¶ Intro
You can have a token that is not itself a security, but is offered in a transaction that is a securities offering. Thinking about how that applies, I think that's really caused Congress and us at the SEC to think about what kind of rules make sense here. Congress has the opportunity now to write a new framework.
So, Commissioner Purse, you mean the oranges in my house right now are the supermarket are not securities?
Because how I'm.
Going to say? They're not securities, but you could still figure out a way to sell them in a transaction that is a securities transaction.
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includes Ripples, r L USD. You can earn up to five percent on that stable coin and five point two five percent on USBC. So if you do like to learn more about Uphold and all the great services they offer, visit the link in the description. Hey, folks, welcome into the Thinking Crypto podcast. I'm your host Tony Edward, and we are recording at Station three in New York's Financial District and my guest is SEC Commissioner Hester Perce, Commissioner Perse.
Great to see you, Tony.
It's great to be you, know how I have to start my views and my own views as a commissioner, not necessarily those of the SEC or my fellow commissioners.
Absolutely, we've spoken many times over the years, so I'm excited to be having this conversation with you now because things have changed completely. It's a great time to be in the crypto industry. Lots happening in DC, lots happening at the SEC. You're in town for a crypto roundtable?
¶ NYC Crypto roundtable
Is that right?
That's right. We've had a series of roundtables this year. The first we're sort of issue oriented. We talked about things like what is the definition of a security as it relates to crypto. We talked about custody trading. And now what we're trying to do is go out on the road and meet with smaller projects that maybe wouldn't have a chance to travel to DC and so trying to hear their feedback.
So the roundtables, it sounds like you've got a lot of good reception. Folks are engaging, they're talking and sharing their thoughts and things like that.
Yeah, we've gotten a lot of great reception, not only to the tables, but also I put out a set of questions in February and we're still getting great answers to those questions. In so the feedback is really important for us to try to figure out how to move forward in a way that's productive.
Well, I got to give you your flowers, thank you for being a leader, and you know, having to transparency and meeting with folks and some the small entrepreneurs and innovators.
So that's really great to hear.
Well.
I mean again, it's their giving of their time to help us get to a better place, and I think it's nice of them to be willing to do that.
Now, a good great segue it is into Project Crypto, which was announced by Chair Paul Adkins and some of the initiatives you're going to be doing there. Tell us
¶ Project Crypto
a bit about Project Crypto, what's the goal and some of the recent initiatives.
The goal of Project Crypto is to really provide the clarity that the industry has been asking for now for as long as we've been talking to each other and longer, and so really to get to the place where someone who's trying to launch a crypto project knows what the possible avenues are to do that in a way that's compliant in the US. And so we've started out by
providing some guidance. We're working the Crypto Task Force is a set group of people at the SEC, but we're working with staff across the agency, and so you might have seen there are some guidance that's come out around things like meme coins around mining staking, and we're looking at providing more working with the staff to provide more of that type of guidance, also to bring that guidance up to the commission level where possible, so that it has a little bit more staying power, and then to
get to even more staying power, we're looking at writing rules where that's appropriate, working also with Congress on the legislation, providing technical assistance there, and then looking at ways we can provide exemptions for people who have specific things they're trying to do. And so that's it keeps us very busy, but that's kind of a little bit of what we're trying to achieve.
And there's so much in the crypto space. I'm neck deep in it in the day to day, but it's always something new, which is great.
It's innovation.
So I can can't imagine what it's like for you guys, and you know, trying to figure out all these nuts and bolts and components of this industry. You know, you mentioned meme coins and liquid staking, excuse my ignorance on this. So the guidance that you put out there, does that automatically get added to like the Clarity Act and legislation that Congress is working on.
No. What it does though, is it helps Congress focus because we say, look, some of these things just are not in our jurisdiction that we have. Now, if Congress wants to give someone jurisdiction over those things, it can, but it doesn't need to. So it's really more of just telling people out in the world who are either buying meme coins or who are issuing them that it's it's not generally within our wheelhouse. Now, it's always important to say, you know, we're lawyers here. Well, I'm a lawyer,
so facts circumstances matter. Yeah, And so you can take something that is not a security and you can offer it in a way that it is a security, as probably a lot of people in this space know. That's kind of where the Howie test comes in.
Absolutely, and again another question where I think I'm very
¶ Memecoin not security and rugpulls
curious about. So let's say meme coins are not securities. But in every market there are bad actors. They're good actors and bad actors people who come in and try to take advantage of folks. So we've seen certain folks launch meme coins and they do what's called a rug pull. Is the SEC involved in that, or is a law enforcement there are folks who have to handle that.
I think that's one of the reasons that we wanted to put out this guidance is to say people need to be careful out there because sometimes you are buying something that is not a security and then when something bad happens, you see people coming to the SEC and saying, can you help us, can you get our money back? And if it wasn't a securities transaction, there's really nothing we can do. And even sometimes when it is a
securities transaction, the money is already gone. So I really urge people to be very careful to think about whether they can afford to lose the money that they're buying. They're using to buy something, there's a lot of hype and there's a lot of excitement. Yeah, doesn't mean that you're going to come away from this a millionaire. You may come away from this having a lot less money than you did when you went in. So people need
to be careful. But yes, when there are frauds, there may be another government agency, whether at the state or federal level, that can go after those fraudsters. But it's not always the SEC. I think sometimes people think whenever something bad happens in the in this general realm, that it's the SEC and that's just not the case.
Yeah, And it's also finding that balance because I believe in the free market, you can go plate a lot, or you can want you can go to vegas and gamble, but you got to know, you've got to have self control, you got to do your research, you got to be smart. There's a responsibility to the individual, right.
Absolutely, right. I think that's how the free markets work and how this an environment in which we don't tell you exactly what you can and can't buy. That means that you do have to take that responsibility yourself and exercise some judgment. And if you if you want to go have fun and you don't want to do your research, that's fine, but then the consequences might not be good.
Yeah, Yeah, that definitely makes sense. Now, another big guidance
¶ Liquid staking guidance
you folks provided was liquid staking. Certain liquid staked activities are not securities.
That's huge.
You know. I've spoken to it of folks that like lightoh and so forth, and they find this guidance to be incredible. Talk to us about talk to us a bit about the approach to liquid staking and the staking marketing in general.
The approach we're taking is that because it's really more of a technical service than anything else, it doesn't make sense for it to be within our ambit. When there's discretion that is involved, that sort of changes the dynamic. But when it's more of a technical service, then that wouldn't fall within the SEC's jurisdiction.
Got it.
There was recent news that members of the House, a
¶ Investments in 401k
few legislators send I shouldn't say a few nine in fact, send a letter to SEC Chair Paul Atkins about opening up investments in four to one case, which included crypto talk to us a bit about that. Is this also in the general movement of relaxing accreditation laws and things like that.
Yeah, I think there's been a realization that as the public markets have faced more competition frankly from the private markets, more activity is happening in the private markets, and retail investors are effectively shut out of those markets now, and so there's been more interest in seeing if we can figure out a way to give retail investors access to the private markets so that they can diversify their portfolios more.
And one way to do that would to open up possibilities through your four oh one K of what you could invest in. Now again, people need to be careful, right, because if you're investing your retirement funds in something, you need to be thinking about how much money do you need in retirement, how much do you have, what's the risk associated? So people need to do that calculus. But the idea is to get broader diversification to people who are now really prohibited from diversifying.
And I feel like it's time. The technologies here, the access to information and education. I mean, we have our smartphones. We can go to Google and research things that you know a couple of seconds. So I feel like the laws, while they may fifty years ago, were in place to protect consumers because you didn't have readily available information at your fingertips.
Now it's completely different.
Well, I think that is a very important point, which is the information landscape has changed so dramatically, and so I think it is fair to look at that again and say, wait a minute, do the rules that were written And this is complicated, right, Some of this is through judicial cases and things like that, so it's it's it's a complicated legal landscape. But I think the information changes that are out there and the accessibility is really a factor we should take into account.
Yeah. Absolutely.
Now, of course people have to be careful what their information sources are. They have to do some vetting and you know, don't just read one thing, look at look for more information. We have a website investor dot gov that has a lot of information that people can go check out as well.
I tried to do my best on my podcast, like if you're joining a Telegra group, a Discord group, or some guy and X sends you a chart, just do your homework. Double check doesn't mean that that's accurate.
Yeah, And you know the story is, if you're getting someone who tells you to invest in is not charging you anything for giving you advice, You've got to ask where is that person making make is money? Is he making it based on you? Or what is the source? So always ask those questions. And if you don't get answers, or if you get told this is the last day that you can invest, you can't take some time to think about it. There'll always be something else you can invest in.
Oh for sure.
Now, speaking of options and investing, I want to talk
¶ Altcoin ETFs & Generic Listing Standards
about all coin ETFs. We have a Bitcoin ETF and an Ethereal METF in the market spot. Of course, folks are wondering about XRP, Salon and other all coins. Recently, the SEC approved gray Scales Digital Large Cap Fund, which is really great because that's a basket. Tell us about the approach and any timeline you can give about these other ETFs.
Yeah, well, we just approved generic listing standards for a number of exchanges, which makes it much easier for these ETPs to get through the process at the SEC. There are multiple processes you have to get through, but this really clears the way for that to be much smoother. Sure, and I think that's what people have been waiting for to get access to some of these other types of ETPs.
When you're we've had this conversation before, is the process still there needs to be a futures markets.
For it doesn't, And so I commend the people to look at the generic listening standards and they can see that it's really a new approach.
That's really great.
So Okay, that's I completely missed that, even though I read that the futures not necessarily need to be there. So that's really great news for other all coin projects out there that are maybe in the top ten or fifteen that are very liquid and people want access through.
Yeah, I mean, I expect we'll see more of those ETPs coming through under the generic standards. And that's not the only way that you can get a product through, but that's a more streamlined approach.
I don't know if you can speak to this because it's very kind of left field, but the folks at rex ospray they use a different type of model.
I think the nineteen forties Act.
Yeah, that's the ETF model Exchange traded fund versus exchange traded product, which is so exchange traded funds are a subset of broader exchange traded products. Exchange traded funds are regulated under the nineteen forty Act, and so there's a
there's a more intense regulatory framework there. Now. Again, I really caution people when they're buying any kind of product, whether it's an ETF or some other kind of ETP, read the disclosure, think about what you're getting, think about the risks associated Ask yourself, is this the right product? Is it just an interesting product? Do I want to watch it for a while before I decide to buy it make you know, use use your judgment, think about it before you buy products.
A lot of folks are chomping at the bit waiting for staking in the Etherorem's body. TF would liquid staking clarity provided by the SEC. Can we anticipate it and approval?
Well, Again, the way the process works is people have to come in and ask, so, if you know, they have to make decision about whether they want to have a staking aspect to their product, and then they come in and ask and we work with them around disclosures and things like that.
I don't know if you can speak to this because it gets a bit into the weeds. But does it make sense to add staking to the existing ets or create new ets podyts Let's say Etherorem as an example, as a separate product, and once again that might be outside the SEC's pew.
So your question is really on whether we need to have change the existing products or come in and create a new one. I mean, I think people probably will do both, you know. I think staking is something that people have talked about as being a feature they want to be able to have, and so I suspect that some existing funds may decide to products may decide to
include that, and I expect there'll be new products. It's not really up to the s I think again, it's really important to emphasize that the market decides what products are available. People can decide whether they like them or not. They can decide whether the fees are high enough or not. Our role really on a lot of these things is just to work with them on process and disclosure and
things like that. And I encourage that the sponsors that come in that are working with us to listen to the to the to work with the staff, and listen to the staff's feedback on disclosures, because it no one is better off if the investor buying the product doesn't understand what she's getting. So we want to get these disclosures right. You know, I really do urge people to engage in good faith on that process.
Let's talk a bit about the disclosure aspect, because I've heard this over the years.
I get it, but.
¶ Disclosures
You know, it goes back to maybe like the Ripple case, where secondary market sales were will not a security.
How do you I don't know.
I'm trying to figure out how that all works. Is it the exchange you still have to give a disclosure that you sign up coinbase and you get a disclosure for each of these assets, or a general disclosure that you're entering the crypto field. Here are some things you need to know.
Well, I mean, my comments around disclosures really went to ETPs because there are a lot of exchange traded products out there, and you know, you have to do your research when you're buying, whether it's crypto related one or not. You've got to think about what or work with a financial professional to help you decide what works for you.
With respect to something like a crypto asset, if it's not a security and it's not being offered into transactions that security is offering, we do not have disclosure rules that apply in that instance. Okay, Now, you could have an exchange that decided to have a disclosure framework. You could have and we've seen this right that there's some organic, indisc re led effort to try to get better disclosure around tokens, and that doesn't have to be led by
the government. That can happen in another you know, just organically.
As I said, Okay, that makes sense. So let's talk about the ripple case.
¶ Ripple XRP Case
We can finally talk.
So commissioner parts.
You know there's gonna be a lot of the XRP army listening here. Why was this case brought in the first place? Was it just simply it was the wildwist days of the crypto market, the regulators, the industry, No one really knew what was going on, just that this is a technology we're building, we're innovating.
Was that the crux of it.
Well, as I said at the beginning, I can only speak for myself, and since I didn't support the case, you're probably not asking the right woman. Why we brought the case again, it was part of a broader effort that I was concerned about, which is using enforcement to
try to write rules in a pretty difficult landscape. And so what I think would have made more sense is to think about how different projects were going about offering their tokens and trying to get to a world where we did end up with better disclosure, but also where folks had the choice of whether they wanted to participate in these markets or not.
Sure.
What did you think about Judge Taurus's ruling secondary market sales are not securities? But she also said, like certain institutional activities that Ripple did were considered securities. Do you think that's going to be eliminated so to speak, because of the Clarity Act and things that are being put out by the SEC.
I mean, her ruling was pretty nuanced, So I think from a lawyer's perspective, you have to look at the nuance of that ruling. But I think that the point that that case really underscores is that you can have a token that is not itself a security, but is offered in a transaction that is a securities offering, and so thinking about how that applies. I think that's really caused Congress and us at the SEC and others to
think about what kind of rules make sense here. Congress, as you said, has or is you alluded to, has the opportunity now to write a new framework, sure, and so thinking about what kind of framework makes sense It will definitely be done in light of the cases such as Ripple and other cases.
So, Commissioner Purse, you mean the oranges in my house right now the supermarket are not securities because.
Of how I'm going to say, they're not securities, but you could still figure out a way to sell them in a transaction that is the securities transaction.
Right, maybe I can tokenize it packages and say you get ten percent return this year, right, all.
Based on the packaging.
So do you believe Do you think the how we test gets updated or there's a new test for digital.
¶ Howey test update
Assets, Well, we're we're watching in real time as law is being developed, and what that looks like we don't know yet. I have long thought that the how we test it serves a very important purpose. Right. You need to pull in these schemes that would not otherwise fit within the securities definition. Right, something where someone is saying to you give me your money, will you don't have to do any work, just I'll do the work and you'll get a return on the work that I do.
That is something the securities laws should cover, and so trying to figure that out is important. But the scenarios that then get put into the how we framework, reasonable minds can differ on which scenarios should be shoved in there. And I think one of the reasons I've struggled in the area applying how we in the area of crypto is because it really is not like anything that we've seen before, and so thinking about what makes makes sense.
It's nice to be able to have this opportunity to do regulation now at the SEC instead of trying to do this through enforcement, and then to work with Congress on trying to come up with longer term legislative answers because we can really think about what does make sense instead of trying to analogize to other types of things that maybe are not really that comparable.
Right, yeah, it makes sense. So again, excuse my ignorance on this. Is it the Congress passes the Clarity Act and then the how we test is updated by the courts or the SEC.
So we don't First of all, the Clarity Act has passed the House, the Senate is working on its version. We don't know what the what the end result will look like. We don't so we don't know yet how this will work. But typically what happens with the legislation is that Congress says, here's here's the statutory framework, and now you agencies, whether it's SEC or CFTC or a combination of the two, go right the rules to implement the legislative framework, so that whole process can take a
little while. Then what happens is you might over time have enforcement actions from the SEC or CFTC, or you might have you could have a challenge to the rules, right, and so through those kinds of cases, typically it's through enforcement cases. The case law builds over time, and so it can help elucidate the framework.
¶ CLARITY ACT
What are your thoughts on the Clarity Act and the current status it's currently in the Senate? Obviously, do you anticipate it's going to get passed and are.
You okay, I'm not going to predict what happens with legislation, but I am eager to see what comes out of Congress. I think it's been helpful to have the Genius Act for stable coins, and certainly we'll take whatever directives we get from Congress on the market structure side of things. But I think it's important to emphasize that, as the President's Working Group made clear, we and the CFTC have
authority already to do a lot of work. So there's certain things that are not covered by existing statutory authority. There's no regulator of spot crypto trading platforms, for example, but there's a lot that we can do under the authority we have, and that's really what we're trying to do now in the lead up to whatever the legislative efforts are well.
I hope Q four. I just spoke to Congressman Tom Emory. He's optimistic. We get it done Q four. And it's a you know, we end the year, have a great coach Christmas.
Yeah, and then it well, everyone else will and the agencies will be hard at work writing the rules to implement the legislation. So we won't waste any time. We'll get right to work.
So you know you mentioned the CFDC.
¶ CFTC collaboration
They have the Crypto Sprint acting chair, Caroline fam He's been doing a great job. How have you guys been oberating and working together? Are you're meeting regularly and things like that?
Yeah, we meet regularly. The staff meets regularly. We're having a big meeting next week actually on Monday, and that will be a joint SEC CFTC roundtable to discuss issues. This is not just crypto. I mean, I think it's important to note that a lot of the work that we do that's not crypto related relates to the work that the CFTC does, and so we'll be talking about a lot of those issues. It should be a very interesting, interesting day of discussions.
That's great. Great to hear the agency.
And that's what everyone can tune in. That's going to be a public, perfect event.
That's awesome.
I want to talk about tokenization in twenty four to
¶ Tokenization 24/7 markets
seven markets commission on PERST because Brave.
New World almost.
I don't know if I'm going to be up three am drinking coffee trying to trade markets, but maybe I'll have an AI agent doing that for.
Well, maybe you know, your counterparts in Asia might be trading overnight. So it's it's definitely something that could be interesting to foreign to foreign investors.
So what are your thoughts on kind of the tokenization race happening? Black Rock and all the Wall Street firms not to mention crypto native companies, exchanges like coinbased cracking, launching tokenized stocks. You know, Larry Fink said tokenization is the future of finance.
Do you believe that?
And do you see by maybe twenty thirty we are in a full twenty four seven market.
Well, I think there's there already is twenty four to seven trading, and I think there's a lot of interest in that, So I expect that that will continue. Although you may see it differ for different types of securities because there may be more concentrated liquidity during some times of day for some securities versus others. Sure whether or not tokenization is the future. I mean, as a regulator, I try to stay out of those kinds of prediction games.
But I think there's been a real as you as you said, there's been a real interest not only from crypto native firms, but from more of the traditional financial firms. And that interest I think was somewhat. I was expecting it, but I wasn't expecting the level of interest that we got, and it really was a reaction to the new regulatory openness at the SEC People said, hey, we've been wanting to try tokenizing regular securities, and people have different ideas
about how to go about doing that. And we're working with people too, and we encourage people to come talk to us before they start tokenizing, just to work with us to see what exemptions they might need and how to go about doing this in a way that's protective
of investors. I think, again, I'm going to bang the disclosure drum here, which is that if you are selling something that you're categorizing as a tokenized security, you need to be clear with people about what kind of security it is, what kinds of rights they have, what kind of risks they face that are maybe different from the risk of the security that you're trying to tokenize.
So is it needless to say that if I'm tokenizing a stock, it's still a security because originally it was a security. If I'm tokenizing goal a commodity, it's still a commodity. But if it's offered up in a different way, then it could become.
A security, and it could become a different kind. Even with a security that you tokenize, it could become a different kind of security depending on how you tokenize it. So if you take it and you transform it somehow, it might actually turn into a derivative, and there are different rules around how those can trade. So people really need to tread carefully here.
So how are you and the folks at the SEC preparing for all this given that twenty four to seven markets, but also these firms can open up these assets to global investors. So because of the wallets set up in the nature of smartphones, now, how are you preparing to handle all that?
There are a lot of difficult questions and we're working with people, which is again why we encourage people to come talk to us and think about you know, you can sell something abroad, but if it's flowing back into the US, there could be potential securities law laws implications here in the US, even though you initially sold it outside the US. So you have to think about all these kinds of things. And I really encourage people to
do this carefully. If we do it right, I think this could be a wonderful chance to see whether this is where the markets want to go. But if we do it wrong and a lot of investors get hurt because they didn't get the thing they thought they were buying, then we could destroy the market before it has a chance to grow.
Oh.
Absolutely.
You know. One of the things that are being discussed is AI agents being able to use crypto assets like
¶ AI creating tokens and SEC using AI
stable coins to settle transactions. That's fine, but what happens when an AI agent creates its own blockchain in its own token. I don't know if we're going too far ahead here, but what are your thoughts on that?
Yeah?
I mean, I think there are going to be a lot of fun questions for young lawyers to grapple with, and some of those will be uh will be questions that directly are relevant to the sec But I think people again need to be careful they and financial institutions that are trying to use these tools. I think it's wonderful because I think there are chances to make the financial markets more accessible to a larger group of people by having tools that make it cheaper to offer financial
services to people. So we encourage people to experiment with technology, but also to think about what the implications are and and to you know, be mindful of the risks of what they're creating.
Yeah, that's a conversation I feel I'm going to have with you for the next whileever long you're at the SEC because I'm also exploring like AI agents and how I can use them to help offer services to my listeners and viewers. I don't want to create a token necessarily, but the possibilities there. What if this, and again you have a GI and all these things they get so smart and sophisticated.
The collective IQ is.
Greater than all of us and the smartest minds in the human minds in the world.
And there.
Yeah, I mean I am a little bit of a human maximalist because as interesting as I think this technology is and as amazing as it is, the human being is still the most and the human mind is really unrivaled, and so I will always will always believe that you need somewhere to have a human in the loop. Human jobs aren't going to go away because humans can bring something that no machine can ever can offer bring, or no AI agent can of our bring.
So on that note, are you and the folks of the SEC and the staff looking to leverage AI to do your jobs, not replace you, but to make things more efficient faster. You can send it out to go review this token project, come back with the research, and then human takes over.
Yeah.
Absolutely. In fact, I was talking with someone about that yesterday, about the ability of AI to do some of the tasks that that we SEC staff has done in the past. It can enable us to review more disclosures, for example, and then have the the ones that are have something unique or unusual filtered up for for human level review. We do exams of firms that are registered with US
Investment Advisors, broker dealers s ROS. I think that that AI can be very helpful in making us make better use of our enforcement personnel UH and and again get better coverage. So I'm quite excited about the possibility of of AI to make us a better, a better regulator, and and maybe even help us with consistency as as a regulator, which is something that anytime you have an examination program or a disclosure review program you worry about.
You want to have consistency so that like registrants or like regulated entities are treated similarly. And so I expect AI to be helpful there as well.
And going back to what we were talking about twenty four to seven markets, maybe you have these AI agents running twenty four to seven while you're sleeping and everybody the staff is sleeping, they can be out there monitoring the markets.
Sure, as long as it's as long as it's public information I don't want to create. I think this is one of the things we do have to worry about too. These new technologies have made it much easier for us to exercise very comprehensive surveillance, but we also have to remember that there are some constitutional principles here about people's ability to live their lives without having government watch their
every move. Now, if someone is if there's a reason to suspect that someone has done something wrong, then we should go in and look at what that person has done. But I don't really want to be watching all your trading, because I, as a regulator, have I have no right to follow you around in the markets and to watch
everything that you're doing in the markets. You might have reasons for doing things that you don't want to have have someone else seeing what you're buying and selling, right, But then if you did something wrong, then that's the point where we go in and we get the information. So new technology is great, very helpful for regulators, but we have to exercise it responsibly.
Yeah, well said, And to your point, maybe it's just you put these triggers that if something looks unusual, then it activates. It's not constantly moditoring like yeah, big Brother or something exactly. Yeah, I want to ask you about
¶ Digital Asset Treasuries
Dat's digital acid treasury companies. We've seen an explosion in this This trend seems to be growing and it's happening around the globe. But there seems to be a bit of a bubble forming here from my perspective, but every market experience bubbles. What are your thoughts on these companies adding crypto assets that are balance.
Sheet Again, it's not my role as a regulator to tell companies what they should or shouldn't do. Sure, except that when it comes to disclosing what they're doing, that
is in our wheelhouse. And if these are public companies and they're they're this is big, this is this is something they're doing, they have to be very clear with in their disclosures about what the risks are associated with what they're doing, what the you know, they can tell people what they're why they're doing it, what the expected benefits are, but they also really do need to be clear about those risks. And so that's what I'm really focused on is is when there's any trend like this,
people can get caught up in the excitement. But there are still securities laws that do tell you have to be very serious when you think through the risks and how you present them to investors.
Does it make sense, but the sec to put out guidance on this or the existing laws covers I.
Mean, the intersting laws cover it. We have disclosure review people who work with registaurants, whether they're doing a DAT or some other kind of company, and so if people have questions, they can reach out to our staff. Our staff will engage with them on thinking about how to present these risks and things like that. So people can can engage, but maybe guidance will be necessary because, as you note, it is it is quite a trend.
Now, yeah, everybody in their grandma is trying to do this. If you're a public and trade a company, and do you have these funds out there looking hunting for these companies?
Hey do this stock arbitrage? YadA YadA.
But you know, and when I see things like that, I also ask is there is there something that we're doing as a regulator that people are doing these kinds of things in public companies instead of doing it in a fund for example. And so those are questions to ask because you know, one of the questions you raised earlier around staking in exchange traded products, that's something that maybe companies are doing because they have more flexibility to do it than they do in the exchange traded products.
So then you have to ask, is there regulatory arbitrage going on here? Yeah? I'm not weighing in on that question here. I'm just saying that it's something that we should always be thinking about.
I've interviewed a few folks from the DATS and yes, some of them have made the case, hey why put your money in this body? TF bring it to the dat get the stock these staking rewards that reinvested, or you get a dividend. They made that case, but I think as soon as the SEC approves staking and ets, you know, they'll lose a bit of that thunder.
I'm not weighing in. We'll see what happens.
You know. Go back to the bubble item. I want to get your perspective on this, and again, every market.
¶ market bubbles
I want to preface this because then I wanted to seem like it's crypto. We saw a real estate bubble, we saw a dot com boom bubble. I believe in the frame mark. But does a regulator play a part in saying, hey, there's some red flags here we need to step into. I know that's a fine line.
Well, it's just not a job that Congress gave us. They did not tell us to tell people what to invest in. They told us go help people figure out what they're buying by working with public companies and with investment companies. So exchange traded funds and mutual funds on their disclosure, and then go regulate the financial professionals that
help people invest in these things. Sure, but I think there is a very important lesson that people time and again forget, which is you know, making money comes with risks, right, and so you can't just assume that the market is always going to go up. You can't always assume that anything you buy is going to go up. You can't assume that the money you put into something will come out. And so you have to think about your own financial portfolio in terms of what your risk tolerance is. When
are you going to need that money? Are you trying to buy a house next month? Then you know that's different than if you're trying to invest for if you're trying to invest over a long period of time for retirement.
So you have to think about that. You've got to think about what the mix of investments that you have are, and you should you should be very careful about those kinds of things because people can get hurt, and they have historically gotten hurt when they get caught up in the exuberance about things always seem to be going up. And you know, I think all of us have learned that lesson somehow, some way, and those lessons stick, but
they can be very painful. And so if you want to avoid that, learn from lessons that others have experienced and don't go through it yourself and be careful about how you manage your finances.
Yeah, you know, it's almost like human beings though we can't help ourselves.
We're speculative beings.
We are right and and there's nothing inherently wrong with it. It's just that you've got to know your own limits and your risk level, and you have to be a little bit you know, realistic. I have to laugh because I was telling my young niece at the time, she was quite young, five, and I was telling her about housing bubbles, and she said she thought it was very funny. She just thought that that way of describing it was
very funny, you know. And she said, well, who gets caught in housing bubbles ant Hester And I said, well, I do. I actually bought at the top of the market and and I paid the price for that, right, And so I think people, you know, they they really have to have to go into this soberly.
Absolutely. I always tell people, also, look, do your best to avoid leverage and have a long term view because leverage also, you know, that's one of the big things people try to get their fast buck.
I mean, people need to be very careful of that. And I think we saw that in the in the crypto you know years of the past right where people really got caught by leverage and the and you know, there are other basic things like know who your counter party is, Understand what the counterparty is doing with the assets you entrust to that person. What happens if if that person that you're interacting with goes bankrupt? Do you get your stuff back? Does someone else get it? Do
the creditors take it? And so these are questions that regular people who are making the decision to invest should ask, their questions that we as regulators have to ask. We're trying to come up with a framework that does protect people, but protections really differ depending on what market you're in, what assets you're buying, and so people need to be quite careful about understanding that. Don't only think think about what happens on the good days, think about what happens on the bad days.
For sure.
I forgot to ask you about the Genius Act and
¶ GENIUS Act
your thoughts on that passing and the implications on the stable coin market. We've heard banks want to launch their own stable coins. Is the SEC involved in any part of that or is it specifically like the yield bearing aspect of it.
Well, the SEC is involved in the sense that I think a lot of the entities we regulate will want to make stable coins available for their customers and so thinking about how they can do that in a way that's compliant. Tokenized money market funds or something that have been around for some time. They're not stable coins, but that is an area that we do regulate, and we've been working with people who have tried to tokenize money market funds now for quite a few years, and so
I expect more interest in that area. People can maybe use those for collateral and things like that, and then I expect that any kind of you know, when there's a yield bearing component to it, people ought to come in and think about whether it's a security or not. That starts to look a lot more like a security. We did put out guidance on stable coins to say, you know, the non yield bearing type of the type that are at issue and the Genius Act they're not
within our remit. That's what the Genius Act said that as well. So those are banking those are banking regulatory issues. But there will be a lot of interaction, I think between stable coins and the markets that we regulate.
Question just came to mind, and I don't know this in walls the sec or not, but I love to get your thoughts.
Would these big trad fi institutions coming in bank stock exchanges.
There's obviously a competition happening with the crypto native startups,
¶ Crypto native firms vs TradFi
and how do you find that balance or it's the free market and whoever wins.
Well, we're definitely getting a lot of input from traditional financial firms that are saying, don't give the crypto native firms special treatment, and so I think really the goal is to look at what the regulatory impediments are to people participating in this area, to think about is there a reason for that regulatory impediment or doesn't it make sense, Which is why part of the regulatory the crypto regulatory project will end up I think, having a larger effect
on the securities laws. It's not to say we're going to rewrite the entire securities law book, but any time you have a new technology or a new something new like tokenizing securities, you start to ask questions about does the rule we have in place make sense? Should we move to a more technologically neutral rule, should we move to a more principles based rule. Is this rule simply on the books because no one bothered to take it off the books, and it doesn't even make sense for
traditional financial firms. And so we're definitely trying to work through those issues in a way that's public, that allows everyone to weigh in, and that doesn't give anyone special treatment, but also allows people to experiment. And sometimes in order to experiment, you're going to need certain exemptions, and so we have to figure out how to craft those exemptions in a way that makes sense.
It's fascinating.
I'm a macro viewer of human behavior and technology, and I'm curious to see how this all plays out. As you have like these goliads coming in, but these cryptonative startups have head start.
Well, but I think, you know, I think it will be interesting to see how the competitive landscape shakes out.
Sure.
One thing that has been fun for me to see is that over the years, you see new entrants come in, you see existing entrance, existing incumbents go away. That's a healthy, dynamic competitive environment that we want to build. Now, I actually think there's been less of that dynamism in the financial industry than is ideal because I think the regulatory barriers are higher than they have needed to be, and
so it's really trying to get that balance right. We don't want to put our thumb on the scale in terms in favor of any competitor, whether incumbent or new entrant, but we want to make sure that everyone can go in and really fight it out there competitively, and that it's not our rules that are preventing people from doing that.
So it's an exciting time when a set of new of people who weren't normally in this sphere come in and say, hey, we might have a better way of doing things, and then we want to let them come in and show us show the market. Is it really better or does the market prefer the traditional way of doing things. That's up to the market to decide.
Yeah, well said you know something recently Sandy call Franklin
¶ Wallet vs Account setup
Templeton said which I thought was profound, that we're moving away from the account based setup, total wallet setup. And then you know, it's in line what we were talking about with this race. I don't necessarily want to go through JP Morgan anymore. If I can have my all in one on chain, all in one super app has my digital identity my crypto wallet, I could stay pay with stable coins and all that biometrically locked in, cryptographic and all that. You know, it seems like that's the
direction to Pucke is heading in. Obviously, it's going to take time for the masses to get on board. But I'm curious is the sec looking at it from that perspective as well? People are going to go more wallet base and move away from the traditional institutions.
Yeah, it's possible. I mean, we have a very intermediary centric system now. No people can buy financial products and they can buy securities without going through inter mediaries, but it's typically the way that it's done. So that will be quite a switch if we end up in a world like that. But I think we have to be flexible and try mean, the goal should be to make the regulatory framework work for how people want to live sure and so that's if investors. If that is the future,
then investors want where everything is in one place. That's what we should work on. We're thinking of that some in connection with this sort of super app idea, which is that you should be able to you know, we shouldn't add requirements to have to get lots of new licenses. You should be able to access things through your broker dealer if that's where you want to access things.
Yeah.
Yeah, it's fascinating. We'll see how it all plays out. I'm curious what twenty thirty looks like and what all these technologies posts, crypto legislation being played, being in place, and the innovation that comes from it. Okay, final question here is something fun, Commissioner Perst.
¶ Wrap up question
If you weren't working at the SEC, what do you think.
Your ideal day job might be or what would you be doing?
Well, I think I'm going to have to figure that out relatively soon, So I guess I better. If I could do anything and I could make money doing it, I'd probably be a baker. But I'm not that great of a baker. I just enjoy I enjoy baking bread and cookies and cakes.
And you know it's funny. I'll tell you a funny story.
My seven year old daughter all of a sudden loves Martha Stewart and watching her make cupcakes and so forth. And she's been into that, so I now know how to make some.
See that's good because you'll be able to get all the benefits of her baking.
Yeah, she loves it now. So it's fascinating how that. It's funny how that works out. Commissioner purs always a pleasure. Thank you so much for taking the time and like I said, I want to give your flowers. Thank you for all the thought, leadership and the great work you've done over the years.
Thank you, Thanks Tony.
I've enjoyed our conversations over the years.