.

Jesse (22:33)

Also like it's about the users having choice too. You know, it's like builders build, they disclose what systems they're using or not. And then users get to say I want to protect my money with this much, I want to protect my money a little bit less, but take on more risk. Like why is that so scary? I'm not really sure. And to like just get back to the user side of this. If I could turn this a little spicy if that's okay. Like you guys were amazing on the panel. This is nothing against any of you but I do think one thing that was missing and it could be because it was at the sec, not like the treasury for example was just like the human aspect of it. Except Jill, when you spoke about what happened to you, to be honest. But you know, I think that we need to reframe the conversation a little bit. Maybe in bigger conversations, maybe not at the SEC when it's about markets more, but like to being about privacy that protects people, not just principles. Because my conversation sometimes around crypto privacy right now is that too often it turns into, like, an ideological purity test. And I think we saw this with our paper coming out, because then it's just about principles and not people. Because to me, like, it needs to all be reframed from an abstract concept to, like, something like a public interest framework. Because if your privacy theory can't explain how a vulnerable person would get help, restitution, or protection, then it's not a privacy theory for humans. It's one for ideology. And privacy maximalism sometimes misses the flip side of, like, the harm comes from the state, but it can also come from each other. And sometimes the thing that's protecting you is, like, the ability to go to court to trace assets to prove your harm. And like, Jill, like, I'm so happy that. That you've had a foundation to be able to come out there and speak what happened to you. Like, I've been hacked too, but there are hundreds of thousands of people who have never been able to have a voice, can't get anyone on the phone to help them, can't get any. And so, like, when there's no privacy, people get hurt, but if there's no accountability, people also get hurt. So we need to figure out a way to, like, balance the two. And in my mind, obviously, programmable risk management is one way to consider doing that, but there's obviously potentially other options out there. Like, but at the end of the day, like, privacy needs to understand people and that the fact that we need to be shielded most of the time, but discoverable in times of harm for the purpose of justice.

Katherine (KK) (24:57)

Jill, Jill, tell us more. Because for those who missed the panel, tell us more about what you shared yesterday with the caveat, or. It's not even a caveat, guys. Jill is really sophisticated in crypto. Like, she's maybe the most. I mean, whenever you're at track by conferences, there's always that guy standing in the corner, and he's like, I bought Bitcoin in 2014. And it's like, well, you're clearly still needing to work, so you obviously didn't hodl it. So you should probably stop bragging about this. Like, Jill is that person, but she's not going around bragging about it. So, Jill, please tell us more.

Jill (25:30)

Okay, so, yeah, for those who are not extreme, extremely online and did not see my viral Twitter thread about this the other day last week, literally, I'm not kidding you, I sat down at my desk to work on a draft of my remarks to give at this SEC Privacy roundtable. And I happened to open my Rabi Wallet, like my browser wallet, and I had moved a bunch of things around the day prior to to prepare to do an angel investment out of my Rabi wallet. I don't usually keep that much in terms of funds in my just like browser Hot wallet. You're like Ravi or your metamask or what have you. But I moved a bunch of money in. I have to confess, I sold my Monad Airdrop, I sold a few other things to like be able to fund this angel investment. Okay. And I opened my wallet and I'm like, that's funny, the wallet user interface is not showing me all of these funds that I put in here yesterday. But you know, these user interfaces kind of suck. So I wasn't that surprised. And I was like, let me just go into Etherscan and make sure it's all still there. And it wasn't. And at this point, okay, you two will appreciate this in particular. I'm a mom, I have a two year old, I'm chronically sleep deprived. At this point I was thinking like, did I accidentally it. Did I like send it to like my like one of my other, you know, hardware wallets? Or like, did I send it to a sex.

Katherine (KK) (27:07)

Like, did I forget that I sent it? I would, I could have done something like that.

Jill (27:10)

Did I like bridge it into like the wrong contract? Like that was. Honestly, I was like, was this a mom brain thing? Yep, Moms have superpowers. I shouldn't use the word mom brain. But like for me specifically in that moment, that's what I was thinking. Anyway, I'll cut a very long story short. I traced it through Etherscan because Ethereum is public, so you can do that. And then I saw the deposit of this 30k worth of stablecoins into, well, it been turned into Ethereum at this point into Railgun, which is a privacy product that I've never used before, but I know about and I respect it. I also know it's used in a lot of Black Hat activity.

Katherine (KK) (27:54)

And I just saw equals bad hackers, guys.

Jill (27:57)

Yes, Black hat is bad, white hat is good. I just saw that deposit into Railgun and my stomach just sank because like that's the smoking gun. Unfortunately, you know, all of the other movements of the funds, I could kind of be like, did I like accidentally like give permission to like, you know, some decks to be able to do this? As soon as you see it going to a privacy protocol, like, that's not an accident, that's the bad guys taking your money and it was just a real moment of empathy for me as someone who's built these products, who's been in the space a long time, who's been a huge privacy advocate from like a civil liberties perspective, that in that moment when you're the victim, you don't look at this and say like, huh, that's like a really cool tool of human freedom. I'm so glad that this exists. Are you kidding me? And of course I want to say, of course, you know, the real fault here lies with, firstly, the SMART contract that had a vulnerability disclosed in it that was not deprecated and taken down, that actually allowed this hack to happen. You know, secondly, self sovereignty is just costly. Like, you gotta be careful out there. I probably shouldn't have had that much money just chilling in a hot wallet even overnight. So, you know, stay safe folks. Go into your wallets, go to revoke cash. Like there's all of these great public goods that exist, like be able to monitor, you know, your wallet's permissions and things like this. But also it does just suck to look at it and be like, this is okay. This is the practical use case and adoption for a lot of the activity that goes on in privacy protocols. But to your point, Jesse, I think it's so important. I actually had people kind of discouraging me from sharing the SEC roundtable. I was like, do you think that we're like as an industry, do you think that we're going to make progress by not acknowledging that black hats use these protocols? Absolutely not. This is such a well known thing. We have to acknowledge it and acknowledge that we can build privacy tools that do have safeguards built in. If I had caught it, the Railgun deposit, within a couple of hours, it actually railgun would have been able to stop it. And railgun does have these types of safeguards built in. They have like a proof of innocence thing. They have like a time delay on deposits. I think that they have like KYT so like some TRM or chainalysis thing set up. But this just missed, you know, all of the safeguards. So.

Jesse (30:36)

Yeah, I'm so sorry that happened to you. You know, you have been working in privacy so long. Did you, did it actually shift your thinking? Because how I'm thinking about it is like, it really grinds my gears when people say like, I mean, I don't want bad things to happen in this space, but you know, but I believe in privacy or but what a lot, because like, I don't think we between those things and it ignores the victims in that first clause of the sentence. And so I don't want everybody to have to get hacked to understand the importance of having some sort of risk management tools. And I think, yes, self sovereignty is scary. Be careful out there. And like, I want, Jill, you to come on and like, give us cybersecurity training at some point. But like, it, the whole point of this being built is that we should be able to have self sovereignty and security. And so, like, I sort of wonder like, how you think this changed your thinking and whether there's any way to sort of leverage that to people that haven't been through it to understand that balance that might be required.

Katherine (KK) (31:38)

And by the way, Jill, before you answer, I'm just gonna say I'm going to introduce a new segment called what Grinds Jesse's Gears?

Jill (31:45)

Yes, such a great throwback for those who run a podcast called what Grinds My Gears? One of the OG female hosted crypto podcasts. I may say, honestly, it didn't really change ultimately my perspective on like, what needs to exist and how we need to approach these things, even to the extreme. I would say that I do think that there's value in having some privacy tools that are aligned with that kind of like cypherpunk set of values that, you know, are more on the permissionless end of the spectrum. Because I've also seen it pretty much firsthand from doing research and having friends even in places like Venezuela or Iran or at times Lebanon or Hong Kong during the protests there, et cetera, where I've seen, okay, privacy can be a tool of human freedom. Again, in that moment of the hack, seeing Railgun there, I did not feel that way. But like, I do think it is very valuable to have these kinds of censorship resistant again, like cypherpunk aligned privacy tools. But I do think that, I think that there just needs to be a spectrum of these things. And, you know, I think that the more that we can have tools that do support high levels of accountability and responsibility and do have, for lack of a better word, controls on them for more mainstream usage, I think that that is better for the space as a whole. Like, I mean, a few years ago, I have to say, I think we've come a really long way from Tornado Cash being sanctioned by OFAC, which happened two years ago. I think it was like 2022.

Katherine (KK) (33:42)

Yeah, four years.

Jesse (33:44)

2022. Yeah, it was almost four years ago.

Jill (33:48)

Take that back. Retract that. Almost four years ago, you know, we basically only had like tornado cash and then I guess you Know, kind of the natively private blockchains like zcash and Monero. Zcash had of course some safeguards built in. Tornado Cash did also have ukeys, but I don't know if they were kind of mandatory to use or just not.

Katherine (KK) (34:12)

Used or they weren't used with OFAC inquiries. I don't know that for a fact, but that's my assumption. Yep.

Jill (34:18)

But I do think that there has been this kind of new generation of privacy builders who've been really, really thoughtful about how to implement things like proof of innocence, either in depositing into a private domain or withdrawing from the private domain, implementing again like kyt to be able to know, okay, is a transaction being deposited in from a suspicious address. Maybe we need to put a pause on that. Having these long deposit wait times and withdrawal times and you know, it's all trade off. Right. Because it makes the user experience way more of a headache. But it does also create these safeguards where, you know, even from business perspective, I don't think you're ever going to get businesses to build these things or do things like out of the goodness of their heart. But from a business perspective it actually just made sense and in the wake of Tornado Cash being sanctioned to explore these different modalities. And you know, I'm very glad that we're moving, it seems, out of the paradigm that we lived in for the last four years where, you know, things could happen like Tornado Cash getting sanctioned, which I think we all agree and Coin center kind of led the charge on this should not have actually happened even from a legal perspective. But I do think that one positive out of all of that, one silver lining has been the innovation that's been spurred in creating tools that do balance those protections of users as well.

Katherine (KK) (35:54)

Well, a couple points on that too. It's funny because I think a lot of crypto has a very visceral reaction to things like proof of innocence. So like this is another thing that was discussed on the panel is we've lost the thread here. And you know, Americans should never need proof of innocence. Like the presumption should be innocent. So that was an interesting kind of rights oriented conversation. And the other interesting point about Tornado Cash, for everyone who isn't aware, if you're not a crypto person, you know the, the infamous mixer, which, you know, a mixer basically makes it difficult to trace the source of the funds. And similar to Samurai Wallet, both of which have had criminal implications for the developers. The interesting thing about those is that Commissioner Purse herself has been supportive of mixers. And she said so in the opening remarks to the roundtable. What was really fantastic is Chair Atkins spoke, Commissioner Mark Ueda spoke, and Commissioner Peirce all spoke in kicking off the roundtable. And they were all pretty much aligned with, look, individual people should be able to use these tools without arousing suspicion. And it goes to the kind of presumption of innocence, presumption of good. So I think we're all kind of trying to find our way back to that place where the starting point for privacy is. Privacy is okay. And then when there are red flags or issues or, well, that. That actually raises a separate conversation of, well, what is guilt like? Is there a conviction? But that's. That's the issue, and that's the spectrum of debate that we have with kind of the various stakeholders here.

Jill (37:37)

And one interesting then kind of offshoot of this debate that I hear a lot amongst developers that wasn't really touched upon yesterday because it's just sort of like another level of depth on this is a lot of these privacy tools, if you use them, you are contributing to a shielded pool effectively. And so by by virtue of using a tool like Railgun, I'll just pick on them for a second. But this is true of many different products by using them. So even if I'm using them for sort of like, totally kosher, fine, licit purposes, if others, then, if North Korea then deposits into that same product, North Korea is being shielded by my assets by virtue of me using that product. And so I. I mean, you two can probably talk about and theorize and maybe even answer for me what this means from a legal perspective for the users of Railgun who are using it for okay purposes, but then are providing that privacy to the likes of, say, North Korea. But, you know, I think that there's just so many fascinating but also kind of hairy and scary dynamics that arise with the design of these products that. That's really tricky to sift through, whether it's for regulators or enforcement or the average end user.

Jesse (39:06)

I really like your framing, Jill, of like, how much stuff has changed over the past few years, because I do think this panel for me and for many was like, a real step forward from this whole, like, privacy maximalism, cyberpunk only because, you know, as someone that, you know, thinks about the people side of this a lot because the work I used to do, like, privacy was essential for every domestic violence victim that I interacted with and, like, trying to figure out how to get them cash that they could use in a way to have A hotel where they were safe from their abuser and is essential to privacy. And, like, in the same way, sometimes too much privacy can hurt victims. So, like, I think it's like walking into a room and being able to address the audience with the needs and principles and convictions that they have on the privacy topic. And the crypto industry. I'm sometimes hard on us, but, like, I think they're doing a really good job sort of reframing it and talking about it as, like, a holistic need for people in different ways.

Katherine (KK) (40:09)

I love that, Jesse. And I was about to say, we don't have enough time for you to spit all the alpha that you have on illicit finance, but we are going to have an illicit finance episode at some point where we kind of digest some of the liability and the concern and the fear in crypto and what is facilitation. I want to move on to one other tiny topic we have at the end and also our crypto good news. But before I get there, I wanted to spit a particular piece of alpha here. FYI, every round table has a break in the middle. And to date, there has. This was Jesse, before we started filming was like, what surprised you at the round table? And I don't think she was prepared for my answer, which was, I was really excited for ice cream bars at the break because I believe there's been ice cream bars at every break.

Jill (40:56)

That's what we had in June.

Katherine (KK) (40:58)

Thank you. Washington was 25 degrees or something like that, like some crazy Chicago level cold yesterday. And so there were not ice cream bars. There were donuts and cookies at the break. And the best part is they were all laid out on this, like, piece of parchment. I'm pulling up the photo I took right now so I can get this right. And in front of the donuts, there was this big sign that said, do not take financial privacy for granted. So I.

Jesse (41:25)

Well, that's the name of our episode today.

Katherine (KK) (41:27)

Thank you. Excellent. We have our episode title, so. So the commission, the task force, in addition to being lovely and smart, has a sense of humor. I so appreciated that. I also ate both a donut and a cookie before my panel. So if I was acting a little hyper now, you all know the inside baseball there, but that was.

Jesse (41:45)

And then you passed out from your food coma after.

Katherine (KK) (41:48)

Yeah, then I passed out. Yep. I passed out on the plane, but that was kind of amazing. We also had a pizza dinner before the panel or pizza lunch hosted by the SEC before he kicked up. So I ate like a small child yesterday.

Jill (42:00)

Is what we all did. I had multiple donuts. I confess.

Jesse (42:05)

I love it.

Katherine (KK) (42:06)

Okay, so this is what's fueling your hosts for today. Yeah, we. We only have a few minutes left, so I wanted to pivot to Jesse real quick because it would be remiss, not so much on the privacy piece, but to not talk about something that I think Jesse and I are uniquely suited to opine on briefly is the Do Kwon sentence. Jesse, tell us more about that.

Jesse (42:27)

Sure. There's been a lot of conversation about the sentence and whether it's too much, too little. And essentially what happened is Do Kwon pled guilty to two counts.

Katherine (KK) (42:37)

Oh, and remind us, remind our listeners who Do Kwon is.

Jesse (42:40)

Do Kwon ran Terraform, and it was an algorithmic stablecoin that depegged. And there were lots of allegations and lots of evidence that during its de pegging, he made a lot of fraudulent statements, both publicly on podcasts, on Twitter, and internally that represented that it wasn't debegging. And lots and lots of people have lost their money. Some people think it's hundreds of thousands of people. There's almost 17,000 victims that are part of the bankruptcy case, which is still going on right now, and 300ish victims wrote in for the sentencing. So essentially what happened is he pled guilty to conspiracy to defraud and wire fraud. Okay. And those were two of the counts of the indictment that was brought in the New York federal court. And so essentially, after he pled guilty, they sent set a sentencing hearing where the judge sentenced him to 15 years. And there's been a lot of conversation. Is that too much, too little? And I think it's worth sort of giving a foundation of how sentencing works and like that might help guide whether it's too much, too little, or at least sort of educate on the process. So what happens is when you plead guilty or you're found guilty at trial, you have that actually happen, and the judge doesn't in federal court sentence you right. Then instead, they set a sentencing hearing, usually like eight weeks out, depending on how complex the case is. During that period of time, the defense collects information of support in support of the defendant, if there's any of that, which there was here, as well as submits a sentencing memorandum that says, we think he should have blah. And the prosecution does the same with victims. Victims sometimes speak at the sentencing hearing as well, but they essentially say based on the evidence and these facts, we think he should be sentenced to blah. In this case, the defense asked for five years, and the prosecution asked for 12 years, what the judge did was sentence above what the prosecution was recommended, which is not unheard of. That has happened in many cases, but it's somewhat rare. And in such a high profile case, like, a judge usually explains why he did that. So although it was higher than what the prosecution had asked for, it's actually lower than what the maximum was. So let me just talk about this for a little bit because it's sort of important. So essentially, when you plead guilty, you're pleading to charges that are listed as criminals, Criminal statutes by Congress. So Congress will say, fraud is a crime, and the maximum you can get for it is blank. Okay? And that is legally what you can do. And that's when people say, you know, here he had a maximum of 25 years. That is different than the sentencing guidelines. Because before the mid-1980s, it used to be that judges just couldn't go above the statutory maximum, but they could do whatever. But the problem with that is, like, some judges would give 25 and some would give two years for the same crime. So what the Supreme Court and the federal government decided to do was create federal sentencing guidelines. And what this says is, hey, judge, look at the statutory maximum and then look at these different factors in this very complicated manual. It's like hundreds and hundreds of pages to help you determine what to sentence somebody to. And it's not mandatory, but if a judge goes above or below the guidelines, then they have to explain it or they can be overturned.

Katherine (KK) (46:20)

Yeah, but that's. I want to double click on that point really quick, Jesse, because I think it's important. It's the source of the confusion with the sentencing a lot. Just because the prosecution recommends a certain period of time, the judge does not have to align with those recommendations. Because a lot was made of the fact that Do Kwon got 15 when the prosecution recommended 12. Totally. That's just a starting point for the judge.

Jesse (46:43)

Effectively, the only thing the judge really has to do is stay under the statutory maximum. What the guidelines here suggested or said he could do was nothing to life in prison. And the reason why it was so high was because the sentencing guidelines look at the two crimes he pled to, and then they might reduce. If you pled guilty, they might reduce. If you're a cooperator, they might reduce if you weren't the main person, which wasn't the case here, but it adds a lot for the amount that was stolen and the number of victims. And here he had, like, way above the maximum. So he could have without the max, like statutory Maximum under the guidelines, he couldn't gotten life in prison. That's how, like a Bernie Madoff got a life in prison. Right.

Katherine (KK) (47:29)

And.

Jesse (47:29)

Or the Enron or World Combat here. There was $40 billion lost and lots and lots of victims. And so the judge pretty much looked at statutory maximum and said, I can't go above 25. I don't think 12 is enough. Probation also sort of said 12. And sometimes the prosecution and probation agree, and instead the judge says, you should have 15 because you don't seem remorseful and you continued to commit fraud by lying to people. And like, you should see some of these tweets where he's like, pretty much anyone who disagreed with him and said, like, you know, Tara's falling apart. He was like, you're poor or something like that. So it was just like the amount of evidence was not great against him and the fact that he tried to escape and there was evidence that he was trying to run away from this. So I guess, like, my takeaway is like, the sentencing guidelines and how sentencing happens is really complicated. So you can't just look at what the, you know, statute says, and you can't just look at what the defense and prosecution says. You have to really understand the guidelines and listen to what the judge's decision is and then sort of come up with your conclusions on whether it's too much. And I also recommend that people listen to some of the victims testimonials here because, like, there was talk about suicide, there was talk about losing the whole life savings. Like, whenever victims come forward, judges usually respond to that because for many people, sentencing is the only time that victims get a voice.

Katherine (KK) (48:58)

That was great. Jill or Jesse. I was going to say Jill as the token non lawyer on this Pat.

Jill (49:04)

Yes.

Katherine (KK) (49:04)

Pod that speaks English and probably the smartest person on this pod, no offense. Jesse, you are also brilliant. That makes sense to you.

Jesse (49:13)

Is that why I dressed like her?

Katherine (KK) (49:15)

Yeah. Yeah. Did Jesse translate? Okay.

Jill (49:18)

Yeah, no, I was gonna plug Inner City Press for, like, us normies. I don't even know like, what the business model or like, this is. As far as I can tell, it's this guy who attends all of these court cases, primarily in New York City, that have to do with finance, et cetera, et cetera. And he like, live tweets them, and it's very accessible and, dare I say, sometimes entertaining and sometimes actually heartbreaking to like, follow along. And he did this with the SBF case, and he did this with Do Kwon. And yeah, for us, for us normies to Follow along and be able to see kind of how the whole thing went down. That's a really great resource. No, but that, that totally answered for me, Jesse. Like, to me, as a layperson, as a non lawyer, like, you look at the fact that the judge went over what the prosecution was recommending and you're like, savage. That's. Yeah, that's wild. You're like, did like, do Kwon like miscalculate this when he pled guilty? But it makes a ton of sense that, you know, there's this kind of wide range and then it, it is kind of a judgment call based on all of these factors that you mentioned.

Katherine (KK) (50:40)

I mean, the wild thing to me.

Jill (50:41)

Too is that you brought up all of the kind of like direct collateral damage of what DO Kwon did, but that then kicked off the whole of 2022, like unwind of all the leverage in the crypto system and the FTX collapse and just.

Katherine (KK) (51:01)

You're right, that was the beginning of the end of 2022 Domino.

Jesse (51:05)

None of us wanted to relive that. But nope, I think the sentencing made us. You know, it was interesting because I. It's not common obviously to go above, but you could tell in the judge's comments that there were a lot of thoughts that he had about crypto and the crypto industry and sort of like the cult following of do that Doe. He, he said Doe took advantage of. That really contributed to why he went above what the prosecution offered, which it's sort of interesting for a judge to give that much like, personal intake on how he thinks about it.

Katherine (KK) (51:43)

100%. It was fascinating. This stuff is complicated. You know, as. As our listeners know, Jesse was a longtime federal prosecutor. I was a longtime partner in private practice doing white collar defense. These are not like entry level concepts. So we'll revisit this as we run into crypto criminal drama, which hopefully, no, we're going to have.

Jesse (52:05)

Programmable risk management.

Katherine (KK) (52:07)

Yeah, exactly. I want to wind us down, but really briefly, before we wind us down, I want to do two things. Thank you so much, Jill, who again is a true boss.

Jesse (52:16)

Please come back.

Katherine (KK) (52:16)

Jill spit some serious outbut on the SEC roundtable. It was such an honor to be on a roundtable with Jill. And then very briefly, our weekly crypto piece of good news. This is actually so cool, guys. I don't know if you read about this. I wanted to give a shout out to Save the Children, which introduced a bitcoin fund, which. The cool part about this, it's actually unlike a lot of crypto charitable donations that are converted to fiat instantly. This fund is specifically designed to hold Bitcoin for multiple years. And the other amazing thing is they can test operational usages via the Bitcoin fund so like very like connect with certain pilots and could later be used in domestic emergencies like hurricanes and wildfires to move value to families even faster. So shout out to Save the Children for being really innovative when it comes to crypto charity. And just a reminder to everybody, you too can donate your crypto two really valuable organizations. So that's it for today. Thanks again to Jill for joining us. And we will see you next week.