DEX in the City: Why the Supreme Court's FTC Ruling Could Rewire Crypto Regulation

Why do you think the bill is named clarity? The opposite effect is going to happen here where it's never certain and things are going to change at a whim depending on how the president is feeling. Hi, all and welcome to Decks in the City, where the wallets are cold and the takes are hot. Before we get going, remember, as always, we're lawyers, but we're not your lawyers. Nothing you hear on Decks in the City is legal or financial advice, and it doesn't create an attorney-client relationship. Through the fine print, check UnchainedCrypto.com. We'll be back in a minute with tons of great content, but for now, let's hear a word from our sponsors. This episode is brought to you by Cape, America's privacy-first mobile carrier. Same premium service you'd expect from any other carrier, but designed so your number, your location, and your data actually stay yours. Get 33% off six months at cape.co slash unchained. and we're back first we have jesse web 3 prosecutor turned web 3 protector at rivet capital and v from the sec to web 3 and i'm your host kk katherine fluent in trad fi and conversant in deep tech so i have to say i'm just gonna start us off guys by jumping right in and being like what's going on in Europe? Okay. All of a sudden, Europe has woken up. And we're going to talk about Mika in a minute, the markets in crypto asset, comprehensive market structure bill for Europe and the changes to come with Mika. But before that, I'm using Europe as a term, but for a minute, I'm going to talk about the United Kingdom, which has had kind of a confusing relationship with crypto over the years. I can't decide if the UK hates crypto or loves crypto. I mean, obviously, there's partisan components to this, but they've done a lot of kind of confusing things where one minute it seems like they're very pro crypto. And another minute, for example, there was there was some disturbing action around stable coins that seems like it's a terrible jurisdiction. But the latest development is actually a pretty big deal. And as always, I really didn't see that much chatter about it, which was surprising. I agree. Sorry to interrupt. I agree. I have been shocked how little interaction there has been with these FCA rules. They are significant. They're positive in a lot of ways. They show where industry was able to be successful in pushing things the right way. And there's also some really interesting flags in it that are slightly concerning that I'm sure you're going to talk about. So I am really, really shocked and I'm thrilled that we're touching on these topics. We have not talked a lot about outside the U.S. regulation. So hopefully we can begin to incorporate that because you're right. Like we could do multiple episodes on this. A thousand percent. My only thought is that these rules were released on June 30th. So they got kind of, you know, a little like drowned, drowned out by drowned out by the July 4th holiday. And, you know, the state of clarity in the United States. But anyway, OK, we should tell our listeners, viewers what's going on. So on June 30th, the UK's Financial Conduct Authority, the FCA, their primary financial regulator, published a pretty massive package of final policy statements and guidance for crypto in the UK. So this is considered the final piece of the UK's crypto roadmap. And I'm summarizing here was actually four final policy statements plus guidance, like effectively a comprehensive rulebook. And in this, they covered a ton of stuff. I mean, they covered everything from stablecoin issuance to market abuse, credential capital requirements, disclosures. DeFi, we'll get to that in a second. It is a lot. And this now encompasses all kinds of crypto companies, including obvious suspects like custodians and stablecoin issuers and crypto finance platforms, but also arguably in the future, certain DeFi protocols. I want to hear from Vee and Jesse on their thoughts, but my thoughts, okay, there's good and bad in this. On a high level, the framework treats crypto like TradFi. Okay, but the good news is that the FCA, as Jesse referenced, cut capital requirements for stablecoins in response to industry feedback. The regime also doesn't take effect till the fall of 2027. So everyone really has some time to consider this, percolate on it, get in line, get ready. And then there are also two consultation papers covering FCA handbook aspects that aren't finalized yet. And those two cover market making and DeFi. So we have to stay tuned here. And, you know, they have promised to listen to a lot of industry feedback specific to regulating DeFi. And obviously, this is a real hot button issue with Clarity in the United States. But the FCA said, read DeFi, it will consult further on things like objective indicators of decentralization, whatever that means. You have a separate talk about that and expectations for financial crimes. So they recognize the tension here and the fact that shoving DeFi into TradFi regulation doesn't make sense. So I like the certainty here. I like guidance. Guidance, progress on regulation is good. This will make the UK more attractive, particularly to institutional crypto and TradFi institutions. And I like to see the theoretical openness on DeFi specifically and the progress like in response to industry feedback on things like capital requirements. But this regime is no joke. Like this will be very hard on smaller firms. And essentially, philosophically, they're applying trap by regulation to crypto. So my biggest takeaway here is this is going to be a really tough question for crypto firms, meaning is it worth it? Is adherence to all of this worth it to keep their UK customers? And I don't really know how this is going to shake out. Thoughts? I think it's worth taking a step back a little bit because, you know, people aren't maybe on the day to day as deep in regulation as we are. We talk a lot about the U.S., what's been happening. Is there a law going to be passed? Everything's sort of happening through like guidelines, rulemaking at agencies. We have genius. Obviously, we have stable regulation being implemented. We don't have a bigger bill. So Europe is way ahead of us, right? Like NECA was passed years ago. I don't have it at the tip of my tongue. And they have been working on trying to implement that for years. And recently, and we'll get to this, they are deciding to maybe revisit some components of it, right? And so when Mika first got passed, there was, I think, general excitement from those that believe in regulation, at least for crypto, saying this is an idea that's being put out there. And that's really, really great. And I think since then, with the implementation of Mika, there's been some concerns about whether it's actually working. Now, that's not shocking when it comes to big EU regulation. If you follow how EU regulates, they always sort of start big. Right. And then we have the UK coming in. The UK has been talking about these rules for I don't know, I feel like I went to the UK five years ago and talked about these potential rules. Right. And it wasn't that they weren't informed when I went, like they were still trying to figure out how to balance exactly what you said at the beginning. Are we pro crypto? Do we want to be pro innovation or do we not? Right. And it seems like we're at the point now where they are really leaning into saying, like, we want to be the place for crypto. And so it's interesting to see the dynamic of all these different jurisdictions, because we all talk about how crypto, blockchain, etc. We want it to be sort of borderless technology in a lot of ways. And you obviously need to operate differently in different jurisdictions. That's just how things work. But how does that work when the big packages are beginning to diverge in a certain way? And so to me, that's really interesting. If you look at like GDPR from from the EU, everyone has sort of heard of that. Right. That is like the biggest privacy for our listeners who aren't familiar. The big privacy regime that is pretty onerous, you know, entered into force from the EU perspective. It's the annoying reason why when you go to a website, you have to say cookies or no cookies. And I don't know about you guys, but like it just sort of depends on my mood. whether I decide to. Sometimes I feel like it's the thing that puts tags on all the pillows that you rip off, but go on. No, I mean, GDPR was passed, I don't know how many years ago, but a long time ago, right? And it was a huge law that has a lot of great to it, but obviously is incredibly burdensome. And it became the template for privacy laws. Not everyone has adopted that, but you can see it's slightly different when you go to Europe and go online, but there are a lot of repetition, particularly in California and other like heavily regulated states like New York, right? So in that realm, we've always sort of seen EU create the model and then them sort of pick at it depending on other jurisdictions. Here, it seems a little bit different. And I wonder if it's because technology is changing so much that MECO was the GDPR for crypto, right? There's a lot of good in it. It's very big. But like technology has changed so much since MECO was passed. Concepts, thinking through what's important, right? Like when MECO was passed, stable coins were important, but they weren't nearly the important infrastructure layer that we sort of see crypto becoming, right? Not to even mention like crypto and prediction markets, right? So the UK is arriving late and lighter. And you can say they spent so long trying to get here, But there being more soft touch and giving a slightly reduced level of regulation than NECA in some ways, at least. And so to me, there's an argument here that UK was taking its time and learning from the tech. And in some ways, it's maybe a race to the bottom at some components. So I think the narrative is sort of shifting on how we think about regulation. And it could just be because Europe is changing so much as well. Yeah. So like one really interesting aspect of this, I think, is, you know, people always talk about like first mover advantage. Right. And like I think the EU does deserve a lot of credit for being the first to like pass really comprehensive crypto legislation. But sometimes the the benefit of not being first is that you get to learn from the mistakes. Right. And so I think you see this when you look at what the UK is proposing now. I feel like what you see that's very different from Mika and is probably a lesson learned from Mika is that it's a lot more flexible. Right. So like the legislation sort of lays out the general framework, but it looks like most of the actual rules are going to come through like consultations and the FCA handbook. right which i think is like it just gives them more flexibility to adapt to crypto right so like if you've been what you know like what you just said with stable coins anyone in crypto knows that stuff evolves really really quickly so i think one of the lessons they learned from mika is that they need to give themselves that flexibility and i think you do see it in all of this stuff that came out on june 30th i think you sort of like i wonder sometimes with the u.s too right like we've also been slower to adapt. I mean, we passed Genius. One way of saying. Right. But like, I wonder if like we have taken lessons from, you know, Mika sort of being in place for the last few years now and how that's impacted, like how much flexibility maybe we think we need to build into the law and how the discussions over clarity have changed over time. I also would love us to sort of talk about DeFi in this realm. Right. and I know that it's like a separate topic from a lot of the other sort of regulated activities we're talking about but I know we all went to Europe throughout the development of Mika and talked to them about the rules and I remember once again like five-ish years ago the discussion of like well how do we regulate DeFi how do we think about DeFi how do we keep it safe right and Europe is reopening that conversation again for like Mika 2.0. But the UK five years ish later, the US the same, we're still in the same question mark when it comes to DeFi. And whether that's good or bad, I mean, we could have that argument here. There's definitely a lot of good on that. But I wonder when we're going to get to the point of, okay, this is how we regulate or don't regulate DeFi. because I don't know how much progress regulators have made. They understand it more for sure. I want to give like regulators a lot of credit there, but the answer of how to keep it safe, whatever that means to the person that's defining safe for them, I don't know if we're any closer. It a great question Jessie and that is the perfect transition I want to talk about this in the context of the recent Mika developments So this is actually crazy to think about The first iteration or the first part of Mika entered into force in 2023. And that's a long time in crypto world. Okay. And to be clear, I want to clarify one thing. When we say the EU was the first, we mean the first European set of countries. There were obviously a slew of other countries globally that had crypto laws and rules prior to Europe. But this was one of the most comprehensive packages, the earliest. And it encompassed a lot of the crypto business, frankly, because obviously there's an enormous amount of activity in Europe. So it came into force in 2023. It's been sitting here for three years. And we all got very excited. I think the crypto good news the other week was how excited we were that very recently Mika came into full force, like the final transition for grandfathered legacy crypto firms. It was July 1st. But we got too excited too soon because as we've been alluding to is the other big breaking news out of Europe that we definitely want to cover is the European Commission is seeking comment to potentially expand Mika to cover tokenized assets and stable coins. Exactly what Jesse was saying. Like if we rewind to 2023, everyone probably forgets this. But when you went to a conference, no one was talking about tokenization or stable coins, or maybe they were talking about it, but it wasn't the focus of discussion. The volume has really grown exponentially with tokenization and stable coins, particularly tokenized equities and similar products. So that's a big deal, right? And this would also, I mean, the big difference here is obviously they want to cover tokenized assets more generally, but they want to cover stable coins that are issued by non-EU stable coin issuers. So one of the things that is a source of frustration for anyone that works at a global crypto company is that the stable coin requirements under Genius conflict with the stable coin requirements under Mika. And that is, I mean, candidly nonsensical considering the whole point of crypto and Sablecoins. So you have a slew of different Sablecoin issuers that either have a single issuance model. I believe Circle has a single issuance, although someone call me out if I'm wrong, versus a multi-issuance model like Moonpay, where Moonpay has multiple different entities in different jurisdictions issuing different Sables. circles, I believe circles working on policy overseas in Europe to kind of change this whole model. So what Mika is now saying is, sorry, US stablecoin issuers and non-EU stablecoin issuers, you have to get in line. You're going to have comparable standards as to the EU stablecoin issuers. Now, everyone has a few months, I think, till September to provide input. So we won't see proposed regulatory revisions for at least a year, probably. But what's happening in my mind is that you're kind of freaking out in response to the growth of tokenization and sables. And they're figuring out how to fix this. So is this going to keep happening? And still no mention of DeFi and Mika. Like DeFi was ruled out by design, which everyone was happy about. But DeFi is still pretty big. CBD, right? What's going to happen there? Yeah. I guess just to take a step back and like think about the regulator conundrum or just like legislative conundrum and how we should think about that in light of potential clarity that, you know, I haven't thought it was going to be. now, technology is moving really, really fast. You know, I can't go through an episode without talking about AI in some way, right? Like, what laws are going to need to be changed and passed in a few years, right? Because of a new technology. And crypto is not the first one that this happened to. We can even just focus just on financial instruments, like financial instruments have completely changed and evolved and developed. And they've gotten more complex, less complex, more regulated, less regulated, and trying to figure out how to fit any financial instrument into existing rules that's new and novel is something that we do. That is the point of being a lawyer and the point of working in innovative tech and regulation. So sometimes I wonder if crypto thinks it's this own unicorn, right? That like, oh, our technology is moving so fast. How are we going to regulate it when in fact like all technology most technologies you can say that about and definitely ones that came before and that are existing now yeah yeah it's always a tricky balance to strike right between like how how like prescriptive do you want to be versus how much flexibility you want to to give uh the regulators and and not an easy balance you're absolutely right i give the regulators credit here like this this whole industry is not easy to regulate. I mean, look, if you look at the diversity of the products and types of companies that exist under the crypto umbrella, I mean, talk about apples and oranges. It's really difficult to regulate everything from NFTs to tokenized securities. So, you know, I give them credit. I give the EU credit for passing something and for passing something that is certainly not terrible. I mean, we've talked about this before, but any legislation, you can't let the perfect be the enemy of the good. I think the other lesson to take from all of this is don't sleep on other jurisdictions. There's a lot of focus on the U.S. at all times. And I'm not even speaking from kind of the American perspective or U.S. company perspective, even non-U.S. companies. There's a lot of focus on the U.S. regulatory environment and the U.S. legislative environment. Of course, that makes sense, particularly with the regulatory environment, because it often presents the most risk. And everyone needs to be conscious of Team America World Police. OK. But at the same time, you can't sleep on other major jurisdictions, particularly even if you're a U.S. company, you're touching other jurisdictions, you're touching Europe, you're touching the U.K. It takes a lot to wall off a jurisdiction effectively. I think the U.K. in particular got a bad rep to some degree because of its infamous UK marketing rule directed at crypto, which really curtailed the ability for crypto companies to market in the UK. That's one example of companies that just got in trouble by being sloppy or not being particularly aware of legislative developments outside of their home country or outside of the United States. This is also why Like lawyering in crypto is exceptionally hard because occasionally I do feel like someone asks me a question and I'm like, just give me a few minutes while I check all the laws, entire world and whether they've changed in the past month. Like no big deal. Not a big deal. OK, so we are going to go to break. But before I do that, I'm just going to mention a few other things really, really quickly on the European front, because I feel like I just have to mention this. The other big things that are happening is that you have a slew of blue chip crypto and trad fi firms joining the UK government tokenization task force. You have the EU parliament voting in favor of the creation of a digital euro and also separately adopting a crypto policy position, calling for further review of a bunch of crypto like DeFi included, by the way. You have the European Central Bank picking, I believe this broke today, 36 banks and payment firms to join a pilot of the digital euro. We have to do a CBDC, Central Bank Digital Currency episode at some point in the future, ladies. And then the European Securities and Markets Authority is reviewing crypto custody security. So the segment title of this was not just directed at Mika and the UK FCA. This is another gentle reminder for everybody to book that European trip so you can read the European news about all the fun crypto stuff. So we're going to take a break to hear from our fantastic sponsors. And when we come back, we're going to hear about maybe one of the most important Supreme Court cases that's going to affect everyone that no one is talking about. So stay tuned. If you hold crypto on your phone, your biggest vulnerability isn't your wallet. it's your carrier. AT&T, Verizon, and T-Mobile have been breached again and again, and SIM swaps are still one of the easiest ways for attackers to drain accounts. That's where CAPE comes in, America's privacy-first mobile carrier. Same premium service, but CAPE rotates the identifier on your SIM every 24 hours, deletes your call and text metadata after a day and protects against sim swaps with a 24-word recovery phrase that only you control. You also get two middle-to-end encrypted secondary numbers for banking and signups, so you stop handing your real number to every app that asks. Go to cape.co slash unchained and use code unchained for 33% off your first six months. okay before we move on to the next segment i do have to share something you said while we were on break what is europe doing like don't they know it's summer like i thought all americans dreamed of moving to europe where they just take summer off like what's going on aren't they all in vacay on vacation you're strange come on it's too hot there they're all working in their offices because it's always like air conditioned every call i've had with someone in europe um they are even if they're remote optional they're always at their office lately because they're like it's the only place this is why they're getting so much work done It all makes sense. Climate change. It's great for productivity. Boom. I love it. Okay. So this is not, as you guys know, a legal podcast. We discuss a spectrum of issues. We are strategic leaders and often not even wearing legal hats at our jobs. That being said, we're going to talk about a Supreme Court case. And we are nerds. Legal nerds. We are nerds. Okay. So that is fine. Nerds win. We've discussed this before. OK, but V, tell us what happened, because this is actually a pretty big deal for our listeners. Yes, like you were saying. So this is actually one of the biggest Supreme Court decisions this term and maybe like in a long time. And I haven't really seen that many crypto people talking about it, but I think it could have a really big impact on how the industry is regulated, which I'll get to in a minute. But the court just overturned a 91 year old case. Right. So this does not happen every day. It just overturned a case that's almost a century old called Humphreys Executor. And that case said that the president can't fire a commissioner of an independent federal agency at will. So the plaintiff in this case was an FTC commissioner, Federal Trade Commission commissioner. Her name is Rebecca Slaughter. She's actually a friend of mine and a law school classmate. So hi, Becca, if you're if you're listening. So she, along with a fellow Democratic commissioner who also went to law school with me, actually, were removed by the president last year without cause. So first of all, just to give a little bit of context, we have, you know, obviously, as everyone knows, we have a lot of federal agencies in the U.S., but they're not all the same. So some, like the DOJ and Treasury, answer directly to the president, and he or she can generally remove them at will, the leaders of these agencies. But then you have agencies like the SEC, the CFTC, the FTC, and the FCC. These are called independent agencies because Congress designed them to be somewhat insulated from politics. Right. So they're run by bipartisan commissions that who have staggered terms. And for like the past century, those commissioners generally could only be removed for cause. And what that means is the president could only remove them for things like being inefficient or neglecting their duty or committing fraud or or other kinds of mouth. They did bad stuff. And sorry to interrupt. I just wanted to mention FCC, Federal Communications Commission, FTC, Federal Trade Commission, just to give the listeners an example of these commissions. Yeah. Right. So these agencies that are supposed to be, quote unquote, independent. Right. So what that meant is the president could not remove them without cause. He couldn't just remove them because he disagreed with their policy or political views. And this all goes back to a 1935 case called Humphrey's Executor. And what happened in that case was that President Franklin Roosevelt fired an FTC commissioner, William Humphrey, over policy disagreements. And the Supreme Court said that he couldn't do that. So the facts of this case are basically identical. The president removed the two Democratic FTC commissioners on the commission. One of them, Rebecca, challenged the removals, relying on this 90-year-old case. So the Supreme Court just said we going to overturn that case that we overturning that precedent And they held that because FTC commissioners exercise a form of executive power the president generally must have the authority to remove them So that was the holding of this case. And the reason this matters, including for crypto, is it's because it's about who controls the administrative state. Right. So the Supreme Court has now said that Congress's ability to create agencies that are insulated from presidential politics is limited by the Constitution. So I do think it's worth noting that independent never really meant completely independent anyway. Right. So presidents nominate commissioners. The Senate confirms them. The president selects the chair of the agency. And Congress controls the agency's budgets. They can call them in for hearings and conduct oversight and all of that. So that's always been the case. What this case changes is that commissioners are no longer protected from removal. So I mentioned like this could have a really big impact on crypto and people just aren't talking about it enough. Right. So this doesn't change like the securities laws or the commodities laws or anything like that, but it could potentially affect how policy gets made. Right. So the president now has greater leverage over commissioners who are already serving. So if you have a commissioner who, you know, the president thinks is blocking the administration's agenda, the president now has significantly more ability to replace that commissioner with someone who is more aligned with his administration's priorities. So what that means is agency policy, right? So everything from rulemaking and enforcement priorities to granting exemptive relief, that can all become much more closely aligned with the White House. And these things could potentially change a lot more quickly from one administration to the next. So I think what you'll see happen is that presidential elections will now have like a much more immediate effect on crypto regulation and just like regulation in general. Right. So instead of waiting years for agency leadership to gradually turn over when commissioner's terms expired, a new administration could come in, replace, you know, all the commissioners, presumably, and start like reshaping regulatory policy from like very early on. So I think like that that could potentially have like a really big impact on on policy. And I don't I don't know, like if you guys want to weigh in on the fact that the timing here is really interesting. Right. Because as many of us know, there have been empty commissioner seats on both the SEC and the CFTC for a while now. And I don't know that any of those are getting replaced anytime soon, which has just been like, I think, another way in which the president can potentially influence how agencies like carry out policy. I don't know. What do you guys think? Thank you for doing that in such a reasoned way, because this case really makes my blood boil and I have been like sort of stewing over here about it. But I think you sort of laid it out really well. And there are a lot of really good deep dives on the legal side of it and how it relates to another case that came out, I think, the same day about you not being able to do this with the Fed, which let's not get into this time, but maybe for a future episode. But to me, the thing that really grinds my gears or scares me about this whole thing for crypto, for tech, for really just like democracy, is that the removal power, what you described and mentioned, it to me is a question of like, who are you afraid of? A commissioner who has a fixed term is going to be afraid of the law and the record and doing the right thing, whatever that means per their mandate. But a commissioner can be fired tomorrow by one person that is making this decision no matter what, political, because they said something bad about them because they don't agree with every single policy, whatever, fears the president, right? And that means that everything sort of flows back to the one person in charge. And to me, that's like the opposite of what the point of our constitution is and the opposite of why we have these agencies with specialists in securities law or energy law or whatever. And the pushback is bipartisan here. There was a really interesting article or letter by former FURC chairs that, you know, that's like they deal with nuclear energy. They deal with sort of our entire energy system, which you can imagine how important that is, especially right now. And they are saying, like this is one bad, two unconstitutional, but three, and this goes to your like empty seat narrative. No one's going to want to take these roles because you just have to be a lapdog to whoever's in power. And I just don't think that is the purpose of these agencies because otherwise, what are we doing? And like all crypto, all tech, all innovators, all entrepreneurs, all they want, Maybe there's some other things they want. But a big thing about what they want is like certainty and clarity. Why do you think the bill is named clarity? The opposite effect is going to happen here where it's never certain and things are going to change at a whim depending on how the president is feeling that. it. It's really interesting to give some more background here. So there's terms like there are two terms. One is textualist. And textualism means that it's the judicial, like a judge's philosophy that the Constitution should be interpreted very strictly by the plain meaning of its actual words without speculating on the framers' intentions. And then a very related term is originalist, who believes that the Constitution should be interpreted based on what the text originally meant to the people who ratified it. And all the Republican appointed members of this Supreme Court as textualists or originalists. So, you know, when I was hearing this overview, like I assume that, you know, if I hadn't done a deep dive in preparation to this pod, my question would have been like, well, why did the court do this? And the court, I mean, there were there are a number of arguments that we're not going to go into. But I would say at The high level is that the court concluded that Humphrey's executor, which was overturned, was wrong from the beginning. Meaning the majority began with the text in the Constitution that says the executive power shall be vested in a president. And then they said, well, wait, if Congress is giving an officer, the president, executive authority, the president must be able to supervise and remove that officer. So I'm not opining on whether this is wrong or not, like from a judicial reasoning perspective, like I'm going to respect the right of the Supreme Court to do this. But I wanted to provide that reasoning. I will also say that there is a big exception. There are a couple of agencies, as V mentioned, that were never truly independent. But what is also nice is they simultaneously held in Trump v. Cook that the Fed board is constitutionally protected. So they they're they're still in the Fed is still independent to some degree. So so that's hey, that's something that's something you guys. But like it is crazy to think that, you know, it's not just the CFTC and the SEC that this is going to affect. Like this is going to affect. I mean, I just while we were talking, Googled like what agencies were considered. Like, give me a list that were considered independent before slaughter. It is a long and powerful list. It just like makes you realize how many agencies we have and how like how vast the administrative state is. Some of them are kind of, you know, important, too. And like meaning I I would have liked or I appreciated a system that gave the leaders of those agencies with specialized expertise, as you guys mentioned, a degree of independence, like the Nuclear Regulatory Commission or the Equal Opportunity Employment Opportunity Commission. The Federal Election Commission. These are all things that I don't know, maybe it's a good idea if the president can't fire the leader of these agencies. And crypto of all industries has seen how powerful the the change in leadership of an agency can be. Like they set the mandate. They set the tone from the top. They set the agency's priorities. They can shift the enforcement landscape. And I'm not saying they do this willy nilly. They don't. But obviously, this is going to have a trickle down effect across America. Like this is effectively reshaping the entirety of the federal government. So crypto is going to feel it. Other industries are going to feel it. Crypto is definitely going to feel it if the administration flips, guys, because Supreme Court decisions, they survive with Democrats or Republicans. So, you know, Republicans might be excited about this. Trump might be excited about this, but I would I would imagine that Republicans are going to be very upset by this if there's a Democrat. We have always fired a number of election commissioners since this. So it's this isn't hypothetical. This is what the world will look like now. You know, yeah. And I think like, you know, we say this all the time on this pod, like reminding the industry that this sort of thing cuts both ways. A decision that gives a pro-crypto administration more influence and power over the SEC and the CFTC would give exactly the same authority to a future administration with very different policy priorities. So we always need to keep that in mind. Yeah, yeah. Which is something that there's a lot happening now where crypto in particular is happy about it. OK, obviously, the change in regulatory agency posturing is at the top of that list. But I still remain concerned about a potential scenario. And this is all like this is where I think a crypto GC really adds value is mapping out different scenarios. OK, like mapping out bull market, bear market, bad enforcement, good enforcement, M&A. Like there is a very real scenario that in a few years is going to be a reckoning, a levied at the CFTC and the SEC, and it's going to rain down on us. So I hope that doesn't happen. Yeah. It's a little graphic, like rain down on us. But you know, I was just thinking about the Lady Gaga song. Cause I feel like we need something a little lighter. This is getting better. It will change perspectives. It will change our perspectives. It will make our jobs more challenging. But hey, maybe at that point, hopefully at that point, we'll be insulated by things like legislation, DVD. Okay, we'll see. um so on actually not a happier note at all but an important note we have to have our ai segment of the week now we don't have an ai segment every week but there is certainly enough going on in ai and crypto in the mix of both that we've had a lot to cover lately jesse tell us the latest disturbing robot development i don't always want my stories to be disturbing and i feel like we sort of just ended that last one on a negative note, but I'm going to bring y'all down even further. So deep breath for this one, everyone. There's like really good, happy crypto good news at the end, guys. This is super important in my mind. So just take from this what you can. But there is a new Cambridge report out that came out this week that is just scary. And no one who cares about tech should be ignoring this because the TLDR of this report is that there's a brutal terrorist group, Boko Haram, that loves AI as much as the rest of us do. They've been using LLMs extensively for weapons troubleshooting, explosive device design, attack planning, and then reviewing attacks after to improve. So for anyone who doesn't know exactly or haven't heard that much about Boko Haram. They're the ones, and this was a big news story, that kidnapped 276 Nigerian school girls in 2014. Over 80 of those girls are still missing. They've also forced over 2,000 women into sex slavery, murdered tens of thousands of people, displaced more than 2 million. You might not hear about them a lot, but in that region, they're really brutal and dangerous. So the Cambridge report was based on actual interviews with former members of Oga Haram describing how AI has been used in the organization to make them more effective. And effective means murderous, right? So the clearest way to explain why this AI incorporation was such a big deal for them is to give you two frames split by seven years. So in 2017, the fighters talk about how they They captured these really powerful rifles that they wouldn have access to from the Nigerian military but they couldn get them to work They were able to Google they were able to get the manuals they were able to watch YouTube videos online but they couldn get the weapons to work right So they had access to some tech but it changed Fast forward seven years later and now it's very different. With those same weapons and many others that they're able to capture, they type in the identifying number of the weapon into a chatbot, and that chatbot is their co-conspirator, their co-terrorist and telling them how to use it, how to load it, how to service it. And the technical specialist, and for those who haven't worked in sort of terrorist illicit finance work, some terrorist groups are like super technical and have like a CTO essentially. So their CTO is an AI specialist now. And to me, this is all about like the before and after story of the AI world that we live in now. Dangerous information was always online. there was bad crap online. What changes the distance between having the information and being able to act on it? Because the more you understand agents and loops, the better you can get and making it work for you. And this was not just like one fighter here and there using a trap bot. They have decided to devote significant resources to build an industrial operation where they have specialist AI units, some of them who just sit in vehicles near the front, trying to figure out how to make the next move. So they are doing AI governance in a way that like a lot of startups should be doing, but in a horrible, like the worst possible way. And they're learning how to do all this through jihadist networks. So like terrorists can talk to each other and share information, and they were trained by other terrorists, right? So you may have heard that LLMs have these safeguards, right? Like if you ask about a weapon, it will say, no, I can't answer that. Those are super easy to get around. And so they, in the article in the report, which I highly recommend reading with maybe a glass of wine, I would talk about, I would look into what they did to work around it because there's a lot of examples, but essentially it's for a movie or they have different accounts or et cetera, et cetera. And I don't want to like turn this into AI panic porn. I don't, I don't know if that is like what the point of this is, because then we'll just sort of say robots are evil and move on with our lives because there's nothing we can do. But to me, it's like, we know bad actors are going to use technology. And we know they're going to use AI. The question is like, what does responsibility look like for AI, but also more broadly for crypto, like for neutral technology? So crypto has been dealing with this crap for a decade, right? Technology can be neutral. People can use it for bad. What do we do about that? There are still hacks. There's still DPRK. There's still lots of people getting scammed. And I want to give crypto some credit here because I think we've done some really positive work. We didn't ban shit straight out. Instead, blockchain analytics, screening, auditing bug bounties, like this work is continuous and it's not perfect. I know we've talked about that, but they are trying, right? And the lesson was never that like neutral technology needs to stop being neutral. Like that is crypto's lesson for AI. Like it shouldn't be Dario, even though, you know, I love him most of the time. It shouldn't be open AI, like making these decisions, like we can find a way to keep it neutral. But I do wonder, and this is where I'd love your guys's input, like is AI different? Because it's participating, it's a co-terrorist, it's a co-conspirator. And is more friction required in AI than in our other tech? And should we be thinking about incorporating friction back into our tools that we use? Because that was sort of the goal of lots of this technology. We hand over this data to you, And there's no friction. But now, like, it's so easy to say Boko Haram is so far away. Sure, I'm saying the word 4000 women forced into sex slavery. But that that's across the world, you know, like, let's just say it and move on with our lives. Like, to me, we can't build this tech and ask for this tech to be global and borderless, and then ignore what happens and the consequences across those borders. So I guess I'm just like sitting here being like, I feel like crypto has a pretty good narrative here. And maybe AI can learn from it a little bit, because we know there's no perfect lock, but there's it can't just be not our problem. Yeah, I think like, all of those things that you just asked, right? Like, what should the constraints be? What sorts of friction should there be? I think those questions are important, but I think equally important is who should decide, right? Like, I mean, I talk about this all the time when it comes to AI, but it's like, are we really okay with just these, like, I mean, they're private businesses at the end of the day run by, like, individuals, right? Should they be making these decisions? They're very consequential, like I always say. This does remind me a little bit of, I don't know if you guys remember, but it must have been like a decade or so ago when like social media like Facebook was being used to help facilitate a lot of like violence in parts of the world. And I remember this sort of brought up the exact same debates about, you know, technology and what is our responsibility, both as a society, but also with respect to the platforms themselves. Like what is our responsibility to make sure that the technology is not being used for that sort of stuff. And I think we've talked about this in the past, but if we haven't, it's important. But Section 230 is a foundational law from the 90s that shields websites and online platforms from liability for content posted by third parties. So it's going to make an attempt to do some regulation. And like it. Well, it gives them good Samaritan immunity to to remove bad stuff in good faith, which means like, OK, there's sex trafficking on Facebook. We know this. OK, but Facebook can't be sued for doing so, even if and Facebook is trying to remove that material. But they're clearly not getting it all. They're not even coming close, but they can't be sued because of Section 230. There is no Section 230, and Section 230 is controversial, like it may be over time at some point. But there's no Section 230 equivalent for crypto. I've said for years, if only there was, like from the chain perspective, that would be incredible for crypto. But the background of Section 230 is it was passed at a time when legislators actively wanted to support the Internet. And it doesn't work with financial regulations. Like, I think that's the difference, right? Like crypto is under financial rails where AI is really interesting to me. And I don't mean to interrupt you, but like where AI is really interesting is like it sort of sits closer to social media when you have the financial rails. But what you're seeing in like the UK, speaking of across the pond, came out with something this week or last week, the EU as well, about sort of regulating the financial aspect of AI and using that as like a backdoor. I don't know if we should call it a backdoor, interregulating AWS, Cloudflare, etc. And so that seems to be like a way in. I don't know if it's the right way in. But if you so just to take the other side of that, though, it's very easy to say crypto is more finance than, you know, the Internet or Facebook. But obviously, Section 230 applies broadly to the Internet. So there's so many financial applications. You could have also peeled off crypto to the underlying chains themselves and made it made a section 230 law exclusive to the chain. But we know that's never going to happen because the environment is different. The legislators don't want to immunize crypto from anything like this. So now we're here with AI. It's the same question. It's the same problem. There's no section 230 shield. So part of me thinks a lot of this is ultimately going to be resolved or not resolved, but improved by good old fashioned civil liability like and and will and are suing AI platforms. platforms were already seeing precedent being formed real time saying you facilitated X crime. You gave advice to my child who ultimately took their own life. You gave advice to this criminal who perpetrated this crime. So a lot of I think what's going to happen with the rails around this are going to be informed by good old fashioned suing. The plaintiffs, right? Like they get a bad wrap but sometimes that really is the only way to like get things to change we also i mean we talked about this on a previous episode about how the plaintiffs are actually pursuing these cases under like a products liability theory which i thought was super interesting but but i think we'll see a lot more of that huge i guess i just want to leave this with like plaintiffs can help Please. No, just regulated places that have legislation. Right. Boko Haram and their victims do not sort of have that side of it. So I just want everyone to pause and not just be like, oh, these are bad people using neutral tech, because that is true. But and then what? Like, let's just sit in that a little bit. It's such a tough question. It's such a balance because you always know any nascent industry, any new technology is going to be misused, but you can't suffocate it. So finding that balance like crypto has been trying to do that. AI is now doing that real time. And I agree with what was said earlier, where hopefully they'll learn lessons from how crypto is dealing with these risks. So we've had a very serious episode. And I'm just going to take a minute to end on a very happy, delightful piece of crypto good news. So this good news was actually brought to our attention by our good friend, Gary Redboard from TRM. We recently did a pod with him. this is the pangolin okay and i candidly was not aware of the existence of this animal until this post really they were blamed for covid briefly wait really sorry no i'm glad they're having a glow up with this story i mean i have to admit they do look a little bit like dinosaurs so keeping on theme with jessie's love and and our you know some of our other good news pieces. But OK, so it's actually crazy. The pangolin is the most trafficked mammal on the planet. So animal trafficking, they are critically endangered. Poachers kill them for scales used in traditional medicine. They're also poached for their meat. It's terrible. And what pangolins did is it really shined a light on illegal wildlife trafficking and trade worldwide. That trade, in the words of Aerie, runs on money. And increasingly, the illegal wildlife trade runs like that money moves on chain, on blockchains. So using blockchain technology, TRM, and I have to figure out if some of the other blockchain analytics providers are also doing this. I'll give them the benefit of the doubt and say I hope they're also helping with this incredibly valuable effort. PRM traced 15 million in crypto through a single Southeast Asia-based network moving tiger parts, ivory, rhino horn across Asia. And, you know, in doing so is actively assisting law enforcement on trying to, you know, improve the world for these critically endangered animals. And the financial side of this trade has really drawn little enforcement attention. but we all know that money talks, things come down to money, bad guys. It's the easiest way to find them. It's money. So good on CRM for protecting the pangolins and all the other wildlife. I do want to say that like, I had a few of these kinds of cases in national security realm and they are the most complicated money flow, money laundering that exists. and blockchain can really help with these kinds of cases. And so I am just really happy to see people taking this on because animals can't fight for themselves. Yes, yes. And I'm shook that pangolins were blamed for COVID too. I'm gonna start Googling that right after this. It was like a COVID rumor, but it wasn't. Leave the pangolins alone. They have it hard enough, okay? So that's it for us on Dex in the City. thanks for hanging with Jesse V and me so we'll see you next week on Decks in the City you