"I apologize", SEC Commissioner Hester Peirce on Crypto's New Rules

0:00 [on-hold music] Welcome to another episode of 51 Insights. Today, a, a live session with the one and only Commissioner Hester Peirce. Hester, welcome to the show. Thanks, Marc.

0:18 It's great to be with you, and I, of course, have to start out with my disclaimer, which is that my views are my own views as a commissioner, not necessarily those of the SEC or my fellow commissioners. Yes.

0:27 Thank you for that. And before we start, I actually wanna do a short introduction for everyone who's joining us today.

0:33 In 2018, when the SEC rejected the Winklevoss Bitcoin ETF, one commissioner published a blistering dissent that went viral overnight. Her Twitter followers went from thousand seven hundred to ten thousand in a few hours.

0:47 The crypto community gave her a nickname, the Crypto Mom. She told them to stop. For the next six years, she dissented. She wrote satirical screenplays in official SEC documents.

0:59 She wore protest T-shirts during commission meetings. She quoted the Cypherpunk Manifesto from a government podium. She told her colleagues repeatedly that regulation by enforcement was destroying America's innovation.

1:11 They outvoted her every time. Then the administration changed, and the woman who spent half a decade as the SEC lonely dissenter became the architect of its entire crypto strategy.

1:22 She now leads the Crypto Task Force, co-authored Project Crypto, and just this week submitted token taxonomy to the White House that could define which digital assets are securities under U.S. law.

1:34 Her term technically expired. She's hinted she won't seek reappointment. She's racing against the clock, and she's my guest today.

1:42 Uh, today we're gonna find out whether the rules you're building can survive your departure, and I'm delighted for this conversation today. Well, thanks for having me. It's great to be here.

1:52 So you quoted the Cypherpunk Manifesto from the SEC podium. You said the government shouldn't be an uninvited stranger in people's financial houses.

2:01 H-how do you go to work every day for an agency whose entire model depends on intermediaries, disclosure mandates, and actually the exact surveillance infrastructure you're publicly arguing against?

2:15 I think that having the opportunity to shape policy in the United States is a huge, it's a huge privilege, and it's one that I've been really blessed to have now for the past eight years.

2:26 And I think that, you know, sometimes people look at me and they say, "Well, why are you a regulator, Hester? Sounds like you don't like regulation."

2:33 My view is there's a place for regulation, but there's also a place for freedom.

2:39 And we h- we have to figure out how to marry those two things together, and it's really important for us to be thinking about that every day as regulators. We have a mandate from Congress, which we have to fulfill.

2:52 But given that we're an American regulator, we also are informed by the Constitution and by the principles of, um, freedom, individual liberty, and the ability of people to make choices for themselves and their families.

3:05 And so I actually find it to be invigorating to be able to try to bring those two things together.

3:10 Now, as you point out, the, the SEC really is a reaction to the fact that our financial system is full of intermediaries, and sometimes those intermediaries do things that are harmful to their clients, lie to them, they might take their money, they might be careless with their money or their assets.

3:27 And so there's a regulatory framework that's grown up to protect investors and to protect customers of broker-dealers, investment advisors, and so forth.

3:36 And now we're being confronted with a technology that enables people to do more things without intermediaries.

3:43 And so it is a little bit of a new challenge for a regulator that was really designed to deal with intermediaries.

3:50 But I think that, again, it's kind of an opportunity to say, how do we offload some of the regulatory responsibility to this new technology?

4:00 Um, and where do we still need to have the regulation in place because the intermediaries are actually still there?

4:07 And, and so I think it's just, it makes the job more fun to have these challenges 'cause you're really trying to figure out how does the regula-regulatory framework fit in this new paradigm.

4:19 We, we want to make sure that we're achieving the objectives that Congress laid out for us, which is protecting investors, keeping up the integrity of the marketplace, and, and facilitating capital formation.

4:30 And so, so that's something that we're, we're doing, but we're doing it in light of the new technology.

4:35 Two years ago, you stood at ETHDenver and you said, "If someone had told me I'd be standing at a crypto conference with the chairman of the SEC, I would have thought they were hallucinating."

4:46 So you weren't hallucinating. For the executives and allocators listening in today and who hear Project Crypto for the first time or aren't actually sure what, what it covers, what is Project Crypto?

4:59 What has it produced so far, and what is still coming? Yeah.

5:03 Well, it was a fun event a couple weeks ago when the chairman and I were standing there at ETHDenver, and I think that's one of the real joys of this, of this past year, has been the opportunity to work with the chairman, first acting chairman, Marc Uyeda, and now Chairman Atkins for, for most of the past year, who really care about getting crypto regulatory policy right.

5:26 And so the chairman's Project Crypto is about providing some clear guidelines about what's, what lies outside of the SEC's jurisdiction, what lies within the jurisdiction, and then how regulated entities in our jurisdiction can engage with tokenized securities and other tokenized assets.

5:45 I think adding a richness to this, to this project is the relationship with the Commodity Futures Trading Commission, which is now being headed by, um, the former chief counsel of the Crypto Task Force, Mike Selig.

5:59 And the, the project intends to help people in the industry figure out who their regulator is and then figure out what the regulation looks like.

6:09 And, and then I think we will all be in a better place where people who are trying to build things can just build things, understanding what the framework is and figuring out Where they wanna fit within that regulatory framework.

6:23 Um, if, if you are trying to do tokenized securities, obviously you'll be within our space, but many crypto assets are not securities, and so that activity will be within the CFTC's space.

6:36 And of course, this is all done against the backdrop of the legislative efforts to come up with regulatory clarity.

6:42 The CLARITY Act negotiations are ongoing, but I think having that legislative framework in place will just add a, a durability that will make people even more confident to build here. Mm-hmm.

6:55 Yeah, speaking about the CLARITY Act, two things h- happened this week. The first is the SEC submitted its token taxonomy to the White House.

7:03 The token taxonomy outlines how certain crypto assets and related transactions could fall under federal security rules.

7:10 And the second thing is, uh, uh, that happened not this week, but in the last week's CLARITY Act stalled in the Senate because, uh, the, the banks don't wanna have the stablecoin yield compromise.

7:22 What was that submission to the White House this week, and is the SEC now building a regulatory framework because C- Congress can't?

7:31 No, we have authority already under our existing securities laws, and that's something that we've been working with over the past year. The chairman has, has alluded to the, the taxonomy in speeches, for example.

7:44 And so we're really just looking to provide, to flesh out how we're thinking about the taxonomy in light of the laws that we already have.

7:54 And so it really is a parallel track as opposed to saying we're trying to replace what Congress is doing. No, you know, that, what we're doing, I think, aligns very, very nicely with what they're working on.

8:06 And can you just outline that for us a little bit? What, what do you define in that taxonomy, and what's- Well, I'm gonna, I'm gonna say- Yeah...

8:13 you're gonna have-- I, I point you back to a, a speech that the chairman gave, and I, I don't remember when that was, but earlier, well, I guess it was in twenty twenty-five, um, he gave a speech kind of outlining a taxonomy.

8:24 But I think you should really hold on and, and see it when it comes out, which, which I hope will be soon.

8:31 You also famously said that the crypto road trip should be more enjoyable and less risky, and when the crypto task force launched in January twenty twenty-five.

8:41 Now we're a year in, are we on a highway or still stuck in traffic? The highway. Highway? Um, I think that we are on the highway. There have been some,

8:56 I would say, I wanna say the word Stau, traffic jam [laughs] sometimes, right, that have slowed us down. So, you know, we, we are making progress. Everything takes longer than one would hope.

9:09 But the task force really has managed to, I think, get a lot done. Um, and, and it's not just the task force at the, the SEC.

9:17 We have a dedicated group of people on the crypto task force, but we're working with staff all across, across the agency, and people have been working very hard.

9:27 The agency has a lot of priorities, but a lot of effort has been spent around crypto. You've seen that in statements that have come out, staff statements about things that don't fall within the SEC's jurisdiction.

9:39 You've seen that in no action letters that have come out, and you've seen that in statements like we, we have a statement on tokenization that came out recently that I think really helped people understand how we're thinking about things.

9:51 You will see that in the, in, in, the, the taxonomy that's, that's coming out, where we'll help people understand how we're thinking about what an investment contract is when it ceases to, to travel with a token.

10:04 So I think that you're seeing that work. Would I like to see rules done already? Would I like to see more things already finished? Of course, I would because I'm an impatient person, but we are making a lot of progress.

10:18 Yeah, you're, uh, an impatient person, but you've also been with the SEC for a long, long time, and you've seen how the SEC evolved from, uh, almost an anti-crypto stance a couple of years ago to now really proactive in bringing crypto regulation to the US.

10:36 How have you personally experienced that shift, and what do you think was the big unlock on the SEC side? How do, how have those internal discussions changed in the last one or two years? Yeah.

10:49 Well, and I appreciate your framing it that way because we-- I, I do think we went from, as an agency, from being anti-crypto to not pro-crypto, but proactive in the sense that we're trying to get to clarity.

11:00 We're not trying to put our thumb on the scale in favor of any particular asset or even any particular technology. We wanna open the doors so that the market can decide which assets and which technology it wants to use.

11:11 So that has been a very exciting transformation because a regulator should never be in the position of

11:18 trying to shape how the market develops in the sense of which products or which technologies it wants, but rather we should be in the, in the position of a neutral arbiter that is trying to keep the regulatory barriers low enough that new competitors can come in who, who then may reshape the industry.

11:36 But we wanna make sure that that playing field is dynamic, that people can come in.

11:41 And so the change happened when the administration changed, and we got new leadership at the top of the agency who really wanted to take a more proactive approach.

11:52 And I think as I've been really pleasantly experiencing, the staff at the agency has, has wanted to grapple with these difficult issues for a long time, and now they finally have the opportunity to do that, and they're working very hard to, to grapple with complicated technical and legal issues.

12:11 And so that's just-- it's been very exciting and invigorating. Uh, I wanna talk with you a little bit about legislation as well, and particularly the, the GENIUS Act and the CLARITY Act.

12:21 The GENIUS Act was the, the big act of twenty twenty-five that unlocked stablecoins, uh, in the US. From your point of view, what questions did the GENIUS Act answer for you, and what did it leave open?

12:35 The Genius Act was very important in laying the groundwork for stablecoins and, and so stablecoins are very important in DeFi, for example.

12:45 And, and so I think that having that legislative clarity around what a payment stablecoin is is very important.

12:52 Many of the issues yet to be resolved through regulation are outside of the SEC's sphere because they really deal with-- the banking regulators are, are writing those rules.

13:04 We still are working with our entities that we regulate as they think about how, how they can use or work with clients who are using stablecoins.

13:14 And so, you know, that's an area where, where we're working to provide clarity to, uh, to them. Mm-hmm. And the Genius Act also explicitly says compliant stablecoins are not securities.

13:27 Does that actually resolve the jurisdictional question between the SEC and other regulators? Or are they still somewhat in gray zones where the SEC's authority could be asserted? No.

13:38 I mean, I think that that-- getting the, the legislative backing for a position that we already had, which is that, that payment stablecoins would not fall within our jurisdiction, I think that was very helpful for us.

13:49 It was very helpful for industry as well. So I don't think that the-- there's, there's not really a gray zone there. Yeah. Okay.

13:57 So let's talk also a little bit about the CLARITY Act, uh, the CLARITY Act that's stalled in Congress right now. Crypto firms have been waiting for years for market structure legislation.

14:08 If CLARITY passes, is there a risk that it arrives too late, that the market has already adapted around the ambiguity in ways that make the legislation less relevant? No.

14:20 I mean, I think that it's a big undertaking, and it- Yeah... you know, I've always been impressed that, that, um, Congress has taken it on and, um, the House has been, has, has obviously come up with their version.

14:35 The Senate's working on its own version. But these issues are really hard, and it's not surprising it will take a long time.

14:43 Getting it right is important, and I think if Congress can do that, then it will really form the basis for this sector of the economy for many years to come.

14:53 And so, yes, we're all eager to get things settled as quickly as possible.

14:57 But as I just mentioned, I sometimes am impatient that things aren't moving faster here at the SEC, and I'm sure people working on the CLARITY Act feel the same way in Congress.

15:07 But these things do take time, and you do need to get to the right place.

15:11 And so I think that that progress continues to be made in Congress, and I'm looking forward to, to their being able to get to a final product, which, which I, I expect to happen soon.

15:22 Yeah, you, you've, uh, lived through, uh, many phases in crypto. You've seen the rise of NFTs and, uh, rise of DeFi and lots of different innovation and phases that we lived through in the past ten years.

15:36 And in the last two to three years, we also saw a, a president and an administration that almost weaponized this technology for their own advantage. How

15:48 did that political involvement of the Trump administration change the view on crypto of regulators, change the view on the discussion you have at the SEC on whether this technology is something that's actually beneficial for America or something that we should treat with caution?

16:10 Yeah.

16:10 Well, I mean, as I said at the outset, I, I speak for myself, and I think, um, you know, I appreciated in the introduction you mentioned that I've been thinking about these issues now for a long time, and my views really haven't changed in the sense that what we're trying to do is not pick technol- technological winners or losers or product winners or losers.

16:30 We're just trying to get to a place where we're not saying just because you call yourself crypto or just because you run on a blockchain, there's, there's gonna be a negative implication of that. It's like anything else.

16:42 We wanna give you the room to prove to customers in the marketplace that you have something worthy of them spending their time and money on.

16:53 And if you can succeed in doing that, that's, you know, that's the-- that's wonderful. And we, we wanna make sure that there is the regulatory framework to enable that to continue.

17:06 And so having, having an administration that is supportive of developing those guardrails for the industry, I think is, is encouraging.

17:17 I would say that some of the problems that we've seen that have been so painful for so many people have been a result of a bad regulatory approach.

17:28 Um, and it, you know, some-- things like that really bring home to a regulator like me the consequences of getting decisions wrong. We should have tried to tackle these problems using regulation.

17:41 Instead, we tried to use a one-off enforcement approach, which led to it being easier for bad actors to do bad things and harder for good actors to do good things. And the consequences were really, really bad.

17:55 And so I'm hoping that now we can, we can flip that, and we can make it easier for the good actors who are trying to build interesting and good things and make it more painful for the bad actors who are trying to rip people off.

18:10 And there are a lot of those people, and so we have to, we really have to be able to spend our resources and time going after the bad people, um, and, and letting the good people do their, their good work with the regulatory clarity that we're developing.

18:26 Yeah. And, and I mentioned in the introduction there's a lot of personal involvement from your, from your side to make crypto part of the American technology stack and part of the financial system.

18:37 Something I mentioned is the- Surveillance state. Can you just elaborate on that a bit? What is, what is it personal motivation to bring crypto to America, and how does that align also with your personal values?

18:52 Well, again, I mean, my goal is to, is to maximize people's ability to make choices for themselves and their families. And so I'm not, again, putting my thumb on the scale of any particular technology. I do care.

19:06 I, I love this country. I care, I care a lot about this country.

19:09 I think what makes this country so wonderful is it really brings people together who care about freedom, about the dignity of each individual person, of the importance of each individual, and the unique ability of each individual to contribute something to society.

19:29 And so that's what binds us together as Americans. And so I wanna make sure that the regulatory state reflects and respects that. And

19:43 over time, we have-- we as a society have relied more and more on the financial system to surveil American citizens.

19:51 And I have pointed out that I think some of that is inconsistent with what we-- w-with our fundamental principles and what we allow in other parts of our lives.

20:02 And so I'd really like us to take a hard look at how we're doing surveillance in the financial system. I'd like us to, to rethink that. And it's, it's difficult, right?

20:11 Because we wanna make sure that we're balancing the really important objectives of protecting our citizens and protect-protecting our nation.

20:20 But part of protecting citizens is really elevating their ability to keep their own lives private. And so

20:27 I, I, I care a lot about that because I care a lot about this country, and I think this-- I do think that this country is extraordinary and different from any other place.

20:37 And so I wanna keep us that way, and that's really what motivates my concern on issues like this.

20:43 And I think the value of a technology that allows you to disintermediate, that allows you to have more control over your assets and over your data, um, is, is really can be very helpful in, in reclaiming some of that territory.

21:02 Now, I wanna underscore that I don't think having intermediaries is bad.

21:06 There's, there are a lot of good reasons why someone might wanna rely on someone else to help them make financial decisions, to hold their assets, you know, to, to help them make trades or whatever it is.

21:18 There are-- there is a place for intermediaries.

21:21 But I, I do think that this is a moment when we can say, "Let's look again at how we've constructed this, this surveillance apparatus, and let's figure out if we have the balance right, right."

21:32 And this is a moment we can do that. Yeah. So surveillance apparatus. Some people would say that crypto was created for the exact opposite because crypto is transparent. It's on a blockchain.

21:46 Bitcoin transactions are on a Bitcoin ledger, transparently stored forever. Everyone can look them up, um, on Ethereum as well, on many public block-blockchains, actually. Isn't this the exact opposite of privacy?

22:01 And doesn't it, doesn't this allow a, a state or a government to surveil their citizens even more than in the traditional financial system that we-we've been used to? Yeah, no.

22:12 I mean, that's, that's a very good point, and I think that people sometimes forget that about the technologies. The transparency is one of the values of it, but it's also one of the perils of it.

22:21 And so that's why people are working on privacy innovation to figure out how you can layer on privacy on top of, top of the technology.

22:31 And my point to my fellow regulators is that we ought to embrace those privacy technologies because they enable Americans to use crypto in a way that's safe. And we want people to be safe.

22:45 We want people to be, uh, we want privacy protection to be the norm. And of course, again, we have to work on ways to enable the government to get information when it needs it to carry out its functions as a government.

23:01 So we want that to, to be able to happen. But the presumption should be that people are protecting their privacy.

23:08 Yes, I mean, it's great you can get paid in crypto, but if everyone can see how much you get paid, that's a little awkward. And yes, it's great you can donate to organizations using crypto.

23:19 But again, if everyone can see who you're donating to, that's a little awkward.

23:23 And as Americans, we certainly don't wanna assume that that's gonna be the culture where we, we create this idea that everyone gets to see everyone else's transactions.

23:34 So privacy tools are being developed, and they have a real function.

23:38 And I think as they get married with this technology, they can again help us have that conversation about the importance of privacy and the role of government in protecting Americans' ability to protect their own privacy.

23:50 Another big narrative in crypto is equality and making the financial system more accessible, partly through disintermediation, partly through decentralization. And part of that narrative was meme coins.

24:05 Meme coins were big last year, and they were big for many reasons. A lot of retail customers or traders participated in that. And some would say meme coins are a way for retail users to participate in those upswings.

24:20 Other would say that's a total scam and is a way for people like the Trump family, for example, to take advantage of normal financial market participants. What's your take on that?

24:33 Well, so first, I think it was important for us to tell people that the SEC is not the regulator of meme coins generally.

24:41 You can take lots of things that aren't securities, and you can put them in transactions that are securities transactions. But by and large- These assets are outside of the SEC's jurisdiction.

24:53 And so I think that message is very important because that means you're not getting the protections of the SEC. It's a good reminder for people to be very careful when they buy these things.

25:04 As I've been saying throughout this, this conversation, I'm very much someone who believes that people should be able to make choices for themselves, and that includes choices of buying things that I myself wouldn't buy.

25:15 People have lots of reasons for doing things. Sometimes it's entertainment, sometimes, you know, they wanna be part of a particular cause or whatever it might be, and, and that's fine. People can make choices.

25:28 But it is really important, and I think as a securities regulator who talks to a lot of people who have lost a lot of money and who have been really hurt, it is really important to remember fundamental lessons about when you buy something, how much are you prepared to lose?

25:43 You should always be thinking about, can I afford to lose this?

25:46 If you're telling yourself that you're gonna become a, a, a millionaire overnight because you bought XYZ thing, whether it's a security or a non-security, you ought to check yourself there.

25:58 You ought to maybe sleep on it, because usually when something is too good to be true, it is not true.

26:04 And so I think these basic lessons of thinking about what it is you're trying to achieve in your life and whether the thing that you're buying can be part of achieving that, you know, those are, those are just really basic lessons people ought to be thinking about and applying in all areas of their lives, whether it's buying meme coins or buying securities.

26:23 Mm-hmm. Um, Hester, I also wanna talk with you about something else, uh, something that you introduced this month. That's the 100% to 2% stablecoin haircut.

26:34 Uh, that's a guidance on qualifying payment stablecoins, putting them on par with money market funds. Can you unpack that for us very briefly? What was that all about?

26:44 I, I think it was just recognizing that stable, stablecoins, uh, as they're constructed, uh, you know, with the backing that they, they have, it makes sense to, to haircut them, um, not 100% as, as had been, um, the, the expectation before, but rather a 2% haircut.

27:05 We're trying to, we're trying to match reality to, to, um, to haircuts, right? To what haircut makes sense.

27:13 The, the expectation is that broker-dealers are going to want to interact with stablecoins because their clients, their customers are going to want to.

27:23 And so it's really just a recognition that stablecoins are going to be used, and let's have a realistic approach.

27:30 So that was staff, staff guidance, but we're thinking more generally about how we can help regulated entities as they try to interact with stablecoins.

27:40 You also had a no netting catch in the new rule, meaning broker-dealers can't offset long and short-term stablecoin positions. That could limit how useful this is for sophisticated trading desk.

27:51 Was that a deliberate constraint, and is there room for, to revisit this? As I've said with n- with much of the work of the task force, we're really trying to do things iteratively.

28:02 And so if people think we didn't go far enough, if people think we went too far, come talk to us. We are, we are always open to further steps.

28:11 We're open to reconsidering decisions we've made if, if you think we've, we've gotten it wrong. Um, but so that's the kind of thing that we're happy to, for people to come and talk to us about.

28:23 All right, so let's talk a little bit about Project Crypto. Uh, Project Crypto was formally announced by Chair Atkins in July, 2025, uh, the day after the president's working group published its digital asset report.

28:35 Chair Atkins described that report as the blueprint to make America first in blockchain and crypto technology. That's obviously political framing.

28:45 Now, how do you make sure that the Project Crypto stays legally durable and institutionally credible beyond the current administration, especially given how the SEC's posture flipped from Gensler to Atkins?

28:57 Well, a couple things. One, and we talked about legislation, and I think having a legislative backbone for all of this will be helpful in making it durable.

29:06 The second thing is trying to get to a place that is consistent with commercial reality.

29:13 It's also con- consistent with protecting investors, so really getting to a sensible regulatory place, I think, will help with durability.

29:21 And that's why we have really made such an effort to seek input on what we're doing and to encourage people to engage with us and, and help us think through difficult problems.

29:31 And then the, the third thing I would say is really on you, the industry, which is to build things that people want and need because when you do that, it's much harder for a subsequent administration to come in and try to use regulation to take it away.

29:47 You know, you really want to create the environment in which people are encouraged to spend their time and energy thinking about what does the world actually need? What do, what do people want?

29:59 And building to respond to those needs. That, I think, will definitely contribute to durability. Yeah.

30:05 So one of those things was definitely the Genius Act that was passed last year, and this caused a proliferation of stablecoin projects in the US.

30:14 The White House and, and some economists argue that stablecoin growth, uh, will organically generate demand for US Treasuries because they need to be partly covered with U- US Treasuries.

30:25 Uh, David Sacks, the cryptostar, has even suggested it could push long-term interest rates down.

30:30 Do you find that argument compelling, or, or does it concern you that stablecoin policy is being shaped partly by debt management goals?

30:37 Um, well, I mean, the benefit of being a securities regulator is that I don't have to weigh in [chuckles] into those conversations at all, and, and I leave it to people who are, who are much better equipped to, to think about those things.

30:50 I was surprised that there wasn't greater interest even earlier from prior administrations in stablecoins because of some of these factors, but yes, that's, that's far outside of my expertise.

31:03 I mentioned it earlier in our conversation You lived through many innovations in crypto. Some of them include NFTs, RWAs, they might just be still coming, DeFi as well.

31:15 How do you look at all those new technologies, particularly NFTs and, and DeFi? Yeah. Um, well, again, I think that it's not my job to try to figure out where innovation is going to happen.

31:30 You know, sort of we were just talking about stable coins, right? I mean, I can...

31:33 I think that seeing the dollar proliferate through the form of stable coins, that's, that's really interesting to see, but again, it's up to the markets to decide is that something that they're interested in.

31:45 But when it comes to something like NFTs, we've seen a lot of iterations of NFTs, and some of them have taken off, some of them not so much.

31:54 Now, I think people are thinking about using NFTs for lots of different purposes, but maybe it's not gonna be as flashy as some of the prior iterations were.

32:03 My goal really is just to build that framework, let people figure it out, figure out how useful it is. DeFi, the same thing.

32:11 I mean, the ability of people to transact peer-to-protocol is a very powerful concept for some of the reasons that we've been talking about today, which is you can do things without intermediaries that before required intermediaries.

32:26 You can participate in something that is, is governed by a protocol, so you know exactly what to expect. It's not governed by human discretion, and so there are advantages to that.

32:36 There are other situations where you might prefer to have a human discretion element involved, and so people may decide, "You know what? I don't wanna use DeFi."

32:45 Or, as people have talked a lot about, you may have the DeFi mullet situation where you have the traditional financial infrastructure in front, but they're using DeFi in the back.

32:56 And so my goal is not to decide whether people go in one direction or another, but just to make sure that we're not using regulation to prevent people from going in the direction that they think makes the most sense.

33:12 And so when I think about any of these technologies or asset classes, I'm really trying to be a... not, not put my thumb on the scale, but create the environment in which people can choose.

33:24 And I think that's what you've seen as the regulatory framework has become...

33:30 As the desire for regulatory clarity has become a priority for regulators, you've seen the market saying, "Yeah, we wanna try some of these things.

33:39 So we wanna try tokenized securities now that that's actually a possibility. We wanna try stable coins now that that's actually a possibility.

33:47 We want to, um, see what we can do with NFTs now that we know that the, the administration is, is, is not going to push back on that.

33:56 Um, it- we, we want to try using De- how does that integrate with the financial system?" And so we'll see where it all goes. Hester, I also wanna talk with you a little bit about the future and, and what's coming.

34:10 And the first question is, like, if you look back over the last years, particularly the Gensler administration, what's one regulatory mistake that you're determined not to repeat now going forward over the next couple of months?

34:27 I mean, I think that we all can learn from past mistakes, but I think one, one rule that actually was not crypto-related that the SEC put out there for comment and got a lot of negative comment on was a rule that was designed to get at the use of artificial intelligence.

34:47 It ended up being broader than that. It ended up dealing with a lot of technologies.

34:51 But so it dealt with regulated entities, broker-dealers, and investment advisors' use of these technologies, and it was crafted in a way that would've made it very, very difficult for people to use technologies because they would've had to go through so many hoops to use it.

35:09 So I view that, and it ended up getting a lot of negative comment, and it didn't move forward.

35:16 But I view that as a cautionary tale for us because there can be very well-intentioned efforts to, to gate the use of technology, but those well-intentioned efforts can end up actually hurting the people you're trying to help if people [chuckles] then make the decision, "Hey, you know what?

35:32 We're just not even gonna use, try to use this technology." So I really hope that we don't repeat that as we go forward on this crypto project of providing clarity.

35:43 I don't wanna be in the position of preventing people from using technologies that could actually help them. That's obviously always easier said than done, but that's, that's certainly a cautionary tale.

35:55 Your term technically expired in June. You said you want to move fast. What are the things that you still wanna finish before your term officially ends?

36:06 I mean, I'd love to get a lot of things done, whether it's a rule on transfer agents that, that also takes into account the role that blockchain can play, or whether it's definitional clarity which, as you noted, you know, the taxonomy, getting that done, whether it's getting a rule out there to enable people to do capital raising using tokens, whether it is greater clarity around...

36:31 Well, we've talked about the... and it, we didn't talk about it today, but the, the chairman has talked a lot about an innovation exemption to allow people to do trading of tokenized securities.

36:41 Whether it's helping broker-dealers and investment advisors think about how to custody these assets, how to, how to help their customers and clients as they, as they want to invest in these, invest in and trade these assets.

36:55 So I have a lot of things I would love to get done, but as you noted, my time is, uh, ticking. My clock is ticking. Mm-hmm. Yeah.

37:02 And, Hester, you just mentioned innovation exemption, and I actually wanted to ask you about that, too. You identified the classic chicken-and-egg problem.

37:10 Issuers won't tokenize if there are no trading venues, and trading venues won't build if there is nothing to trade. Does the innovation exemption actually solve that?

37:19 Well, I think that an innovation exemption could help people think about how trading might, might be able to occur. One thing that we've really tried to emphasize is we're not trying to pick one winner, one approach.

37:34 There, there are a lot of people thinking about different ways of tokenizing securities and different ways of trading those tokenized securities.

37:42 We are very excited that there's interest, and we want to work with anyone who's interested to figure out how what they're trying to do lines up with the regulatory framework.

37:53 But I do think that given the number of, of people who have talked about different ways of trading tokenized securities, different ways of tokenizing, I do think that we'll see some, some of that innovation happening, and I think we'll solve that chicken and egg problem.

38:08 Mm. Uh, Hester, we're almost at the end of the show.

38:11 When you look back over your journey now at the SEC and in crypto, and you contextualize that with your, like, personal involvement as well, what are you personally looking forward to, to happen in crypto and in general the financial system we build here?

38:27 Well, you know, I went to an event recently where, where someone said to me, "You know, it'll be a good day when regulators aren't even at these events because people are just trying to, to actually do stuff using the technology," and, and they know what the rules are, so they're complying with the rules, but they don't have to deal with regulators hanging around with them all the time.

38:46 So I think I'm looking forward to that when we have a regulatory framework in place that allows people the freedom to think about and build what, what other people actually want and need.

38:57 And I, I'll be very, very content to watch that process develop from the, from the sidelines.

39:02 I'm excited to see who will come and take the, uh, take the seat that I'm sitting in now, and I'm excited to see what the person does in that role, and I think it'll be, it'll be wonderful to be watching that from outside the agency.

39:17 Do, do you have a crypto wallet yourself? Do you use DeFi? I'm not allowed. That's, I, that's one of the, um, I think one of the, the flaws of the approach that the, the government has taken.

39:30 In a, in a very understandable desire to make sure that policy is made without, without conflicts, we have, have been precluded from even understanding how these things work. Like, what, what is it like to use a wallet?

39:44 And I've been really grateful because some people have come in and done demos for us to help us get a sense of what, what they look and feel like.

39:53 And so that does help, but I think there is some- something lost when we have to write regulations for things that we can't touch and feel ourselves.

40:02 But again, the, the rationale for those rules I understand, so you've gotta get the balance right. But I think having some de minimis ability to, to experiment would be helpful. Yeah.

40:14 I, I, uh, definitely agree, and I also believe that the curiosity on your side is definitely there. I mentioned to you before the show, uh, we had actually, uh, uh, Mr.

40:25 Gensler coming with, uh, his class at MIT to Bitcoin Suisse, a company, uh, I helped build in Europe, uh, that was in 2018 or 2019.

40:35 They visited for a study trip, and they really tried to understand how blockchain works and, and what those people are building. And we also started using wallets and showed them, showed them around.

40:47 So I think really, like, the curiosity's there. Last question, Hester. Five years from now, will the distinction between crypto assets and traditional securities still be relevant for regulators and investors?

40:58 What's your prediction there? Yeah, I think that's a good question because I think part of what has gotten us going down the wrong road is that sometimes we make too much of the crypto label. And as I've seen as the,

41:13 as the interest in tokenized securities has just continued to grow over this past year, I can imagine a world in which many securities are tokenized, and the fact that they're tokenized will not really have much effect on, you know, the, the tokenized securities are subject to securities regulations just as non-tokenized securities are.

41:36 And so this could just be an evolution where, um, just as we once had m- most people held their stocks in paper stock certificates, we could end up in a world where most people hold their stocks and bonds in tokenized form.

41:50 And maybe we'll look back and wonder what the, what, you know, fuss was over, over the crypto aspect of it. So we'll see.

41:58 Whether that's five years or more or whether, whether, uh, the market decides it wants to go in a different direction, I leave that to people in the market and innovators to figure out. Yeah.

42:08 And speaking about the market and innovators, if there's one message that you could convey to them, what would that be? Well, I, I'd, I'd convey two messages.

42:17 One, I do apologize for the fact that the regulatory approach made your lives a lot more difficult, and I've talked to people who really were hurt by the fact that regulators were taking chaotic and, and, and, and I would argue just not, not productive approach.

42:38 So I do apologize for that, and I, I just would urge you going forward, and this is something I said earlier, to spend your time thinking about building things that people want and need.

42:50 That will be the most fulfilling for you, but it's also the most likely to create an environment in which these are things that people, regardless of political party, wanna keep around.

43:02 And so if a different set of people is sitting here at the, the SEC, they'll still wanna take steps to create and preserve a sensible regulatory framework.

43:12 Hester, thank you so much for coming on the show and sharing your time with us. That was really insightful.

43:18 Where can people learn more about your regulation, and where can people actually reach out if they have feedback or wanted to talk to you or your team?

43:26 Well, the best place to go to find out what we're doing, we have a webpage on the sec.gov website. There's a crypto webpage. And then [email protected], you can reach out to us that way.

43:38 There's information there about how you can request a meeting. There is a written input page. We're still welcoming people to provide written input.

43:46 And stay tuned because when I travel, I usually tell people where I, where I'll be, and I'm always happy to meet with and talk with people on those trips. All right.

43:54 Hester, thank you very much, and I can also say thank you in the name of the crypto community for, uh, pushing that space forward, and I wish you all the best. Thank you, Marc. It's great to talk to you.