[REDACTED] 2024 | Regulating the Unregulated

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1. 0:01

   thanks everyone for for joining us um you know as you heard we got Mark uh from from proximity Labs also a founder of Lex Punk um and and a new exciting public advocacy initiative that he'll he'll talk about today um and and myself from the foundation so I think the logical place to start uh Trump was elected yeah what's going to happen so why don't we why don't we talk about the first 100 days it's a good time for some uh cautious optimism I think uh this is

2. 0:29

   this is the start of some something new for crypto in quite some time it's been it's been a tough few years here and I think um it makes sense for us all to like I said be a little bit cautiously optimistic now the first 100 days I think that we're going to see a lot of um focus on Personnel um we're going to see most likely Mark Auda the commi a commissioner over at the SEC um as an

3. 0:51

   interim chair most likely uh there's some Rumblings about who the new chair will be I've heard um the clo Robin Hood potentially we don't know there's other names floated out there but uh these are all you know good things um and we can really expect I think uh we don't know exactly what to expect but we know that the the the war on crypto is likely to end so um you like I said cautiously optimistic I think from what I'm hearing

4. 1:19

   we're going to see uh some some work on the tax front uh one thing that we want to make a push for as some of you might know is at least in the us there's a broker rule in tax that's that's um that's slated to be pushed out by the end of the year that would make um any kind of even non-custodial wallets and websites uh reporting for for tax purposes and obviously that's a big hurdle it's something that's difficult if not impossible for many in the space to do so we're going to be fighting that

5. 1:52

   hopefully we'll see a change over a treasury um with regard to some of those those tax Provisions that have been proposed uh so I would expect some movement on on the tax front yeah and you know we're talking about the enforcement agenda um you know countless you know tens hundreds of millions of dollars wasted um by by companies defending really the that that agenda it it's unclear you know what what cases

6. 2:18

   would be dropped um if any or voluntarily dismissed settled so on and so forth I wouldn't be so optimistic to see that just just yet um my you know sense is that it'll you know this will take a little bit of time to kind of push through perhaps coinbase being you know the one enforcement action that we all hope so and you know I've I've heard some Rumblings that uh in in the beginning at least that on the way out potentially between now and the end of the year there would potentially be even

7. 2:48

   more enforcement actions so there's there's a chance of that however you would hope that and I have been seeing well they said Jay Clayton did that right at the end with the xrp um action right so so look who who knows how retributive um the current share wants to be it seems like the Rumblings are that by the end of the year he's on his I'm seeing some 180s you know in in a lot of those positions so we're hopeful that there won't be new enforcement actions and like you said we're hopeful there will be some voluntary dismissals

8. 3:19

   or there will be some settlements that really don't um impact the the ecosystems in general but it's it's really hard it's really hard to say yeah so I mean maybe just very briefly what do we expect from a legislative perspective and when can we begin to expect it obviously we saw you know we had fit fit we've had lumus Gill brand I mean it's it's about time that there's some regulatory Clarity is this

9. 3:42

   a one to twoyear initiative is this a threeyear initiative I'd like to see a reset um you know you're going to have folks who want to push those those old bills uh use them as templates for new ones um I'm thinking there should be a reset we should go back to the drawing board we should focus on first principles um and what are those first principles I think you know the reason

10. 4:04

    that we're here right is decentralization disintermediation um trustless you know that's what makes the technology valuable it's what makes the technology special and those are the principles and features of the technology that I think we want to see policy makers respect and protect right so I think when we're crafting new policies we should be doing so rewarding and incentive I iing those

11. 4:30

    features of the technology and so there's a number of different types of you know um stacks of the technology and and and aspects of the technology that will need to be regulated so far we've really only seen the focus on uh centralized exchanges and listing and secondary sales that type of thing but you know the baselayer protocol there's there's that there's BSA which is the bank secrecy act onchain BSA um and

12. 5:00

    token taxonomy and then finally you know the centralized exchange looking at that and and how to regulate that yeah and when we say token taxonomy we mean you know the different types of tokens be it utility or or so on that's right now in the regime that we've been you know living under for the last you know four more years it's all Securities right and so every every token is is seen as a as a security but that's really not the case some um you know are fundraising

13. 5:30

    tokens and they are secure these tokens but many are not and many different types of tokens not not not legal advice marks marks marks but um right now I I want to just you know we talking about regulating the unregulated no better unregulated than um AI agents and and really um I guess open source AI um and a regulatory movement around the world I think just to kind of close the loop on

14. 5:53

    what the new Administration could yield for for open source AI I mean I thought I thought it was interesting in March you saw JD Vance after the Gemini controversy where Gemini was the the Google um AI models were you know propagating um inaccurate or you know biased content um uh you know he he tweeted out complaining that the the bias of models um you know was was was something that could only be solved with open source um and so I think it's

15. 6:24

    interesting that the VP um or the incoming VP has an Express and stated interest in in this area and I look forward to kind of seeing more um yeah yeah I think um open source and you know decentralized AI there will be a a push for that it'll be incentivized there's going to be a respect for it and uh you're seeing a lot of talk regarding propagating you know whether it's censorship or an agenda with regard to um Ai and and the results that you get so it'll be interesting to see really

16. 6:56

    how they address it I want to turn for a second actually the PSA which is an initiative that Mark is is working on and and maybe we can you know you can give just a quick spel about what it is and and why you think it's necessary and then we can kind of move to to talk about some of the issues that sure that you guys are thinking about sure well um you know as you mentioned earlier I I was one of the founders of of an organization called Lex Punk um that was

17. 7:20

    really a a builder and legal Community um looking to Advocate on behalf of decentralized um communities and of builders um and defi in particular and we saw a need for that in in um the industry you know you have you have a blockchain Association you have a number of different types of advocacy groups that are really acting on behalf of very large um incumbents or very centralized

18. 7:46

    actors um and and so on and so forth and that's great they're helpful um but we we saw a need for for that in the you know decentralized protocol space and decentralized Builder space and the the public State advocacy is pretty much an offshoot of that Lex Punk this is like the grown-up version of that where um Lex Punk was really um you know what what we did was was a lot of ground support a lot of getting the community together and and and

19. 8:15

    fighting different causes um you know with with the community public state is you know getting in the door actually speaking with the policy makers working with the policy makers drafting draft legislation um and and like I said earlier starting with base principles and getting them to really understand and educate them about the technology so that's what public State advocacy is about yeah so I mean number one it

20. 8:38

    sounds like a pretty opportune time uh to be doing that just kind of given the what we what we talked about I mean maybe let's take a step back I mean one of the kind of key issues is sort of this Market structure issue and maybe you could elaborate on on you know how PSA is is sort of approaching this differently because you know effectively one of the problems is no one's really tried to um I guess question the the approach

21. 9:04

    from bottom up and and that's one of the differentiators I think of the PSA approach it is uh the way that we view it is that protocols ones they're decentralized um they should be seen as public goods or critical infrastructure and and the way that you should that doesn't mean that they shouldn't be regulated it doesn't mean that there shouldn't be um you know protection um for users consumers um it doesn't mean

22. 9:29

    that there isn't a place for that however the way that you know we view it and what we would propose is that a different regulator would oversee this one like the FTC and that there would be a a regime regarding antitrust laws regarding this so we have something called vertically integrated centralized entities right and these would be entities that are actually pretty centralized that are involved in many

23. 9:55

    layers of the stack right so if they're if they're you know market makers while at the same time running RPC nodes while at the same time funding um projects and wallets while at the same time maybe even running a centralized exchange those would be the types of entities that should be regulated so you're regulating The Entity not the technology right and and entity and what you're trying to do there is you're trying to

24. 10:20

    avoid conflicts of interest you're trying to avoid antitrust violations and you're trying to um to have full transparency of you know things like self-dealing and and um a lot of the risks that are actually inherent in the industry as opposed to um focusing on risks that don't apply right so you know this is this technology is about disintermediating it's about you know you don't have the intermediaries that you typically have but what you might have is you know if you have these

25. 10:50

    centralized types of entities that are in each part of the tech stack you start it starts looking a little bit more like that so well how does this fit into this this notion of regulating the app not the protocol because you know look around see that that's kind of the common policy position of you know everyone from a16z to to others so you know what's I mean obviously we talked

26. 11:13

    about the FTC as a regulator versus you C SEC or cftc I think that's differentiated but then how does that fit into the wider rate the app or not the protocol it's similar but you know I mean some apps maybe maybe they should be it depends what you're really talking about um you know what I'm of is when we say regulate the app do we mean a front end do we mean you know merely a website that is translating code to be human

27. 11:38

    readable does that mean that we're going to turn them into uh Financial inst financial institutions and and have to abide by the types of uh regulations that financial institutions do are we going to treat them like Brokers I don't really think that that's appropriate for a website um so when when there's a push for regulate apps not protocols you know I do pause and and want to say well what's that actually mean in some instances that might be the case if you

28. 12:03

    actually do you're talking about an app that is a protocol that has a team um that's profiting and that has um you know asymmetrical you know uh powers and interests to to the user then yes but if you're talking about another decentralized protocol where there is no intermediary and you're really just giving access to users so that they can input into um a protocol and and transact freely I don't think that that website or you know app should be

29. 12:34

    treated as a financial institution and be bound by the same types of rules the banks would be yeah so I mean sounds like some need for regulatory Nuance um that I um I I I certainly hope we get let's turn directions maybe to to AI for a second uh you saw recently character AI uh which which got sued for wrongful death after uh for of teen effectively fell in love with the Daenerys Targaryen chatbot um character AI acquired by Google after um you know we'll see how

30. 13:06

    that case plays out but um where I mean number one I mean it gets number one question how how do kind of existing legal principles like say negligence which you know graft on to agent liability so let's just talk talk about that first or agent liability or just liability for AI like an AI chat bot even yeah I mean it's a wild it's a wild factual scenario it's tragic obviously kind of reminds me of like back in the 80s like Azie Osborne had a uh had a song and um and you know a

31. 13:39

    listener uh committed suicide you know thought that they heard in the song like shoot shoot shoot kill yourself something like that and there was you know a case about that and I think that it was ultimately dismissed if I recall um this isn't exactly the same there's some interaction go interaction going on but it's it's a really interesting question question regarding you know how far do negligence principles go um you

32. 14:04

    know should a developer be found liable for the actions of a AI agent um these are these are things that we're going to have to Grapple with I think uh you know first principle is obviously um consumer protection principles uh having important disclaimers disclosures terms of service um when when it comes to miners in particular um you know limiting the access if that's appropriate um in certain States you know you see the websites terms of service make pretty clear um with regard to Miners

33. 14:36

    And I think you there's a place for that yeah no I agree and I mean I think look if you if you don't have terms of service or use um as a sort of basic step you know make sure to just you know given the audience of of of sort of developers as well just consider having that and and and you know again not legal advice some type of um you know considering some type of entity protection or otherwise as you you know

34. 15:00

    um as you're deploying in in this space I mean I think you know maybe just turning to a second for you know we've obviously seen truth terminal um you know proliferate um and grow considerably and I guess you know um agent liability will continue to be borne out but I wonder um you know what what are the sorts of pre preconditions we need for a future where agents can interact with each other right as opposed to you know an agent human

35. 15:30

    interaction Mark and aby's legal a you know or not legal agents but but AI agents you know say financially transacting obviously that's a future IIA described there were elements that clearly require things like say dispute resolution between AI agents that um you know remain to be built out frankly should be built out first for humans um appropriately first um uh before we even

36. 15:53

    talk about AI agents although I suppose you know resolving disputes on chain you know um could be could be significantly easier and than than you know you know civil civil cases right maybe more well likely more efficient righted so um I'm I'm excited to see what that what that might look like I mean I guess you know thinking of a future of an HTTP like kind of agent interaction protocol if you were and and I know it's something that the foundation and else well not at

37. 16:24

    near AI foundation and and and elsewhere folks have been thinking about so really excited I wanted to just we've got two minutes so um I know folks may have questions so I wanted to just open it up to to the audience uh if there are any questions like don't be shy all right David well it seems like we're getting a little bit of in between you saw Legion right so um you know which is is is I mean and and they're it's not exactly

38. 17:18

    icos but trying to ensure sort of appropriate incentivization of people were participating in them and I yeah I mean look I My Hope Is that we see a safe harbor okay A Safe Harbor for token issuances and token sales for projects that are you know looking to be or working towards decentralization right so you know one thing that we've worked on is crafting a safe harbor that would

39. 17:44

    be palatable to The Regulators so that they can allow for that type of scenario so you know I'm hopeful I really am yeah and that and that proposal by the way has been been around for a while um you know that the Safe Harbor and um proposal I think that LE that's right yeah so so that that's at least the initial hope um and you know with with that the uh less need for us and uh less bills from your lawyers so um with that I think uh we'll we'll we'll we'll leave everyone today thanks for your chat thank you