The SEC's BIG Plans for Crypto ETFs & Tokenization Revealed with Hester Peirce

Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
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.

Speaker 2 (00:23):
So, Commissioner Purse, you mean the oranges in my house
right now are the supermarket are not securities?

Speaker 3 (00:28):
Because how I'm.

Speaker 1 (00:29):
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.

Speaker 2 (00:40):
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(01:41):
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.

Speaker 3 (01:58):
Great to see you, Tony.

Speaker 1 (01:59):
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.

Speaker 2 (02:06):
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?

Speaker 3 (02:23):
Is that right?

Speaker 1 (02:24):
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

(02:45):
have a chance to travel to DC and so trying
to hear their feedback.

Speaker 2 (02:49):
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.

Speaker 1 (02:57):
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.

Speaker 2 (03:13):
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.

Speaker 3 (03:21):
So that's really great to hear.

Speaker 2 (03:23):
Well.

Speaker 1 (03:23):
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.

Speaker 2 (03:31):
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
a bit about Project Crypto, what's the goal and some
of the recent initiatives.

Speaker 1 (03:44):
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

(04:06):
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

(04:29):
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

(04:50):
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.

Speaker 2 (05:01):
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.

Speaker 3 (05:07):
It's innovation.

Speaker 2 (05:08):
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.

Speaker 1 (05:28):
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

(05:49):
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

(06:10):
probably a lot of people in this space know. That's
kind of where the Howie test comes in.

Speaker 2 (06:15):
Absolutely, and again another question where I think I'm very
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

(06:36):
enforcement there are folks who have to handle that.

Speaker 1 (06:39):
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

(07:02):
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

(07:23):
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

(07:46):
it's the SEC and that's just not the case.

Speaker 2 (07:49):
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.

Speaker 1 (08:04):
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.

Speaker 2 (08:25):
Yeah, Yeah, that definitely makes sense. Now, another big guidance
you folks provided was liquid staking. Certain liquid staked activities
are not securities.

Speaker 3 (08:35):
That's huge.

Speaker 2 (08:36):
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.

Speaker 1 (08:47):
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.

Speaker 3 (09:10):
Got it.

Speaker 2 (09:12):
There was recent news that members of the House, a
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.

Speaker 1 (09:32):
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

(09:54):
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

(10:16):
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.

Speaker 2 (10:30):
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.

Speaker 3 (10:51):
Now it's completely different.

Speaker 1 (10:52):
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

(11:14):
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.

Speaker 3 (11:24):
Yeah. Absolutely.

Speaker 1 (11:25):
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.

Speaker 2 (11:39):
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.

Speaker 1 (11:50):
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

(12:12):
that you can invest, you can't take some time to
think about it. There'll always be something else you can
invest in.

Speaker 3 (12:17):
Oh for sure.

Speaker 2 (12:19):
Now, speaking of options and investing, I want to talk
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

(12:40):
other ETFs.

Speaker 1 (12:41):
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

(13:03):
to get access to some of these other types of ETPs.

Speaker 2 (13:08):
When you're we've had this conversation before, is the process
still there needs to be a futures markets.

Speaker 1 (13:15):
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.

Speaker 3 (13:25):
That's really great.

Speaker 2 (13:26):
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.

Speaker 1 (13:41):
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.

Speaker 2 (13:53):
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.

Speaker 3 (14:00):
I think the nineteen forties Act.

Speaker 1 (14:02):
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

(14:23):
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

(14:45):
it make you know, use use your judgment, think about
it before you buy products.

Speaker 2 (14:51):
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?

Speaker 1 (15:01):
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.

Speaker 2 (15:15):
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.

Speaker 1 (15:31):
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

(15:54):
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

(16:15):
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

(16:36):
disclosures right. You know, I really do urge people to
engage in good faith on that process.

Speaker 2 (16:43):
Let's talk a bit about the disclosure aspect, because I've
heard this over the years.

Speaker 3 (16:47):
I get it, but.

Speaker 2 (16:50):
You know, it goes back to maybe like the Ripple case,
where secondary market sales were will not a security.

Speaker 3 (16:57):
How do you I don't know.

Speaker 2 (16:59):
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.

Speaker 1 (17:13):
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

(17:35):
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,

(17:59):
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.

Speaker 3 (18:10):
As I said, Okay, that makes sense. So let's talk
about the ripple case.

Speaker 1 (18:16):
We can finally talk.

Speaker 3 (18:18):
So commissioner parts.

Speaker 2 (18:19):
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.

Speaker 3 (18:35):
Was that the crux of it.

Speaker 1 (18:37):
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

(18:59):
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.

Speaker 3 (19:19):
Sure.

Speaker 2 (19:20):
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.

Speaker 1 (19:36):
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

(19:57):
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

(20:18):
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.

Speaker 2 (20:26):
So, Commissioner Purse, you mean the oranges in my house
right now the supermarket are not securities because.

Speaker 1 (20:31):
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.

Speaker 2 (20:38):
Right, maybe I can tokenize it packages and say you
get ten percent return this year, right, all.

Speaker 3 (20:45):
Based on the packaging.

Speaker 2 (20:48):
So do you believe Do you think the how we
test gets updated or there's a new test for digital.

Speaker 1 (20:54):
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

(21:16):
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

(21:37):
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.

(22:01):
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.

Speaker 2 (22:23):
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.

Speaker 1 (22:38):
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

(22:58):
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,

(23:18):
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.

Speaker 2 (23:33):
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.

Speaker 1 (23:40):
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.

(24:00):
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,

(24:21):
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.

Speaker 2 (24:31):
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.

Speaker 1 (24:41):
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.

Speaker 3 (24:51):
So you know you mentioned the CFDC.

Speaker 2 (24:54):
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?

Speaker 1 (25:03):
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

(25:24):
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.

Speaker 3 (25:32):
That's great. Great to hear the agency.

Speaker 1 (25:33):
And that's what everyone can tune in. That's going to
be a public, perfect event.

Speaker 3 (25:37):
That's awesome.

Speaker 2 (25:39):
I want to talk about tokenization in twenty four to
seven markets commission on PERST because Brave.

Speaker 3 (25:44):
New World almost.

Speaker 2 (25:45):
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.

Speaker 1 (25:52):
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.

Speaker 2 (26:03):
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.

Speaker 3 (26:19):
Do you believe that?

Speaker 2 (26:20):
And do you see by maybe twenty thirty we are
in a full twenty four seven market.

Speaker 1 (26:25):
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,

(26:46):
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,

(27:09):
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

(27:32):
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

(27:53):
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.

Speaker 2 (28:02):
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.

Speaker 1 (28:13):
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.

Speaker 2 (28:34):
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?

Speaker 1 (28:51):
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

(29:11):
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,

(29:32):
then we could destroy the market before it has a
chance to grow.

Speaker 2 (29:37):
Oh.

Speaker 3 (29:37):
Absolutely.

Speaker 2 (29:38):
You know. One of the things that are being discussed
is AI agents being able to use crypto assets like
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?

Speaker 3 (29:53):
Yeah?

Speaker 1 (29:54):
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

(30:14):
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

(30:38):
what they're creating.

Speaker 2 (30:39):
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

(31:01):
smart and sophisticated.

Speaker 3 (31:02):
The collective IQ is.

Speaker 2 (31:04):
Greater than all of us and the smartest minds in
the human minds in the world.

Speaker 3 (31:08):
And there.

Speaker 1 (31:09):
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

(31:30):
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.

Speaker 2 (31:45):
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.

Speaker 3 (32:01):
Yeah.

Speaker 1 (32:01):
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

(32:23):
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

(32:45):
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

(33:07):
like regulated entities are treated similarly. And so I expect
AI to be helpful there as well.

Speaker 2 (33:13):
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.

Speaker 1 (33:25):
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

(33:48):
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

(34:09):
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.

Speaker 2 (34:31):
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
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

(34:52):
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.

Speaker 1 (35:01):
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

(35:22):
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,

(35:43):
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.

Speaker 2 (35:55):
Does it make sense, but the sec to put out
guidance on this or the existing laws covers I.

Speaker 1 (35:59):
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

(36:20):
can engage, but maybe guidance will be necessary because, as
you note, it is it is quite a trend.

Speaker 2 (36:27):
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?

Speaker 3 (36:35):
Hey do this stock arbitrage? YadA YadA.

Speaker 1 (36:38):
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

(37:03):
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.

Speaker 2 (37:21):
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.

Speaker 1 (37:42):
I'm not weighing in. We'll see what happens.

Speaker 2 (37:46):
You know. Go back to the bubble item. I want
to get your perspective on this, and again, every market.
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

(38:08):
to step into. I know that's a fine line.

Speaker 1 (38:11):
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

(38:35):
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

(38:57):
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

(39:17):
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.

(39:40):
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.

Speaker 2 (40:00):
Yeah, you know, it's almost like human beings though we
can't help ourselves.

Speaker 3 (40:05):
We're speculative beings.

Speaker 1 (40:07):
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

(40:27):
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

(40:50):
have to have to go into this soberly.

Speaker 2 (40:53):
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.

Speaker 1 (41:05):
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

(41:28):
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,

(41:48):
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.

Speaker 3 (42:03):
For sure.

Speaker 2 (42:05):
I forgot to ask you about the Genius Act and
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.

Speaker 1 (42:20):
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

(42:41):
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

(43:03):
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.

(43:27):
But there will be a lot of interaction, I think
between stable coins and the markets that we regulate.

Speaker 2 (43:35):
Question just came to mind, and I don't know this
in walls the sec or not, but I love to
get your thoughts.

Speaker 3 (43:41):
Would these big trad fi institutions coming in bank stock exchanges.

Speaker 2 (43:45):
There's obviously a competition happening with the crypto native startups,
and how do you find that balance or it's the
free market and whoever wins.

Speaker 1 (43:52):
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

(44:14):
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

(44:38):
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

(45:02):
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

(45:23):
in a way that makes sense.

Speaker 3 (45:25):
It's fascinating.

Speaker 2 (45:26):
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.

Speaker 1 (45:39):
Well, but I think, you know, I think it will
be interesting to see how the competitive landscape shakes out.

Speaker 3 (45:45):
Sure.

Speaker 1 (45:46):
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

(46:09):
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

(46:32):
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

(46:54):
better or does the market prefer the traditional way of
doing things. That's up to the market to decide.

Speaker 2 (47:00):
Yeah, well said you know something recently Sandy call Franklin
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

(47:21):
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

(47:41):
perspective as well? People are going to go more wallet
base and move away from the traditional institutions.

Speaker 1 (47:46):
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

(48:07):
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

(48:29):
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.

Speaker 3 (48:50):
Yeah.

Speaker 2 (48:50):
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.

Speaker 3 (49:07):
If you weren't working at the SEC, what do you think.

Speaker 2 (49:09):
Your ideal day job might be or what would you
be doing?

Speaker 1 (49:13):
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.

Speaker 3 (49:27):
And you know it's funny. I'll tell you a funny story.

Speaker 2 (49:31):
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.

Speaker 1 (49:40):
See that's good because you'll be able to get all
the benefits of her baking.

Speaker 2 (49:44):
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.

Speaker 3 (49:57):
Thank you, Thanks Tony.

Speaker 1 (49:58):
I've enjoyed our conversations over the years.

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