Crowd Control: Who Owns the Customer, Who Owns the Investor? | DC Fintech Week 2025

Okay, great. Good morning everyone. Uh, welcome back to day two of Finchella 2025. I'm Daniel Gorfine and I'll be your MC and moderator for today. uh moderator for some sessions today on the market infrastructure track presented by our friends sorry I presented by our friends from Robin Hood and Davis Poke yesterday we heard incredible conversations about the future of banking AI and payments today on this track we're going to get into the nuts bolts and plumbing of our financial markets the very rails and rules that determine how value moves and who gets to participate DC Fintech Week is about conversation and today we'll be digging into everything from customer ownership and tokenized assets to the complex licensing dilemmas facing innovators and the rise of memedriven markets.

We have a remarkable group of innovators, former regulators, and market leaders with us today and we're going to dive straight in. I'm delighted to welcome our first panel and our moderator Justin Slaughter um to the to the stage. Well, you guys have already taken care of that.

We're way ahead of you this morning, Dan. Yeah, I mean it was because it was hard to get coffee first thing. I will tell you that. But with that, let me turn it over to Justin in our first panel. Thank you, Dan.

And thank you all for coming to what is without question the second most well attended panel right now after uh Fed Governor Michael Bar. For those of you coming, we'll try to make this as exciting and interesting and hopefully break more news. So, I'm Justin Slaughter. Uh I'm currently VP of regulatory affairs at Paradigm. I'm your moderator.

I previously was at the US Congress for Senator Ed Marky, the CFTC, and the SEC at the start of the Biden admin as director of ledge affairs where I helped the acting chair manage the GameStop fiasco and also uh helped confirm Gary Gensler as chair. So yes, this is mostly my fault. Anyway, we're have a great panel discuss crowd control and whose market really are we focused on? How is technology changing matters? I want to give everyone of the panel a chance to introduce themselves.

Why don't we start uh with you Matt?

Sure.

Uh good morning everybody. I'm Matt Okconor, the founder of Legion. We are a platform for onchain fundraising for compliant token sales built from day one to be regulatory compliant, especially with a focus on Mika um in the EU.

Good morning. I'm Holly Hiles Pandle. I'm the senior policy council for Carta. Carta is a fintech platform that provides the market infrastructure for private capital. um providing equity management and valuation for about 50,000 private companies and then fund administration, portfolio modeling and reporting for about 8,500 fund vehicles.

Um, prior to coming to Carta about four and a half years ago, I was also the director of legislative affairs at the SEC under the former chairman Jay Clayton and before that spent about six years on Capitol Hill, both as the senior adviser and counsel to the now chair of the financial services committee, Congressman French Hill, and then also as capital markets council for the committee.

Hi everyone, I'm Josh Rubin. I'm the head of the regulatory and policy function at Betterman. Uh, Betterment, you may know, is one of the original robo advisors. We're a saving and wealth platform, although we don't really like the term robo adviser anymore. We feel like it's sort of a porative in the industry, so we prefer digital investment advisor.

Good morning. I'm Joe Hall. I'm a partner at Davis Pulk, and about 150 years ago, I was uh Bill Donaldson's chief of staff at the SEC.

Hi, good morning. I'm Robert Copich. I'm the founder and secretary general of blockchain for Europe which is uh Europe's trade association representing the digital assets and blockchain industry in Brussels and across the EU and uh yeah I'm happy to be in the US and uh learn a bit and listen a bit to what you guys are doing because there's bit of movement and a lot of it sounds very positive so uh looking forward to this discussion

right we'll try to keep this quick and also have a lot of good clash because of course nobody comes to watch a series of saliloquies so let me just kick it Why is it that we have this market of substantial control of user data but also limitation of who can access the market? Well, I actually took some time and used chat GPT to go back to the source. The accredited investor concept dates to 1933 securities act. It's mostly most significant here in the states, but we have elements of it in Europe. The bigger shock to me was it didn't exist in a formal fashion until 1982 under the Reagan administration.

The basic issue seems to be we have a theory that certain kinds of people don't deserve full protection of the capital markets but the way we manage that the blunt instrument of income is to then lock people out of a lot of private opportunities. There's been a lot of issues over time. The real question is why is it a number at all and also how do technologies allow us to maybe break through from this blunt instrument? You know Joel, this is something that really I think Betterment's really experimented with in terms of increasing access to data. Correct.

Yeah, that's right. So I mean certainly in 1933 and and you know in the 1980s uh the the notion that financial technology would um come along to the point where fiduciary advice was available at scale is just totally inconceivable to regulators and lawmakers back then. But we are in a position where the proxy of of income uh for sophistication doesn't necessarily make sense the way that it might have back when there was you know far less improvements in in tech in financial technology. And I think that you know one thing to consider as we we think about you know what continues to make sense in this environment as we you know look at a world in which so many of the returns and value is captured when companies are still private. Um and you know the notion that retail investors are are looking for diversified and uncorrelated assets to hold in their portfolios.

I think the the notion that there is that technology does allow for intermediation of fiduciaries in a way that didn't really exist back in the 80s or you know the 1930s should should be a significant part of the conversation. And Holly, you of course obviously were there more recently uh than some of us. I guess we were we were there at the same time in 20. How much of this is that the SEC doesn't even understand the idea that there's a different world than there was 30 years ago?

I think that's a great point. You know, we haven't updated the standards in a meaningful way. There was a a modest attempt to expand when I was there at the SEC in 2020 to investment professionals beyond those uh traditional wealth and income thresholds. But at the time that these standards were put in place because it's easier to regulate if you have a bright line standard. That's I think kind of the the reason that we have those financial thresholds in the first place.

Um the markets are also just very different now. You know the private markets have exploded since that time. We have half the number of public companies. You also have, you know, a situation where you're not picking individual stocks. We've got funds, ETFs.

You're investing through these like pulled investment vehicles. And then just the information flows are a lot different now. So, I think, you know, we heard from Chairman Atkins yesterday. This is an area that I think this SEC is going to look at both expanding the on-ramps. Um whether that be through, you know, more professional certifications or through, you know, an accredited investor test or passport.

I think you referred to it as a an an investor license. And then this is actually an area where we've seen a lot of bipartisan support in Congress um over the past couple of years. So I do think we'll see you know some movement in this space with the realization that investor protection is also achieved through diversification and just given the expansive private markets that is something that more investors need access to.

I mean this is part of the issue right uh Matt so much of capital formation now occurs functionally in the private markets and that seems to be the miscue versus our current laws right? Yeah, I think um obviously the public markets, you know, IPOs have played a tremendous role in the wealth generation of the middle class up to this date and we have do have these trends of private markets becoming you know companies going IPOing later and later getting acquired earlier and earlier and so at Legion we're really thinking about um how do we give people responsible early access to some of these investments right some of it is driven by technology so reducing the kind of burdens and costs of lots of people buying in um And tokenization is a piece of that, but other pieces of it are regulatory. Other piece of it are driven by proxies for kind of investor sophistication. I think it's a, you know, obviously a blunt tool just to look at someone's net wealth. One of the things we do on Legion, for instance, is users can connect, you know, they they can digitally prove they've used similar products.

They could connect maybe their GitHub, their developer account, and show that they've contributed code to similar products. So they're demonstrating beyond just wealth that they have some domain expertise and knowledge that that that then projects can kind of use this to match and say this is the type of investor I want to raise from. So

I want to double click on that. So tokenization seems like the hot topic right now. But I'll be honest, I suspect even if we pulled our very sophisticated audience, they would struggle to define what that is.

Sure.

Yeah. I mean tokenization is at the end of the day a digital representation of in many cases a real world asset right so that could be a stock that could be a treasury that could be real estate that could be a bar of gold that could be really anything and you're just simply representing it digitally on a blockchain system on the rails that makes it easier, cheaper, faster to uh track proof of ownership and um you know things moving across uh different even jurisdictions uh state lines you know countries so you'll see already governments um you know I think it was California has put DMV records for instance uh some states have put like property title deeds records on blockchain right because now it's immutable now it's transparent now it's easily trackable whereas for anyone who's ever bought a house you know how much of a pain it is to look up these in this antiquated system right the the title deed so um these sorts of systems have potential benefits and it's all about just appropriate uses of them and making sure that you know one of the cruel ironies similar to accredited rules is uh memecoins right are considered not securities and so you have people getting access to these things that are like strictly net negative and not getting access to things that are arguably net positive.

This was a real irony the last few years and that the more useless and dangerous something is the safer it is for trading with retail. [snorts]

Joe, why did that happen? Well, I mean, I I think you could look at it through the other end of the telescope. I don't I don't think the idea was so much excluding people from investments. I think a large part of it was trying to figure trying to figure out ways to get more more companies into the public reporting system. I mean, I'm I'm I'm all for rethinking uh accredited investor rules in light of what was just said.

I mean, I think it's kind of silly that I can go out and put all my money into lottery tickets or bet on the next down of a football game or buy Bitcoin or buy meme coins or or or anything like that and yet and yet not be able to yeah not be able to u you know buy some open AAI stock or something like that um simply because of my my um my income level. But after I buy it, um, you know, there's a reason why there's the 1933 act and then a year later they came along did the 34 act. Um, you know, once you buy a security, you you do need information about that security, uh, you know, for to be able to trade it, to be able to know what you what what the value of that asset is. And so I would put more of the focus on lowering the lowering the the costs and the barriers to to to companies. Why are companies not coming into the public reporting system?

You know, if a company is going to go out and and and acrew a large investor base or is going to take a lot of money from the public, however you want to define that, you know, I think it's fair to ask them to, you know, to to begin to report somehow. And maybe it's not, you know, the full uh rule book, the full SK rule book, you know, but [snorts] asking companies to to to publish, you know, financial statements uh, you know, every so often in return for having access to uh third party capital doesn't seem like a bad idea to me. I would I would focus more on how do we get the information to the market rather than focus on you know who are we going to exclude because while paternalism may have you know been a great thing in the 30s um you know wasn't as you know and you know all the way up through whenever the Supreme Court decided the the Ralph and Pyina case and said you know the securities laws are there to protect people who need that protection. I think we can get beyond that as long as we get the information into the market. It's funny.

I saw the Wall Street Journal had a story this weekend that there are more working-class people than ever in the market, not just in index funds, but picking individual stocks. They have the story of this one young man who works in a Chinese restaurant who literally is on his computer doing option trading at thousands of dollars successfully so far in his lunch hour so far. I mean, that's I feel like that's part of the issue here is that we all have a system of financial regulation that assumes frequent crashes and not frequent bull runs. Well, when I when I was at the SEC, I I I I didn't understand why we even had an office of investor investig investor uh education, which you know was ostensively there to to to tell people how to read a 10K. uh you know the the education I would have given people is go go buy Vanguard funds you know don't don't don't don't don't be picking individual stocks you're playing against Goldman Sachs it's it's foolish so you know I'm happy for the guy in the Chinese restaurant who's who's doing option trading maybe he'll make some money maybe he won't um but uh you know if if I were if I were going to be out there you know talking to people I would say you're better off in an index fund.

Yeah, I feel like in fact that's in fact part of the problem is that we have a system right Holly that almost wants people to not invest and a lot of people want to invest.

So I just wanted to to touch on a couple of things. Um one on just the accredit investor standard. I think a lot of people focus on you know it as a barrier because you don't have the ability to invest. But even if we loosen those restrictions and now you have, you know, the illegal ability to invest, you actually have access to those investments. And I think, you know, you know, through platforms like Betterment, like we're getting more and more access, but even just like a direct investment into a a private company, you're going to have other regulatory limitations like section 12G, which is going to limit it to 2,000 holders of record.

Now, a company is not going to be wanting to take, you know, my small check um and have me take a place in that in that 2,00 um holder slot or, you know, if you're even investing in private funds, there's limitations on the number of owners there. So I think that is also a challenge that you know I think technology and this new regulatory posture can address and we're seeing it not so much through I think you know the accredit investor standards important to address but through like the broader efforts of how to get indirect access or structured access to some of these private funds whether it be you know through a registered fund vehicle or through retirement and to Joe's point on the transparency and the need for information I think you know Chairman Atkins mentioned some of this yesterday is there are going to have to be additional guard rails, the more you're going to open up these markets to um retail investors, the more accountability, the more scrutiny that's going to be there. So things like valuation um you know what is the liquidity windows um you know solving for adverse selection and just the more and more access is going to drive more and more transparency and that's something that we're trying to to solve for at Carta. um

yeah I just to to jump in on that I think you know from the perspective of a company that that serves retail investors I think that our worry as we see the recent executive order uh encouraging you know the uh the holding of alternatives in 401ks and just the notion that you know registered funds might be one of the solutions here I think that our concern is that we don't want retail investors to be exit liquidity for the funds And you know, I think that the quality of the investments that are being wrapped in the vehicles that are available to retail is an important consideration and one that is at least causing us to proceed cautiously with the with that possibility.

I mean, you were going to say something, Matt.

Uh, I was just curious. I mean, how do you guys, how do both of you think about where do you draw that line then? Who gets to decide this is appropriate for retail? This isn't, this is too much risk, this is appropriately priced. If it's not this arbitrary income rule, which I think we all agree

is, you know, is arbitrary. How would you draw?

It's literally a fixed number. Of course, I love this. It's not fixed for inflation. It's been every if we had inflation at a,000%, it would go to functionally zero.

I think it just it just actually doesn't matter. I mean, if you look at what some of the token that they're called tokenization platforms, you know, that are that are offering um assets offshore uh in tokenized form um that are supposedly backed by say an open AI shore uh share, you know, they're they're saying those are being offered offshore um but everybody knows that, you know, there there is no offshore when it comes to to blockchain. So all this stuff is rushing right back onshore. And so that's why I think it's just it's it's we're we're we're we're plowing the ocean trying to regulate this through arbitrary rules like $200,000 in income or $300,000 if you're a married couple. That's why, you know, I to be a broken record, I again go back to the idea what we really need is is more information about these assets, not not these barriers that are just not enforceable anymore.

I I can go online and pretend to be someone from Poland with a VPN in 10 seconds. On that note, um Robert, why don't you give us the perspective of international because this is very US focused so far.

Uh happily, um I mean in Europe, as you know, we always uh tend to regulate a bit too much and uh innovate,

not in digital assets or swaps.

I mean, we tried hard uh for the last years to convince uh our governments to do the right thing and I think they went the right direction. Um we're getting some push back now but that's a different story uh on some things that went too well probably for our industry in Europe and uh so there will be some recalibration but I think it it will be once it's all done in the US and in Europe it will be all pretty aligned I think um I think one of the solutions to the problem that you have how to get access to and how to uh protect consumers is I think education and uh you see that uh as a in Europe was a very European approach is uh to force people basically to understand what they investing in which uh maybe takes away the choice to an extent because you need you need to learn and that's terrible obviously and um but I think it's a good approach to do that and it should it should actually start much earlier in school right uh but it's not the case so what you do is you go onto exchanges and uh or CFD providers platforms and and you have to run through those tutorials uh before you get unleashed into CFD business or CFD trading for example which I personally think is a great idea and should be done uh that way because it it prevents people from then complaining about I lost money or or I lost certain amount of money because you knew what you're getting into and you knew the risk you know how to approach them and there's even tutorials uh and and libraries and everything that can help plus the social uh the social trading aspect right where you can actually follow a market or a market participant and then decide based on his decision making if this is a good idea or bad idea do I want to do the same do I want to learn do I go on and so on and I think that's the approach we took broadly in Europe and uh it might not lead to the same gains as in the US but I think it also prevents a lot of the damage that comes from an unfiltered un uh regulated market as well

yeah so much of our entire system I think was around the idea of heavy intermediation not just of opportunity but also of data. The Edgar only went online 30 years ago. The number of people who use Edgar is still far lower the number of retail users. You could see that in this trae the statistics of traffic. If you give people information but they don't actually use it.

Are we actually giving them that information?

I well I I think that that's actually not just to to talk my book but it it shows talk.

Yeah. It it shows the the value of intermediation of fiduciary advice and the notion that not every investor who could benefit from having access to these products needs to be sufficiently sophisticated on their own to read, you know, to log on to Edgar and to read the whatever documentation and disclosures are are available. I think, you know, we serve over a million customers and we have an investing team that would be able if there were more information that was published on these sorts of investments to parse that, you know, what is available to make judgments about what investments are suitable for our our clients and which aren't. And so I think that there really is a role for intermediation by fiduciary advice to potentially, you know, ensure some of the the investor protections that we're contemp I you know, I can't pick up a perspectus and and and understand it well enough to know whether you know like Graham and Dodd whether this is the right thing to buy. Um there's intermediation by fiduciaries like you guys, but there's also intermediaries by the market itself.

I mean, we all learned about the efficient capital markets hypothesis in law school or business school. Um, you know, I don't I don't need to I I I own like maybe two single name stocks. Everything else is in mutual funds, but I the the two that I own um Apple and Nvidia, surprise surprise, you know, I don't know anything really about them, but I do rely on on on the intermediation of the market for both of those. And and so that's why again, you know, I think we just need information out there. And I I don't like the idea of companies raising lots of money and then, you know, keeping their books closed and not showing them to anybody.

I would just echo I do think you know the focus on the fiduciary you know whether it be you know through advice from an RAIA or a broker dealer that owes uh a best obligation or to act has an obligation to act in the best interest of the client or you know it's a retirement um plan fiduciary and they are going to also be the ones that are going to help drive some of that information coming from the the private funds the private companies um if they want access to this much broader pool of capital.

I want to ask an actual radical question. Is our thesis of retail investing, especially for pensions, about maximizing the chance for people to make money or maximizing the chance they don't lose any money?

Is that

it's for not I you're looking at me, but I mean I think it's for the whole panel.

Sure. Yeah. I mean, I I think that it's hard to disentangle one from the other. I mean, you know, in in a raging bull market, the investments that seem appealing and that everybody wants to get into are very different than, you know, in the wake of the 2008 crash. And I think that it's easy to be lauled into a particular perspective when you know every last person who is holding you know any sort of investment is uh you know seeing the sorts of returns that they've seen over the last couple of years in the market.

So I think that it's it's very situational.

I I I would say my I would want investors to have access to their money. You know I would want them to have if and if they get into an investment I would like them to have liquidity in that investment. Um, and I think to have

those private markets are not very liquid.

Well, they're not. Why are they not liquid? Because there's no information in them, you know. Um, like look at rule 15 C211. A broker dealer can quote a a a security um make a two-sided market in a security that even for a non-public company as long as that company is putting putting information into the market.

So, I think you if you address the information problem, you begin to address the liquidity issue. Now you can talk about, you know, there are certainly obviously funds and things like that that gate people um you know uh PE investments that are looking to to to tie your money up for 10 years. You know, I might apply a different rule to those. You know, if if these assets can never be traded uh in a secondary market, but when you're talking about an asset that can trade in a secondary market, I think we should bring liquidity to those markets. And the way you bring liquidity is to bring information.

But that gets to the key point, right, which is that we didn't have really liquid secondary markets even 20 years ago.

But we do we do today and with with token with with tokenization it will it'll come at us much more quickly.

Yeah. And I think that is in fact where this is all leading is that our entire system has been built for one and that you have to go to the capital markets to get liquidity. Now you can go private. This means though that everything's going to change very fast. Then we potentially have to rethink our entire system of how we approach regulation.

Right Matt?

Yeah, I think that's an amazing point like the approach to date of this kind of prescriptive um uh you know you must follow these rules, you must make this much income. I mean you you you touched on it right of these in these tokens that are ostensibly not available in in the US but can easily cross borders whenever you have permissionless systems. So you have permissionless blockchain systems, you have generative AI, right? You have all these new things and and the rate of development and the rate at which new products will come out or new tokens will come out. It's not possible really for a regulator to sit there and like rubber stamp, okay, this one is accessible, this one isn't.

So I think the whole approach to regulation itself needs to evolve a more more probabilistic, less deterministic unless you only want a box ticking exercise, which I don't think any of us want. Um and so more more crowdsourced intelligence, more kind of subjective like this might not be right for you rather than black or white yes or no. Um so I think that the overall approach does need to change. And then also just to briefly touch on tokenization, I think that is yet another responsible benefit of moving things on chain is you have transparent realtime information. Right?

So you think about Robert Leon, the co-founder of um Compound, he recently tried to take over a publicly traded company, a stock for instance, right? and he didn't even know uh the real time number of outstanding shares. So, I'm not talking about some crazy token. I'm talking about a publicly traded company on the on the NASDAQ or NYC. And so, we don't even have that information uh on our existing financial information.

Even the regulators don't have that. The number one thing that scared the hell out of everyone on Capitol Hill, and you were there for this, too, in GameStop is the SEC had no real-time information. every morning we would call up people in Wall Street like it's 1937 and say what are you seeing?

No, I think you know we are we are definitely at an inflection point and this you know private and public markets are going to continue to blur. It's no longer this public private dichotomy that you know we've had in the past. But we're still solving for problems that existed 10 years ago, 30 years ago instead of looking at the markets now through how technology is changing everything and regulating what the markets are going to look like in 10 years.

And this is the thing, how do we make these markets better than today and not just an even bigger wild west?

Joe, I think you've got thoughts on this.

I mean, I keep saying the same thing. I we need we we we need to there are so there there are so many companies that don't go public because of the rule book that that you get that that that is thrown at them and I I've seen that across my entire career and you know when when the president said uh a few weeks ago that that that we shouldn't have quarterly reporting and you know Atkins immediately jumped on that. I think that you know I I don't think Atkins was was was just responding to what the big guy in the White House said. I think Atkins Atkins does have a a a bias towards letting the market sort of decide what kind of information uh it needs and then you know giving the right incentive to companies to produce it. And I wish we didn't have this huge dichotomy now um you know between a public company and a private company.

Um, you know, I think per perhaps if you're going to have a, you know, a big splashy IPO, maybe maybe that subjects you to, you know, the entire rule book, you know, but but it but if not, we should be we should be lowering the costs to companies of actually making that information public. Um, but we should still there should still be I mean, it should be a carrot and stick approach. I mean, we can't, you know, a a company is not going to publish any information at all if they can get away with it because obviously their competitors and their customers can figure out what their margins are and nobody wants that. But but but you know to to lower to lower the barriers on companies to to actually begin providing information um and at the same time to to require them to provide information if they're if they're raising over a certain amount of capital and you know in fact if you go if you look at the RFIA or the Clarity Act you'll see those similar kinds of concepts in there. You know you have to begin publishing uh on a semiannual basis if you're selling more than X amount of tokens per year.

So those ideas are out there in the ether right now, but we're not quite applying them to the to the public and private markets yet.

In some ways, that's where crypto comes in as the pilot program for a lot of this. We saw it with tokenization already. We're seeing it now with how uh to your point, this probably changes existing regulation based on that model, right?

I I think so. And and I think that I think Atkins is sort of the right person to be at the SEC right now, you know, thinking about this and thinking about this incredibly artificial distinction between public markets and private markets that we currently have. So I guess the last question I want to give the audience a chance to ask one or two of the panel is if this works, if we make all this then have more user own data, we have more information for everybody, will we actually notice it? is in some ways great success if this is invisible to the median not just person but median financial journalist

I think you'll definitely notice I mean you're seeing already GameStop you know the Robin Hood trader at the at the Chinese restaurant right uh lot lot of the crypto industry um retail investors it the financialization of everything is kind of a trend that we see playing out you have prediction markets kind of going mainstream I think you'll expect to see more and more and there'll be corrections there'll be cycles of course but I You'll see this trend playing out more and more again as we have more permissionless systems as we have more just the num the sheer number of investable assets many of them garbage uh being created it it's here to stay this is not going away and so it will be part of the culture yeah

I think another point that you should add is the AI agents that will come out and know a lot of these things and and presort that right I mean they will take a lot of the heavy lifting for you out of the system I think and uh that might take a while But uh they will be individualized, right? Depending on what you want, what you're looking for and so on. And I think that will be a huge game changer as well.

Say something.

No, I I agree with uh with both points. I think it's more on, you know, the retail investor is going to realize the opportunities, the functionality, uh the efficiencies, whether it be through blockchain or, you know, software driven by AI. I think that's less of a concern, but it's what are the what can that technology deliver?

I think a lot these days about the fact that as most likely AI takes over a lot of the work of the white collar workforce, that leads then to us looking for new ways to spend our time. It is very telling to me that retail

we won't have any money.

Well, I think it's actually worse than that. I think it's a very much the case that when people have a lot of free time and then they have more money, which we saw in the pandemic through a bunch of stimulus programs, day trading shot up. Maybe the next stage of capitalism is just everyone being an influencer or day trading. People don't like that because they're laughing nervously. I I I I think my you didn't ask anybody for predictions, but I I feel like we're in very latestage bubble right now.

You know, I I feel like I I I I'm probably the oldest person on the stage here, but I lived through the IPO boom or the.com boom. I lived through the financial crisis, and now I have this feeling like we're living through this again. What I'm what I'm really afraid is going to happen is people are going to lose a lot of money and and we're and Congress both both parties are going to react the same way they did in the DoddFrank era in the U in the Sarbain Oxley era and we're going to see a massive a massive overreach and I think we're going to have to get through that trough before we maybe get to a better place. uh to break some news.

I will tell you that it's definitely the case that a lot of the remnant of people who were regulating crypto, regulating I last admin do agree with you that it's a big bubble. And their thesis, some of them say it in congressional hearings, we just have to wait for it to crash and then we can finally put all this back in the box and go back to the way it's supposed to be. 1965 capitalism.

I don't think that's even after the crash. I don't think that's possible. You're just ignoring all these technology trends that are here to stay. After the.com crash, the internet didn't go away, right?

It revolutionized finance. So, yeah, I don't I don't buy that argument.

There there will be a there will be a postc crash, but but I I feel like we're going to have to go through that pretty soon here.

Yeah, that's fair. Well, I was just going to say I think on on that point um this is why I think you know you have people like Paul Atkins talking about guardrails and the focus on adverse election, transparency, liquidity, all of these things but also you know as you know there has been this you know focus on deregulatory posture. This is actually the time to set the rules like to set the rules in a sustainable workable way. Not only to prevent some of these adverse events and potential overcorrections, but also we've seen, you know, tremendous political swings over the past eight years. How do we build like the system so we don't experience that, you know, when the pendulum swings back?

Um, the only thing worse than bad regulation is uncertainty in this in this sense. Um so this is actually the time to be out there asking for rules.

Traditionally regulation laws come only after crash but there is one exception the commodity exchange act also credit rating agencies. [laughter]

Um we have five left. Does the audience have any questions? If you do just raise your hand and I'll bring you a mic.

One of you.

Okay. Um, so it occurred to me when y'all were talking about public and private that the type of private securities you were talking about, if you were doing what y'all talked about a bit, would just really be public securities, but not maybe go through the public offering process if there was broad access to it. But I heard Chair Hill talk this summer at the FINR conference about the idea of having more private securities at the local level so that retail investors could fund local projects and local businesses. And so they would be more likely to still be private offerings as opposed to large-scale offerings with over 2,000 investors and and running into issues with the securities act. And I was just curious um you know a lot of times when we talk about these uh technological enhancements we're thinking globally um but I thought it was very interesting because he was thinking hyper locally talking about like how we've lost regional investment banks for example and um and what could be done about uh uh capital creation in local markets.

And I just was curious if anybody on the panel had thoughts about how the technology might aid or facilitate those types of retail investments in private offerings.

Nobody's got

I love that we took Justin's microphone. Go ahead.

I mean, I think it's a fade away

so you don't have to speak. I I think it's a fascinating idea. I think um like I I I like that premise. you know, geographic distance is certainly one and I could see the benefit, right? You have emotional ties to it.

There's stronger social cohesion. Um, there's probably I mean, we see this empirically in like similar things with with lending. People are more likely to pay back debt if they have kind of a personal relationship or not too personal perhaps, but you know, there's some kind of social um slashing for lack of a better term. So, I I like that premise. We kind of do a similar thing where it's just not geographic distance, but we have other measures of like what are you connected to?

what do you know? So I in that abstract sense I think it's on the right track.

I would just add I think this is like where the accredit investor rules actually really come into play because that is such a big source for those early stage angel investments particularly in those regions outside of the the big capital capital hubs with the access to the networks but also thinking about empowering emerging fund managers who are more likely to invest in their backyard. So like the more we can get access you know whether it be through accreditation or some other um some other pathway to for people to invest in those funds which have the benefits of diversification fiduciary obligations that's a great way to drive capital to the the local level. It's come up a couple of times, but how do you address adverse selection where even if you solve the regulatory constraints, the top performing companies and funds can easily raise capital to the point where actually turning away institutional investors, the unproven or lower performing companies and funds are then going to start pitching people like me. How do you solve that?

So, I'll jump in here. I think this is a a an area where the fiduciary really comes into play in using that as the kind of vehicle whether it be, you know, access to private funds through a registered fund or through a retirement fund or through your broker dealer RA. Um being able to to make that determination what's in the best interest um in accordance with that that fiduciary duty. And just really quick for me, I think it's about making it more competitive. Uh, you know, less costly to reach retail and also finding the types of persons that can add value, right?

There is tremendous value, uh, we see this in crypto, you know, to crowdsourced intelligence at certain things. There's obviously weaknesses and then there's value that institutional investors add, and those are oftentimes different distinct sets of values. And so it's about matchmaking and making it cost effective to reach that that audience.

Yeah. I mean I I think it's a supply issue as much as it's a demand issue, right? That I think that adverse selection concerns are going to continue to persist to the extent that uh you know there is sufficient demand already satisfied amongst you know high net worth and institutional investors for these sorts of products. And so I think you know to the extent that there is a wider availability that'll allow for the sort of demand side solutions to come in where fiduciaries could evaluate between a choice of of different private you know different investments that might be held by retail investors. But if there's you know a small if supply is limited then I think you know that concern that retail investors are just getting the you know what'sever left over and our exit liquidity is going to persist no matter what we do.

Well you you adverse selection risk by making the pricing mechanism more efficient and you do that by giving more information.

One more

last one. So, you've talked about um changing the rules for access and changing potentially rules for education. What about on the the regulations around what people can put in so that we don't find ourselves in situations whether it's it's leverage rules or even just the amount that you can put in relative to your to your total portfolio kind of forcing diversification so that you don't get these situations where people are all in, oh, I've lost my whole life savings. just this whole sort of gambling mentality. Do you think there's any opportunity for legislation on that side?

I think you're you're you're then you're you're drawing distinctions between how the different ways people can waste their money, lose their money. Um you know, and so I think if you tell somebody that that that she can only put 10% of her after tax income in in private investments, well then she'll go buy crypto. uh or or she'll or she'll you know go to Las Vegas with it. So I I just think it's very artificial to think that we can put those sorts of of limitations on somebody as a way of protecting them.

I mean we have traditionally had restrictions on leverage. After 29 we went to 2x maximum. Uh they'd been at I think people had 10x leverage or something like that. In the only thing that has traditional strong leverage in retail is currencies and that traditionally has been at about 20 to1 the last 15 or so years. Um this is the hardest actual question that nobody is giving an answer to because people do want leverage but it is also the case that traditionally leverage is how you to your point lose everything.

Yeah. I I wonder if the solution is not legislative or regulatory but uh you know through again this sort of advice layer something that that Betterment does uh in terms of the advice that it provides our our customers who are looking to invest in crypto is to provide guidance around what percentage of a customer's you know total asset should be invested in speculative investments and it's not you know mandated by law it's not mandated by regulation but from a trusted source I think that you know that can start to address some of the concerns.

I'm getting the signal from our delightful staff, including Dan, that our time is up. Thank you all so much. Please join me in thanking our panel for this session. [applause]

Thank you all. And Justin, I think you've now set an incredibly high bar for us this morning in terms of moderating. We're going to take a break. Uh we'll be back at 10:40 for the panel leap of faith or bungee jump from stocks to smart contracts. Don't miss it.

10:40. Thank you. I'll get you.