Will the Crypto Market Structure Bill Pass in 2025? with Kristin Smith

this journey in twenty thirteen. Their hardware wallets are open source and they support a variety of tokens from Bitcoin to the top all coins and even new coins such as black Rocks, Biddle and I'm personally a user of the Treasure Save five. It's a beautiful device and easy to use, and Treasure offers a handholding service where they can help you on board and set up your device so you can speak directly to a Treasure representative who can hold your hand through the process. And if you

use the code thinking Crypto all one word. You can get five percent off your purchase of a Treasure device. So to learn more about Treasure and all their great devices and services, visit the link in the description. Hey, folks, welcome into the Thinking Crypto Podcast. I'm your host, Tony Edward, and joining me today is Kristin Smith, who's the president of the Salona Policy Institute. Kristin, great to have you.

you're from and how'd you get involved with government.

and so I was really into the emerging Internet. This is kind of as Web one was going to Web two, and I found that just intellectually very interesting from a policy perspective. And then after I left the Hill, I went to business school and got an MBA in finance, thinking I would sort of transition into the world of finance, and actually the really hard time doing that. I interviewed at all these different investment banks and I basically got no job offers. And so through this process though I

stumbled in to bitcoin and blockchain. Nobody called it crypto back then, and I became very interested in that because it seemed to be kind of an intersection of both the Internet policy work I had done in Washington with finance, and it seemed to be sort of the next iteration of the Internet. And so yeah, so that led me to the Blockchain Association and now to Salanta Policy Institute.

top of the Internet. Do you see any similarities in some of the political legislative things you were doing back then to what's happening now.

with the Internet. So you know, it's it's similar with crypto, right like most members of Congress aren't, aren't, you know, using stable coins to pay for something or you know, borrowing something in the defray protocol or you know, they're not doing that kind of stuff, So so you it requires a lot of imagination. So I think that is similar.

I think what's actually very different is there genuinely was this sort of sense that the Internet, at least among people in government there's this sense that the Internet was something special and that we needed to sort of preserve and protect and let it flourish. You know. This again was the early two thousands before some of the issues with big tech, because there wasn't big tech yet had emerged, and we've never really seen that with crypto. We are

seeing it with AI. Interestingly, I think there is some language in the Reconciliation Bill right now that has a moratorium on any sort of AI regulation for a period of time. But crypto was always sort of treated differently, and I think a lot of it has to do with the fact that it can look and feel like money, and money is like so important to so many different

different things and so so. Yeah. So, but I have been able, I think, to use some of the knowledge that I gained early on in my career to try to figure out how to apply that to this industry going forward. And we've had some success. So none out of the woods yet, but we're definitely making progress.

the Internet earon and how crypto and blockchain. I mean, I'm sure a book has to be in the works at some point.

departure from the control that governments have with currency. And that's kind of why you're seeing this heavy attack on crypto or used to be that way.

Where the government hasn't at least in you know, in states, like they haven't been the source of information, right, whereas you know, some country where you know the government you know, is controlling all of the information might have been much more threatened by the Internet than than the US government.

You know. Yeah, money, money is record coword to what we do or what the government does, I should say, And so yeah, I think there's been a lot of concern that you can move very large amounts of money very quickly in a way that you know, doesn't require any sort of government intermediary has been a very, I think, sort of scary thing, and there have been different chapters of it over time, and I think where we are right now, we've landed in like a pretty good spot.

I mean, I think the progress we've seen with stable coin legislation shows that, you know, this is not a technology that's threatening to the dollar. It's now something that can enhance and support the dollar and help us help

the US export the dollar all over the world. And so I think that is you know, obviously like a huge, a huge shift, and you know, as we get into other parts of crypto, I think, you know, it's interesting there's been a pretty big focus on stable coin legislation this year, and I was talking with one of our lobby and consultants this morning, and there's a really deep understanding of how stable coins work, and there's not as much of a deep understanding anymore about how DeFi and

some of the other elements work. So we almost have to go back and do that re education again because there's been so much turnover with staff. We've got a lot of younger members who have entered the conversation, and so it's you know, it's a never ending process here of trying to get Congress and regulators to keep up

with where crypto is at. But we do make progress, and you know, I think it's listen, we don't want the government to move so quickly that they do it wrong, right, and so it's important to have that understanding before committing to policies that are going to impact innovation here for decades to come.

backfill that somewhere, and so this seems like a really natural place. And then I do think there are you know, individuals and countries around the world that are far less you know, their currencies are far less stable than we have here, and they would gladly want to hold their their savings and their money in US dollar back stable coin because because it holds its value and they know

that it's strong. And so it turns out that this is this is a really really great way to promote the dollar and not one that is competitive with the dollar.

Airbnb and Uber and so for they're talking about integrating stable coin payments. So it seems everybody sees the direction to puckets heading and they're skating towards it. Banks are like Bank of America, they're saying they're going to launch your own stable coin. There's rumors of a joint stable coin from all the major banks. So do you think once this legislation gets signed into law. We're going to see a burst of innovation.

exactly what they need in order to come in. And if you think about you know, I think the US user experience on payments is not that bad, right, Like we can all pay for what we want. We can you know, send money via Venmo. It feels like we've received it. But when you get underneath, like there's a lot of inefficiencies there, it takes a lot of time.

And so if we could move to a payment system that is available, you know, twenty four hours a day, seven days a week, you do very teeny tiny amounts or very large amounts Like these are improvements that I think people will be to build new business models around, or just lower the cost of what it takes to do business and engage in payments with customers. I mean, it's it's very expensive to do if you're using credit

cards and things like that today. So yeah, so I think I think we're I mean, I think that's probably the reason that I mean, I'm not a financial analyst, but if you look at those the run up and price of the Circle Stock Sensor IPO, I mean, there's a lot of people that a lot of investors that I think are looking to be a part of where the future is going. And and and stable coins I think are clearly going to be a part of that.

that trade. And so I think there's a lot that opens up for every day individuals that is far outside of you know, kind of what we see to stable coins being used for today in terms of like trading and things like that. So a lot of excitement on the horizon.

six of us. That's a very small team, but we have a lot of resources to work with the top lobbying firms the top law firms, the top public affairs firms in Washington to make sure that we're advancing the goals of the Solana ecosystem, Like we want the policies that are being created to have you know, Solona have been considered in the making of those policies. I think still today. You know, most policy makers in Washington they all know Bitcoin. Now they've got that, they know there's

these other cryptocurrencies out there. But what we really want to do is tell the story of Solana and explain the different things that are building in that ecosystem and make sure that it isn't disadvantage in any way in any of the policies that are crafted going forward.

those are very different places in the process. And I think that you know there has been so much focused particularly in the Senate around the stable coin issue, is is that they haven't had time to really fully comprehend like you know, what is DeFi like, what are the issues related to market structure? Why do we have this like long standing battle over what's the security? What's a commodity?

I think there are a lot of really complex issues that they need to unpack there, and that's going to take time and and you know, you can't force that. You can help facilitate that, but you know, people, you know, policymakers in the Senate, they can't do everything simultaneously, like they can you know, only focus on so much at once. And the Senate traditionally really really likes to put their their fingerprints on legislation and so they're not going to

blindly take what the house comes over to them. So I think there's quite a bit more work to do.

us the benefit of the doubt. This SEC is completely different and we have the SEC's Crypto Task Force that fled by Commissioner Hester Purse. It is staffed with people throughout the Commission with expertise in different areas, and they have been very very thoughtful and focused on first getting all the old policies off the books right like they stopped the litigation, they pulled back the role makings that

were open. They sort of cleaned the slates, and now they're starting to put out guidance on specific areas about what's not a security. But one area that they've expressed

interested and is the tokenization of securities. And they held an entire round table at the SEC and sought input from the industry and they're thinking very very deeply about what if anything needs to change within the regulatory regime to make it easier for open public blockchain like Solana or any other blockchain you know, to be sort of the rails by which you issue and trade securities. And

so this is this is very exciting. I think I last numbers I saw that it's increased since since last month. It was about twenty billion dollars worth of real world assets including securities that you know, are issued on public blockchains, and I saw a report that mckenzy has estimated that number to path to trillion in the next five years. So I think there's a tremendous amount of growth here. And some of the benefits are like stable coins, you have a speed issue in that you can instantly settle

these things. You could potentially trade them twenty four hours a day, seven days a week. You know, there are those types of benefits just efficiencies, cost benefits, et cetera. But then there's some other benefits that if you bring down the cost of doing this, that means opening up the capital markets to smaller and smaller companies becomes available. So you don't have to be you know, worth a billion dollars to go I p O. You can you know, be a small business and be able to access the

capital markets. You can also, you know, due to the composable nature of blockchains, you know, maybe use your securities as collateral in a totally separate system, you know, for something else. Right whereas today, yeah, I can go to Merrill Lynch and get a loan from them, but it's not doesn't transfer to you know, other companies and things like that. So I think I think there's a lot

of innovation that could open up there. And I think, you know, the United States has traditionally, like been known for having the best capital markets in the world, and I think that this will bring us into the next, you know, sort of generation of capital markets and allow the US to be the home and the leader for

for decades and gates to come. And so I think it's super exciting and it's actually one of the reasons I wanted to come to Salana Policy Institute and have more of a focuser as opposed to working with the entire industry.

of fresh air.

that same sort of mindset. He also had, you know, back then, political ambitions to potentially be Treasury Secretary or something sort of higher up in the pecking order of the of the Biden administration. And you know, at the time the sort of de facto financial services are, for lack of a better term, was Elizabeth Warren and so, you know, I think there was some feeding off of one another there where he was like, well, let's go after this thing, and she's like, oh yeah, I like that.

And there was some positive reinforcement that allowed him to go deeper and deeper. But then there was FTX, which I think left egg on the face of him and others who had been openly, you know, sort of engaging with Sam and you know, obviously didn't see the fraud that was coming. And so you know, the worst of the crypto cases came, you know, after FTX, when I think there was a real, real effort to crack down

on crypto. And I do truly believe that there were people in the in sort of the small bubble of crypto haters. I guess that the anti crypto army of five or however many of them met there are they you know, I think they really truly believed that that was our moment to shut down this technology. And it didn't work. I mean, I think the industry bought back in a really smart way. They fought in courts, they fought in at you know, with the elections and and survived,

and so you know, we're here. This is very clear. This technology isn't going away, and I think policymakers across government realize that and that it's better to figure out how to do smart regulation than it is to to just fight the technology head on.

securities laws. I think what what the industry? You know, I mean, people in industry want different things, but I think in general, what the industry is looking for. It's just some sort of clarity that if they meet a certain fact pattern that they they're not going to be

facing investigations by by the SEC. And and you know that if they are indeed a digital commodity or whatever they you know, term to whatever they decide to define the term, they you know, there may be certain regulatory obligations around the secondary trading of that asset or whatever, but that you know, the commodity can really flow through the ecosystem and not have to you know, notify the SEC every time there's there's something of transaction or something

like that. And so I think it's a little bit hard to know exactly how it's going to play out, but I don't think anyone is looking for some sort of carve out that is inconsistent with the current laws. And I think I think if we look at the Howie test, the way that the crypto industry has been interpreting it over time was largely right and the SEC was largely wrong in their analysis. And so so you know, I think whatever is done should be consistent with that.

Things that you know, have a centralized entity that is impacting the value of the company will continue to be you know, regulated as such. But you know, but if that you know, token isn't representative of some sort of equity or debt, then you know it's not going to be a security, which which is probably how it should be.

And if a token is issued outside the United States and it comes to you, you know, how do you Even the SEC doesn't have jurisdiction globally, So man, it's a tough one.

avoid the United States. And that's like that's not the right answer either, right, because we want to have that kind of activity here, both just from like an economic perspective, but from from a regulatory perspective, because if it's here, then you know, as you know, the regulators can can have more oversight of it if it's appropriate for them

to do so. And it's uh, yeah, it's these are not If these are easy questions, then we wouldn't be having these, these these battles and these uh, the legislative and regulatory and legal debates that we've had over the past you know, four plus years.

they're not going to issue a well's notice and not going to hit you with a lawsuit, but just come in, show us what you're doing, play net sandbox, and then we'll kind of give you advice on the path to decentralization if you want to call it. I don't know if that's the right terminology, but if you need to get your books in order a bit better and to meet the standards.

is something that could potentially move on going forward. I mean, I think in general, if you go back to our our project open submission that we did on tokenized equities, it's kind of we're proposing that same idea, right like, let's let's try this, let's look at it, let's study it as we go, and then you know, at the end of it, maybe make some more permanent rules going forward.

But it's yeah, I think it's a good idea, and it'll be interesting, I think, to see what the SEC does, you know, in the next six months, because so far they really just kind of pulled back the old stuff and issued some some guidance. I think it will be very interesting if they put out, you know, some exemptive relief or do a more full rule making, because it will be hard to it's it's it's very hard to change rules. It takes a lot of time. There's a

big process to do so. So if they succeed in putting some new rules within their existing authority, forget even having new authority from Congress, but within their existing authority, if they succeed in doing that, that'll be a very lasting framework because people will start to utilize it, and it's it's just not something you can you can change and you know with a new a new chair or you know new someone new coming into the White House. So the regulations are fairly fairly permanent.

to play. It's a little bit unclear. I think the Senate has more interest in giving the CFTC a clearly defined role. But I think what's going to be interesting is, I think where a lot of this is going is we're going to be going to the same place as consumers to buy or trade our Solona tokens, our bitcoin tokens, whatever our digital commodity is, as well as our you know, tokenized Tesla sock, tokenized Apple stock, et cetera. Like that

may end up being like housed in one place. And so it'll be interesting because on the security side, you're always going to need to have the SEC involved. So I think we're going to see very few companies that are purely CFTC regulated and are going to have this

sort of dual regulation. So I I think as the policy discussions evolved, I think, you know, there's going to be pushed back on this idea that the CFTC is the only place that can do this, because the SEC is probably going to end up being in the room

regardless of how it plays out. But but I do think, you know, I think, you know, I don't want to speak for Brian Quinton's but I think that you know, he knows the CFTC very well, and I think that he will look at what its role should be and be a really good you know, I don't want to

say advocate, but a good uh you know. Congress can get I think a lot of support out of him as to what the role of the CFTC CFTC should be, and he'll be able to, you know, I think, connect with them in a way that's very uh informative and you know, help help determine the future of what that regulatory agency should look like.

the federal government passports and all that. Jazz.

is keep information. And if you do it in a way that protects an individuals privacy with you ZK proofs or whatever else is out there, I think that, you know, I think that that's a place the government should be looking. I do think, you know, governments are it's going to take a while for them to get used to the idea of public blockchains versus these sort of permission databases.

That's something that has been discussed for a long time, and I think that that's you know, there's ways to do permission services on public blockchains, and I think that's probably where they where they need to go in the future. But I think we are a ways off from that.

I think I think, I mean, look what Elon tried to do with dose, right, these sort of tried to come in and make these like quick rapid changes, and I don't think that that is going to have staying power, and so I think it'll be a natural upgrade of technology over time, but not something that the government is going to immediately jump on.

I trust your centralized blockchain? Right, but the public blockchains is the way. Yeah.

business is starting to adopt them. Then then I think we'll see the governments come in after that fact.

consumer protection because the other piece isn't ready yet. Like, I think we can dual track these and I do think though that market structure could take some time. I think that this is not a popular opinion. I think a lot of people will be mad at me for saying this, But you know, as I was saying earlier, the Senate is just in a different place. The House moves very quickly, and they have done a tremendous amount of work on this, and they've come a really long

way in their process. But when I go and talk to both Republican and Democratic offices in the Senate, they're like, it took us four weeks to get market structures or to get stable coined, and excuse me through the Senate floor, like, give us a minute here. We need to take a breath and regroup and start at the beginning. And you know they're just now starting to do hearings over on the Senate side. We haven't seen any legislative text. And the Senate is just not the type of legislative body

that takes with the other one gets. The Senate usually really wants their mark on whatever bill is passed. And so I think that that could push market structure into next year. And I think that's fine. I think this is a bipartisan issue. I think everybody wants to get it done. This is not something that asks to go as one big package. Like I don't know where that idea came from. People like to use it all the time.

But like I think we're totally fine going separately. And you know, once stable coin becomes law, then you know we're going to see massive adoption of stable coins. And by the way, those stable coins are issued on top of public blockchains, and so it locks in the use of public blockchains. They'll never be able. You know, the SEC isn't going to be able to go after a

layer one blockchain ever. Again, like they're going to have you know, this is this This is going to lock in the use of this technology for something on a level of adoption we haven't seen anymore. That's a good thing, and so I think that gives us time to get market structure right, because market structure is really really hard to do because you're trying to solve a couple of different things. Right, there's this sort of how we test

with the security commodity issue that we discussed. There's a how do you regulate the spot market for non security assets like digital commodities, because right now there isn't a spot market regulator. There's questions of how do you do fundraising around token projects, and then there's a what disclosures are required and do you do that retroactively or do you do that going forward or there's just a lot of questions, and then there's this whole like what do

we do with DeFi question? Yeah, and I am shocked. I am not a lawyer, but I work with a lot of lawyers. There are so many different ways to kill DeFi. You put one wrong word into one wrong place and a bill and it can be life or

death for DeFi. And so I think we really want to be thoughtful and ensure that whatever we do protect DeFi because DeFi is kind of the whole point of all of this, and so we don't want to, you know, regulate our way out of having the sort of composable benefits of DeFi that that we would like to see. And so so yeah, long story short, stable coin this year market structure I think is going to take some more time.

and talking to different people. So yeah, I think you're on point with that.

up questions here for you. Okay, if you could create your own metaverse, what would the theme be?