¶ Intro
There's so much news happening from the agencies all the time now, and that is something that people have been waiting for since before I even joined the industry. And I think a lot of us have seen Solana, bitcoin eth. We all understood those to be digital commodities, but it's very different for the SEC and the CFTC to both come out and say that.
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So whether you're scaling a fintech, managing a fund, or building the future of finance, bitco gives you all the tools that you need to do this securely, compliantly, and at scale. So learn more at bitgo dot com and see why the biggest players in crypto trust Bitgo. Hey everyone, welcome into the Thinking Crypto Podcast. I'm your host Tony Edward and joining me today is Patrick Wilson, who's the General counsel at the Solana Policy Institute, which is a
nonpartisan nonprofit focused on educating policymakers on decentralized networks like Solana. Patrick, great to have you.
It's great to be here. Thanks so much. Love your show.
Thank you, and I'm excited to dive into the details around crypto legislation and regulations, taxes and much more. Because there's so much happening Patrick, it's like drinking from the fire.
Yeah, there's a lot going on right now. So I don't know. We have forty five minutes today. Hopefully we can cover everything we need to.
We may have to do around two, but we'll see how much we can get to today. Sounds great, So Patrick,
¶ Patrick's background
let's start with your background. Tell us about where you grew up, how'd you get into the legal industry and things like that.
So, actually born and raised in Georgia, as you can probably tell from my thick southern accent. I was born and raised and went to school down there, and then took the opportunity to move up to New York for law school. Not in the city, I was upstate, and after a clerking for a judge down in Florida, made my way back up and started working at law firms, though sort of the big law firm life in New
York City that so many of US lawyers do. I was working on primarily litigation at first, and then focus more on regulatory investigations and white collar criminal defense, and that I did until about twenty twenty. My first role and move into crypto was a coinbase in twenty twenty one, the height of the Gensler era, so there was a
lot of work to do. My regulatory investigations background really came in handy there, and then moved from there to another startup and then finally at uniswap Labs was prior to SPI, so I worked on litigation investigations there as well, trying to help to defend the industry and defy from what was looming from the prior SEC as well in class actions.
What a time to come into the market when you had the SEC attacking literally attacking the industry in some ways unlawful at some points. Was that unlike anything you've seen before.
Ye. I think the experience i'd had in law firm life really helped to prepare me for the stress and hours that would be involved in dealing with all of the investigations and litigation that was coming toward Coinbase in particular at the time, and then seeing just what's happening in the broader industry. So I think it was good training, but nothing necessarily prepares you for being right there at
the time and being in the tornado itself. So it was really it was really great experience, and I had a great team there at Coinbase that I worked with as well in all those issues.
So what was your journey like in learning about blockchain tech? Because obviously it's brand new, you know, everyone goes through the journey of trying to figure out what is this, how does it work? And you know, obviously you're a legal expert, but the technology is so rapidly different. What was that journey like to learning all that?
Yeah, my real first introduction. You may have probably heard something like this from other lawyers in the past, but the law firms were not necessarily quick to embrace crypto, and there was a real aversion for at least some time because of the headlines and everything that was happening in the twenty tens that they didn't really want to
touch crypto clients so much. So I didn't have a lot of exposure until there was another associate in my group whose brother was actually working on a crypto project, and she hosted a lunch and learn really to try and explain a little bit about the technology and what her brother was working on. And I found that fascinating.
And the thought about how that can really blend into democratizing finance and you know, leading to where we are today, with where we're headed in the future of finance, with with potential on chain securities and derivatives trading like that
was just fascinating to me. And I've been very lucky to have had along my way at these companies engineers and folks in product who will really sit down and explain the tech in depth and there it's so valuable to have experts sit there, draw you pictures, really explain how everything, how everything works, because that's also valuable for you to be able to communicate with regulators how things work and you may have heard this, but let's time
let's dispel this rumor and show you what's actually going in on the inside.
So Patrick, I think needless to say, we are in better days, right, things have completely changed things through folks like yourself and others. You know, what are your thoughts on how the regulatory environment, just even the approach of the SEC, would you know, cher Paul Adkins, and even the CFTC as well.
It feels like a different world. And we joke sometimes that when we walk into the SEC, if we were there two years ago, we would have left with a subpoena and and today we're leaving with constructive dialogue and real duouts for things that we can do and contribute to make to make the industry better and to make more clear rules of the road for folks to be able to develop. And I think that is that difference
cannot be understated. The openness and willingness for the agencies to engage, the push from the administration and members of Congress to really make sure that crypto can come back to the US and that it's useful to everyday Americans and people who want to transact, people who want to invest. It should all be available to them. And this is really really an amazing situation that we're seeing now where all of the powers that be are really really working together to make sure that could happen.
So tell us a bit about what the SPI, the Salona Policy Institute Day's doing to educate these regulators and working with them to help find the right rules of the road and guard bills to put in place. And by the way, congrats on the one year anniversary of the SBI.
Yeah, so I was not there from day one, but I will applaud Miller white House Lavine our CEO. He was the one who really founded it, got it off the ground, and he employee number one, just celebrated his one year anniversary along with SPI. So really excited about that. And what SBI is really working to do is to, as you mentioned, help the lawmakers and policy makers regulators really understand how decentralized networks like Solana can be the future of finance and the home of on chain finance
and internet capital markets. And the way we do that. We have a really terrific gr lead on our team in Colin He is on the hill constantly meeting with lawmakers and their staff to help to educate them about issues that are important, whether it's with market structure, whether it's with tax which may be a subject of discussion today, making sure they really understand our position and really understand the implications of what may happen if we don't get
certain fixes in certain ways. And on the other side, we also work with regulators, whether it's through meetings or letters that we write, comment letters to questions that they send out, or potential rule makings. We like to make sure that we're engaging proactively with them on issues that
may matter to the Salona ecosystem as well. And third, I would be remiss if I didn't say we're also active in providing supportive briefing and litigation as well, because there is we are in a different world, but there is still private litigation that's happening out there, and that is one other way where we're able to help influence the discussion with additional sort of briefing and things like that. So it's really a multi tiered approach.
Pardon the interruption. Hi, I'm Tony. I'm the host of the Thinking Crypto podcast. I wanted to ask you if you can please support the podcast by hitting the like button subscribing. If you haven't as yet, you can leave a comment below as well. And if you're listening on a podcast platform such as Spotify, Apple or wherever you get your podcasts, please be sure to follow and hit the five star rating. I'll let you get back to the content. Thank you so much. Yeah, that's really great,
and so it's so much needed. Right, we still have work to do, even though we're not in the gainswered era anymore. There's still a lot of rulemaking it needs to be done and making sure the regulators get it right, get the balance right, because there's folks who are still fighting stable coin yeld de five. We'll talk a bit about that.
We thought we were done with it, but you know, what's dead is alive again.
Yeah for sure. Now you brought up tax right, and I think it's important to have this conversation because there's
¶ Crypto taxes complexities
still a lot of ambiguity here as it relates to taxes, and I believe it's one of the pillars that once we figure it out, it will help boost adoption of blockchain networks and crypto assets. So tell us where we're at as far as legislation and guidance in getting that No Center Lumus and some folks that put out guidance, but it's not law yet.
Yeah, And I think you really hit the nail on the head there with tax and the complexities around tax and crypto for just ordinary transactions being a real gating issue to folks adopting crypto at a larger scale. If you think I think about tax in general, it's never something that people are excited to talk about or deal with. It's not like we're celebrating February or April fifteenth every
time it comes around each year. And so when you mix something that's already an unpleasant experience with the complexities of just transacting in crypto and how many taxable events may be associated with just one swap or one purchase, it starts to really make sense why that needs to be solved in order for some people to feel more comfortable transacting yptos, staking their assets, whatever the case may be.
And at SPI we are we are looking forward and are huge proponents of potential bipartisan legislation that may fix some of those big pain points, which we'll probably get into and a little bit more detail. One of them largely around staking and how we can make that much easier for individuals in the US to help to secure proof of steak networks and also deminimous exemptions so small personal transactions don't turn into big headaches come tax day.
Yeah, that's such a great point because myself, I personally steak.
¶ Crypto staking taxes
I have a salon. I'm staking eth as well, and it earned those rewards. I'm not cashing it out because I believe in crypto long term. It's just you know, piling up and pooling in my account. But I want to I don't want to be taxed on that because I'm not spending it, I'm not using it. I wish there was guidance around that, and you know, I often have. We were talking about the recording conversations with my account and he's like, I don't know what to do with this.
Yeah, exactly. It's a real it's a real point, and we should be promoting policies that allow everyday Americans to stake their assets in a way that makes sense. So when you think about, you know, what is we're staking in order to secure a network, and a byproduct of that are newly generated tokens, things that have are programmatically
created from software. And the way that that's tax now is actually the IRS will say it's taxed upon receipt, which is a word that's doing a lot of work there, But it basically means once you have control over it, and you know you say you stake on Solana, that means you know, those those newly created tokens happen. Those events happen every two or three days on ethereum, I
think it's like every six and a half minutes. And under that current guidance, that means you have hundreds thousands of transactions that you have to keep track of as a taxpayer every single year, and you have to know what was the fair market value of the asset at the time, like how much of it did I get? And if you ever want to use that, you're going to have to track the cost of every single one of those teeny tiny amounts toward whatever however you dispose
of the asset. So it is an administrability nightmare in its current form.
Is there any of this that is being addressed in the Clarity Act or is it it's completely separate.
So this is not that tax legislation is really moving on a different track than the Clarity Act, and that makes sense. The Clarity Act is already a very all encompassing, complicated bill, and I think appending tax reform to that would probably be just introduce an additional level of difficulty
and complexity. But it is the people in Congress, and there's members of their staff work incredibly hard, and it is something that now I've been able to see firsthand in a way that I didn't necessarily in my prior roles. They have hundreds of issues that are on their plates at any given time, but they devote so much time and effort to meeting with folks like SPI, folks at the Bigcoin Policy Institute, Coin Center, everyone who's working on
trying to promote sensible tax policy. And and kudos to them because I don't know how they have the hours in the day to be able to do all of this, but they are really really looking at this, you know, on a separate track, even in light of all the other work that they're doing.
¶ Tax legislation
So do you believe that once the Clarity Act is in place, the next you know thing that we need to tackle is taxes, that that would be maybe the major issue.
After at I think that that taxes is the next big issue that people will realize because of that, that gating and adoption issue. But there it actually there are things that can be done right now on the the on the agency level that don't even necessarily require a legislative fix. And so one example of that when we
were just talking about staking. The reason that those newly created tokens are taxed in the way that they are is because there is a piece of IRS guidance that was introduced in twenty twenty three that says as much. But it's IRS guidance. It's not a rule, it's not a statute, And so with the stroke of a pen, the right folks that the IRS could really really sort of ease the burden for everyday Americans when it comes to the at least the newly created tokens that arise
from staking. And so, yes, legislation and that is a huge focus to make sure we get that done, but there are even interim steps because legislation is hard, legislation is a long process. There are other things that can be done to give taxpayers a little bit of relief in the meantime.
Is the crux of the issue with the RUS that they're classifying it as property versus currency. And I know there is many moving parts here, but is that the foundational issue?
Yeah? So that is Ever since the IRS came out with a pretty long statement about this in twenty fourteen, that has been the baseline, that crypto is taxed as property. And as we know, there are a lot of different uses for crypto. It can be used as a means for payment, it can be used as an investment. And it's not necessarily the case that every one of those rules that's aligned with how property is treated from a tax standpoint makes a ton of sense when you're looking
at crypto. And if you just think about sort of an easy example that can teach you, it can take us through how difficult it is. If I just if I'm programmatically purchasing one Soul token every month, so I'm a long term investor, I want sold January first, by one, February second, buy one. Maybe I want to buy something on February fifth and swap some of that SOUL for
USDC so I can make a purchase. The number of taxable events that just have but right there, from something simple is is so complex And then when you add on there are gas fees that you are going to have to pay where you where you have to recognize
a gain or a loss on fractions of a cent. Potentially, it just it just becomes, as we said, an administrability nightmare and goes back to that point of if I'm just an average an average consumer who wants to use my USDC or my bitcoin to buy, you know, coffee or something at a shop, probably just going to use my car if I'm going to hit you know, eight taxable events in the course of that.
Yeah, there's so much friction there, and you mentioned like a barrier to adoption because, uh, there's a lot of folks who are long term crypto holders, but they may want to spend a few satoshi's here if you soul tokens, whatever it may be. They want to buy something, but they can't their roadblocks so they can't there's a big utilization that's blocked or they can't access with their assets.
Yeah, they either they they can't or they just don't. They don't want to figure out how it's how they can do it. And that really is our goal if we are if we are going to to really realize the full potential of this technology. People need to be comfortable using it and transacting in it and investing and staking, and we just aren't aren't quite there yet, but but we can be in We're all working in that direction.
So Patrick, if you're running the IRIS, what would be your solutions, the ideal solution you know that you would implement.
So I think for staking in particular, let's take take that first. You know, it doesn't it doesn't make sense that a newly created asset, like a newly minted token that arises from staking, is treated as income once that is, once that sort of hits your wallet. That is different from how the IRIS treats all other newly created property
under the Internal Revenue Code. So if you think, you know you're a farmer and you're on on the farm in one of your you know, one of your animals gives birth, the IRS doesn't come up behind you and say, hey, that's five hundred dollars right there. If you're going through you're a minor, and you real physical minor, not bitcoin minor. But the same concepts for all this apply to bitcoin mining as well. You pick something out of the ground. Again, no one is there it to tax you on what
you have chosen. It is taxed when it is sold. And so the most logical fix is to just treat newly created staking rewards like you treat all other newly created assets. And that means that they're taxed once they are sold. And that is the point at which it means that you would owe tax potentially on what that is. But it makes a lot more sense than the current the current environment, and you can also align that with how your soul or whatever it is you're holding on
to is treated. So it's a capital asset subject to potential capital gains or losses if you're holding it long term. Why should that be different for new created tokens from staking? They should theyre the same asset being used in a similar way by the taxpayer. They should be treated the same. And so that I think is the fix in my mind, or at least part of the fix in my mind, for the newly created tokens that arise from staking.
And when it comes to spending, you know, do you think that the threshold should be anything below a thousand bucks non taxable event, but above a thousand maybe there's a taxable event.
Yeah, I think you're getting to what there's been a lot of discussion about recently, which is called the deminimous exemption, And for everyone who doesn't speak Latin, that just means that, you know, it's a small transaction carve out from having to claim taxable gains and taxable losses. And again, I just kind of think of this as small transactions shouldn't turn into a big headache for you come tax time. And we do see that there is currently no exemption
like that in crypto. So that's why when we were talking about those gas fees. You do have to pay a gain or loss on whatever however you're disposing of that. And there are examples of how this applies in other context and works just fine. For example, are going to a foreign country and you convert some of your US dollars to a foreign currency. You come back, you got some leftover trade back in for US dollars. The RS doesn't come after you for a fractional gain or loss
depending on changes in currency fluctuation. And we think that same concept can be easily applied to crypto as well. And I think the things we want to keep in mind there too, are that a stable coin only solution for that kind of exemption doesn't get us all of the way there, because the economic reality, as you mentioned earlier, is people can use other assets to make purchases as well, and we do want to make sure the tiniest transactions
like gas fees are something that's covered like that. So there's a lot of discussion about what levels of exemptions may apply for some personal purchases, and I think we keep those core principles in mind that it should be sort of asset agnostic and make sure that it covers personal purchases and gas fees.
Yeah, that absolutely makes sense and a rookie question here. So let's say I'm on coinbase, I have some solanam and I want to make a purchase. There's a merchant that accepts that salanum, and that's kind of the general transactions that could take place today or tomorrow. But what DeFi becomes more prominent and I'm not going through a centralized exchange where maybe the reporting and stuff, but I'm
going through a DeFi protocol. Does the same rule apply or would we need different rules for DeFi?
Yeah? I think a lot of a lot of the work and it's currently that way today is on taxpayers to understand and put together what their obligations are. I do think there is a recognition in Congress that DeFi is different and presents presents sort of distinct use cases. We saw the best example of that with congressional action from last year when Congress worked to overturn an IRS rule that was passed back in twenty twenty four. I
think it was like December thirtieth, twenty twenty four. It was really on their way out the door this thing called the DeFi Broker Rule, and the DeFi broker rule basically said, hey, if you're a DeFi front end, then you are going to be required to provide information about transactions using your front end to the IRS. But what
does that mean. It means someone's name, it means someone's Social Security number, it means their address, and all sorts of information that DeFi front ends are not particularly well situated to be collecting, and honestly, I don't think want
to collect that information in the first place. And to their credit, when the new Congress came in in beginning of last year, they recognize the problem on a bipartisan basis and moved really fairly quickly legislation through that nullified that rule, and a byproduct of that is that it can't really come back into place unless Congress is the
one that does that. So I think there is that real recognition that whatever the irs and whatever tax rules are are in place needs to match what the capability is of the technology.
Yeah, and I look, I understand the regulators are going to have a tough time. This technology is moving at a rapid pace. There's so many moving parts and components. But I hope you know, with the help of the Salona Policy Institute, they take the time to get educated and understand all the complexities here and find the right balance. I think balance is important.
Yeah, it's all about balance, and we are it is very encouraging people want to talk about tax right now in addition to all of the other issues that touch on crypto and blockchain technology. As I mentioned before, the staffers of the congressional and on the regulatory level are engaged and they are interested in learning about this and making sure we come to solutions that make sense.
Now, we talked a good amount about kind of the retail perspective in how you know the taxes will fit into that. Our institutions also asking you guys for guidance. He like digital astic treasury companies, we're putting crypto in our balance sheet, we may want to do things with DeFi or whatever it may be. Are they also kind of like, hey, what's going on? Scratching their heads?
I think that they're in a better situation to understand their obligations than sort of the everyday users who are concerned with, you know, with logging all of their transactions and understanding every staking event and what that may mean
for them. I do think that it is obviously as institutions are adopting more and more, they are seeking the same kind of clarity for their use of the technology as everyone else is generally in the industry, And so I do think, you know, there are there are certainly ways where in the Clarity Act and other regulations where institutions are getting more comfortable with touching crypto, whether it's through no action letters or seeing certain sections of clarity
where it would give them additional guidance and comfort on using it. But I do think we're all we're all marching in the same direction where we want to make it easier for both institutions and individuals to adopt this technology.
And I want to make sure I hit on this because and I think you may have alluded to it earlier, the Parody Act that's in the House. There's a draft. I believe that's a crypto tax reform. What can you tell us about that?
Yeah, first off, I have to say the Parity Act is it y not ody parody, And just to just to clear that up, to make sure there's no misconception it is. I think has one of the best names and acronyms for any bill because all crypto tax is not looking for special treatment when it comes to taxation. We are looking for that parody to be on par
with similar uses for similar assets and similar circumstances. And again we are this is a bipartisan discussion draft and we are hugely supportive of putting forth and moving through like bipartisan legislation, and really are grateful to both Representatives Miller, Representative Horsford and all of their staff who are continuing to meet with all of us here our feedback on the legislation. It's not just SPI, you know, they're listening to everyone out there and they're really working to make
sure they get something that works. And we're super grateful for that starting point.
That's really great, and the House has had an excellent track record when it comes to legislation that you were able to get FIT twenty one, of course, the Genius Act and all those things before it eventually went to the Senate. So that's really great, and I'm happy to hear that the House is again is the ball rolling here and if history piece as it did with the FIT twenty one and the other bills, maybe this can make its way to the Senate theater this year.
Knock on wood, Yeah, knocking wood. There's a lot to do, but as we mentioned earlier, they know there are they can do many things at once, and I don't know how they do it, but they managed to. They work very very hard, and we are hoping that we can get there and get some sort of workable, workable tax legislation in place really as fast as.
Possible now, something that's been happening lately a good thing. While the Clarity Act, you know, it's making its way through the Senate, the SEC and the CFTC have been putting out guidance. Can the Treasury also do that while bills like this are being sorted out, can they give some sort of relief, so to speak, or temporary guidance to the industry.
I think one of the things that we mentioned or we were talking through earlier is that guidance that's around staking. There is some guidance that that Treasury is able to put through that that would create some sort of relief for taxpayers. But the important thing to remember is that we want something durable. We want to make sure that we're not setting ourselves up for reversal of really really positive and forward moving policies in the space that regulators
have enacted. So that's the importance of additional legislation, and that's why everyone are pleased to see all of all of the progress that's been made from all of these agencies. But that's the importance of durable legislation. It's very hard to walk back legislation. So that's why our focus really is on that.
Yeah, it's a great point. And I know I'm taking shots of Gary Gains here, but he was just on Bloomberg I believe, I don't know this week or last week, and I'm like, wait a minute, what's he still doing around talking about crypto And it's like another administration can come in and if we don't have the legislation in play state, they well they could roll it back.
Yeah, and it is also important to think about the legislation is not it. Rules are also are also a durable way to get to get to move things forward. And I think we were all incredibly excited you mentioned former chair Genzler. I think we're all very excited to see the token taxonomy that came out of the from the SEC and CFTC jointly. Was it last week or
the week before. There's just so much there's so much news happening from the agencies all the time now, and that is something that people have been waiting for since before I even joined the industry. And I think a lot of us have seen you know, Solana, bitcoin eth We all understood those to be digital commodities, but it's very different for the SEC and the CFTC to both come out and say that. And I don't think we can understate the importance of that, and also the other
things that were in that document. It wasn't just token taxonomy. There was also a really interesting part at the end that was describing how staking is not a securities offering, right, and that's hugely important. Still people have sort of put that out of their mind because the SEC dropped their cases, but there are still states that are going after companies
like Coinbase for offering staking services. And this guidance is super clear, has a reasoned explanation for why something like staking, even when you add ancillary services on top of it, is not a security is offering. And I just I couldn't applaud more of the work jointly of the SEC and the CFTC on that and so many other things that they've been working on.
Yeah, incredible guidance. I mean I read through it and then the four categories for tokens and it's a breath of pressure. It's something we've been waiting for for a long time. Yeah. And I remember having early conversations with SEC Commissioner Has the person, you know, she was advocating and like, hey, we got to get this out and the SEC could have done it, but of course, you know, previous administration we're roadblocking that. But it's just like, wow, finally we got it.
Yeah, it is great, it is. It is so promising to see that and not only you know, I think on the same day Cherak and delivers a speech focused on potential fundraising pathways in the future, and I don't know how they how they have time to do all
of this work. It's it's really a ton happening over there at the SEC and the the some sort of clarity from the SEC about how token projects can raise funds or how products can use use tokens to raise funds is another thing that's that's long overdue and can really unlock the ability of developers and younger companies to have access to capital that they never did before. It's a lot of promising things coming out of there, for sure.
Another rookie question because I don't understand the complexities of all of it. But so the SEC put out this guidance, which is great. The Clarity Act itself hasn't passed been passing the Senate yet. Is the goal eventually to move what the SEC put together into the Claritiac or it doesn't necessarily have to do it as long as I don't know. The Claritiac is the macro overarching uh nail that's holding it all down. I don't know how does that work?
Yeah, I think cher Atkins did a really great job at describing how this is this is sort of lowercase C clarity and the bridge to clarity capital capital C in market structure and what just sort of zooming out the framework of how the legislation fits in. Like the legislation is always going to be broader, it's always you know, sort of the framework of what's supposed to happen. And then they delegate quite often rule making to each of
the agencies. And so this is an example of you know, it's a it's guidance right now, but it is something that could be turned into a more formal and a more durable rule from the SEC. I don't know that, I don't I don't know that the Senate is going to import wholesale like a document that this law is this long into a clarity Act, but they certainly will.
They provide the principles, and then the agencies themselves right sort of the implementing rules and regulations, and that may be something that we would see in the future.
Interesting, So they kind of maybe just reference that document, not to put the entire medium potatoes of it in there, just saying what's outline in this guidance in the SEC et cetera, et cetera.
Yeah, and they Yeah, the Clarity Act does a great job and explain sort of what what the differences and the jurisdiction are with the CFTC and the SEC, and and when tokens may have to make disclosures. And that's absolutely something they can do is say, Okay, the SEC has authority now or should make rules to further, you know, to further clarify token taxonomy of securities and commodities. And I think that's you know, that's this guidance is a
great start. The SEC has asked for and is welcoming comments on those, and I think they are going to be you know, everyone's super pleased with where it is, but there may be upon further reflection, maybe comments that folks make that makes it even better in the future.
So Patrick, we're recording this on March twenty six. March twenty six, and the folks that in Congress had a hearing on tokenization and there's a huge tokenization and raise happen with all they tradfy Wall Street firms getting on board looking to go twenty four to seven. Part of the SEC guidance. One of the elements that we just alluded to was that tokenized securities will remain as securities. Does that change anything on the tax front.
Or is just the status quo? I think, look, look, seeing how far we have come on the issues of tokenization. The fact that there is a hearing in front of the House Financial Services Commission on tokenization is huge. Again, cannot understate the progress that's been made there. And I think what you're talking about also highlights one of the one of the issues that's that's present with tax regardless of whether you are dealing with a security or a commodity,
and that's that deminimus exemption for gas fees. Because however you're treating securities from the tax perspective as the underlying instrument, and how securities are already taxed, there is still that additional issue with that gas fee that's not going to be solved in any way by you know, rightfully saying that a security is a security if some sort of action is happening on chain, there's more than just that security.
There is that you know, that additional gas fee that goes along with it that we need to be concerned about. Ah So, see, that's a good thing.
I ask you that question because I didn't think of that the gas v component in tokenize assets, it's always complicated. Y. Yeah, that's great, great insight. So we have a lot to figure out. And I'm sure these institutions that are tokenizing they don't want those answers like what, you know, what are we liable for? Or you know as far as taxes and things like that.
Yeah, exactly, everyone everyone is. Everyone wants clarity. Everyone wants to understand what their rights and their obligations are with respect to using and transacting in these assets. And that's that's again, as we discussed earlier, keeps coming back to how can we make this easier for folks to adopt crypto? Can we make it easier for people to want to build in the United States? And this is a critical issue.
Something else on the tax one that I've been thinking of with assets running on chain, blockchains that are globally distributed, right, it's not a US market, it is a global market. What happens if I'm doing things outside the country not illegal, but just I travel. You kind of gave the currency example earlier and buying and selling outside coming back in and then there may be other laws that are rules around this. But it is also is that also taking into consideration for taxes.
It's a really great question, and one of the key fixes I think that we should be focusing on is exactly what you're talking about, the sourcing of whatever the tax obligation is. Because I think the most common sense view, and the one that makes no sense to me, is that me, as the taxpayer, that obligation is source to me. Where am I not? Where is the technology that I'm using?
Because the last thing that I want to do is for using a project or end that may be based somewhere out of the US, Like I don't want to end up paying tax and some foreign jurisdiction. So I think that the sourcing issue, being sort of focused on the taxpayer is what is sort of the most common sense solution to one of those one of those difficult situations.
Yeah, because I think of, Okay, the example of using myself. I have crypto acids. I want to spend some soul, right tokens, But I went down to Brazil to go hang out whatever, right, and I'm like, Hey, this merchant accepts soul and griven crypto acids. What if I transact there, I might have tax implications in the US. You know that situation. That event took place in Brazil.
Yeah, and when you look at the analog of what happens just as a traveler with cash, and how the law doesn't really concern itself with those sort of trivial transactions, the same principle makes sense to apply to crypto, it doesn't. You know, you don't want to be burdened by having to report that to the IRS, But at the same time,
the IRS doesn't want to be burned. And by having you report every single one of those individual transactions for a cup of coffee or something like that, they get enough. They get enough reporting already and they don't necessarily need something like that. And that's the whole basis of thinking about the deminimus exemption. And as we see in other parts of the law, there's already a workable system that would prevent sort of absurd results like you just described.
Yeah, I just imagine that it will be a nightmare on both the IRIS front end user.
Not one I want to deal with, Yeah.
For sure. So we got to get the guidance as much needed. So I think everybody that's listening and watching you got to call up your representatives. Once we get the clarityag done and tell them Okay, now we talk about taxes.
Yeah. I think that's a great idea. I think it is always that we and others in the industry who are advocating for these positions, we're in there all the time, but they also want to know that this matters to the people who live in their districts, the people who live in their states. And it does, and so I
think it's really helpful. There have been other including I think Stand with Crypto very recently put out sort of a call to action about developer protections and other things that really calls on individuals who are interested to reach out to their representatives and make sure that their voice is heard, because that that matters a lot to these folks.
They want to know that the voters who put them in place, or even those who disagree with them, they want to know what's on their mind and what's important to them. So I echo that totally. And there's got to be there's got to be support and vocal support for being making sure we're moving this forward in the right direction. Yeah.
Absolutely, let's talk stable coins. Stable coin market is heating up. I recently interviewed the folks at Western UNI who are building their stable coin on Salana, so the stable coin races on after the Genius Act pass I love earning rewards stable coin rewards on platforms like coinbased and uphold and others, but the banks don't like that. Patrick, what do you think this is about?
You know?
Is it incumbents simply saying, hey, we don't like the disruption, or we want to slow us down so we can catch up, that type of thing.
Yeah, there's been so much focus obviously on the yield debate recently, and we saw what was it end of last week. I think at this point where there was an agreement at least in principle reached by the primary Senate negotiators with the White House. And I don't think anyone, at least certainly we have not seen whatever the text of that compromise may be, and I think everyone is very eagerly awaiting to see what that might actually say.
I do think it is important, and we're always supportive for individuals to be able to do more with their money. The trade associations and Crypto have written plenty of letters and made their cases known, and we've signed on to that too, because people should have a choice with what they want to do with their money. And I think
this is like, this is subject to a negotiation. All all legislation is a negotiation, and it takes this long and it this hard because it does produce those durable results in the end, and whatever the sausage making process is, something will come out on the other side. And you are you know, we are intently watching. It's this debate, but it's not It's not it for clarity right now.
There are other things that are still being actively discussed and Amando to an La from the DeFi Education Fund was on recently talking about the DeFi developer protections, the what's called Title three issues that touch on DeFi and those are hugely important, and continued conversations around making sure those stay in the bill in the way that they are. Disclosures are always are always up a hot topic as well,
what's in them? Who can make them? And then something called Section five oh five is something that is is close to my heart and maybe gets a little bit
less airtime. And then in the overall discussion of clarity, but it's it's the section that touches on the trading of tokenized financial instruments so those things that we were just just talking through, and there's a real concern and fear from some of us in the industry that as that was written, it could severely limit the ability of the CFTC and of the SEC to grant relief that may be appropriate from the existing rules and regulations for
trading of on chain security. So that's something that I think people are a little less familiar with. Yield gets a lot of airtime, but we want to make sure that gets in the right spot too for any final bill.
Oh absolutely, And that's a great point. It's much more than yield. Is there a deep guide component and the other stuff you mentioned. So I'm so I think like everybody else, chomping at the bit Toole's see what are the details of that compromise.
Yeah, we're all waiting. So if you get it first, you got to send it our way. Yeah.
Maybe by the time this ears we may have the details, but you know, we'll have to go through it a fine tooth code, make sure it's good, it's balanced.
It's probably a difficult. I mean, it's so hard for you doing podcasting because the new can change so quickly as everything's moving. But we're absolutely looking forward to seeing what that is.
Oh, for sure, as long as we're making progress that you know, we'll find the right rules and regulation and finding that balance. That's all I care about. The seat is technology get adopted and you know, change people's lives, and not even so much here in the United States, but across the globe people who don't have access the finance and banking and this could present an opportunity for them to generate wealth and much more.
Yeah, the transformative nature of the technology is really what drew me in in the first place. And you're saying exactly the things that resonate with me and why I
do this job. I think particularly the democratization of finance when it comes to on chain finance and tokenization of whether it's securities or derivatives or other real world assets financial instruments, that is such huge potential and it's great to see the focus on that right now, whether it's with the House or with the SEC working through what an innovation exemption might look like to allow that. It is so promising right now, and it's a really exciting time to be to be in the industry.
So, Patrick, I assume your roadmap is continuing your efforts of educating the lawmakers and the folks in Congress and much more to make sure they get this right. Or is there anything else you guys are working on do you want to highlight?
Yeah, that's absolutely the overall thrust of all this. And I will like one other piece of news that I just want to highlight from this week actually broken at DOS when our President Kristen Smith was on stage with Cheer Selig from the CFTC. Is another opportunity for us and others in the industry to engage with the CFTC
through their Innovation task Force that they're putting together. You know, seeing the huge success of the SEC's Crypto Task Force, I think it makes sense to import that same sort of idea over to the CFTC and really give the same sort of public square where people can come in transparently submit they're written materials, get meetings with them. It is. It was a great model at the SEC, and we're super excited to see that from the CFTC and really
be able to engage with them. And it's led by an individual Michael Pasilokwa, who's on one of the advisors to Cheer Sea leg and he is brilliant and skill capable, and I can't wait to see what his leadership will be on that task force.
It's exciting times.
Yeah, a new day for sure, truly.
Yeah, Patrick, I got some wrap up questions here for you. First,
¶ Wrap up questions
if you could create your own metaverse, what would the theme be?
My understanding is that the metaverse is closing down recently. Okay, all right, so I can't dodge that one then, But I think mine. Mine would just be the most relaxing place that I can be to escape. Maybe one room with a beach and another room that's the polar opposite of, you know, sort of a cabin on a mountain with snow falling and a fireplace. I just wanted to go somewhere where I can, you know, really really sit down and relax and escape.
I think we're so early, and Facebook and Zuckerberg, they tried to throw a lot of money out, but too early. It's too early, Bud. We'll get there and event you don't build what you're looking for rapid fire questions.
Favorite food favorite food? I think carrot cake, cream, cheese, frosting.
A favorite musician or band.
After I saw the Aras tours Taylor Swift, so I'm going to go with that.
Well, I can probably name a lot of Taylor Shoft songs, not because I'm a fan, but my daughter, she loves Taylor Swift non stop playing it.
I was not on the side until I went to that concert. And honestly, we're talking about transformative technology. Transformative concert, yeah, for sure.
And she's her own economy by yourself exactly.
It's been insane.
Favorite movie.
Favorite movie I think right now, I'd say Pans Labyrinth. Ever since Frankenstein have been on a Giermo del Toro kick, so those are always it's always great to watch. I have not seen it.
I'll have to check that out.
That's great.
Favorite book.
Their eyes were watching God.
And when you're not working, what are you doing for fun?
I do a lot of exploring. I'm in the West Village of Manhattan. There's always new restaurants, new places to explore, and also have expanded into the Hudson Valley as well. There's a lot of really great places. Whether it's the distilleries they have up there, are restaurants. I just love to get out there and try new things. Awesome.
Well, Patrick, I'm sure we're going to have to do round two because it's not. It is a lot happening in DC, and by the time, maybe two months from now, things are going to be very different, and you know, we'll have to have you back on. But thank you so much for joining me.
Thanks so much for having me. I really appreciate it.
Thank you so much for tuning in. Please hit the like button, subscribe if you haven't as yet. If you're listening on a podcast platform such as Spotify or Apple, please follow and leave a five star rating. Thank you so much.