The Plumbing of DeFi: How Protocols Move Value Without Banks | DC Fintech Week 2025

All right, welcome back everybody. If everybody could grab a seat, we are about to start our next panel on DeFi. A very non-controversial subject. Uh an excellent panel here today uh led by Eleanor Terret. Uh we have Ben Sherwin with uh Chainlink Labs.

Uh we have Shaye with Stacks. Uh Bill Hughes with Consensus and Niha with MIT. I'll now turn it on over to Eleanor. Take it away. Thank you.

Thanks everybody for joining today. This is such a cool building. I've never been here before. A little bit different to Amazon HQ if you guys were here yesterday. [laughter] A little bit different of a vibe, but I'm liking it.

Um so yeah, let's let's kick let's kick us off. We're going to be talking about DeFi today, or as I like to say, the plumbing of crypto. Uh, maybe not a cute thing to say, but it's kind of what I say. Anyway, um, so we'll go down the line. I'm going to start Ben with you.

Um, you know, you work for Chainlink, obviously. Um, oracles are your thing. Can you kind of tell us what's going on? What's new with oracles? Anything new with oracles?

Uh, I don't think so.

Am I on? There we go. Uh so yeah, lots of going on. Um so people think about oracles as data providers. Um and it really is it goes beyond that.

It goes about connectivity, interoperability, uh compute. And so we're seeing a lot of u different ways to power decentralized u protocols. Um you know one thing that recently came out is uh you know we've have now publishing of and of of data onchain. So S&P just recently is publishing uh their uh essay risk information so people can use it on chain. What these things do really is allow builders to use uh these different data elements to to build and to increase because we're what we're seeing really in terms of DeFi is a move from just you know the the nent DeFi into scaling scaling the protocols and that requires different tools and those tools um you know really rely on oraclebased systems um and uh whether that's pushing data versus pulling data.

So whether you're carried about speed versus um you know cost. So there there are different ways to do it and you know it's continuing to evolve as the DeFi protocols evolve.

Shaylee, you're at stacks. What's new with Bitcoin DeFi over there? Bitcoin DeFi maybe not a term that people are, you know, DeFi maybe not a term you think of like when you think of Bitcoin, right? Maybe building on top of the Bitcoin layer, but kind of tell us what's going on with uh with STAX. Anything new over there?

Yeah. So, STAX is a Bitcoin layer 2 and we're taking the security of Bitcoin and um we created a layer to make Bitcoin programmable in decentralized finance uh applications or I should say DAPs. So we have things like decentralized exchanges um lending borrowing protocols and bitcoinbacked stable coins and an entire kind of like bitcoin economy growing on stacks. And the reason why this has become really exciting over the past um year or so is that uh you have this emergence of digital asset treasury companies like Micro Strategy. they were the pioneers um accumulating a lot of bitcoin and they want to do something with that bitcoin um in decentralized finance using self-custodial wallets.

So um and to to earn yield to do to use it as collateral for different purposes and it's an exciting time um to be in this space.

Okay, Bill, what's new with DeFi interfaces at uh consensus? uh consensus makes MetaMask and when I say DeFi interface obviously if you go to any protocol they'll have a front-end interface a website where you can attach a wallet and and execute transactions using that protocol. I think the most the critical thing happening in DeFi with interfaces is what's happening with wallets where it's like a general interface which interops with a basically all the protocols that you're going to ever want to interop into use if you're engaging in web anything web 3. We're in a race to make the interfaces as userfriendly as possible as fun to use as possible and as useful as possible. That means it's got to connect to every single protocol that people want to use.

It's got to be intuitive. Uh it's got to be safe. So that means if if people are creating a blockchain account, it's got to be something simple, something that a normal person, nonweb 3 nerd can actually handle. That means necessary offering different options other than just the wrote 12 or 24 seed generation way to create an account. And uh there are a lot of design choices which you have to make to to make your app the one that everyone wants to use.

I do think in the end there are going to be some apps that win, some interfaces that win. They have to connect to the networks that everyone is using. They have to connect to the L2s. They have to make everything on the back end very seamless. And that's what we're working hard on uh at MetaMask.

And we're very excited about what the future holds in that regard.

Cool. And uh Nia, what's new at the MIT Media Lab? Well, I think what's happening in DeFi right now is really interesting, especially with this weekend, obviously, incredible moment in time. Uh, I'm teaching a class called cryptocurrency design and engineering. And it's really fun to be able to go to the class and say, "Hey, who who saw what happened this weekend?

Who wants to who wants to explain it to us?" We had some guests who were more experts in crypto market infrastructure. And I think you know I look at it as growing pains. We are developing the framework for an alternate financial system and we are getting to design it from scratch. That's happening in out in the open with many protocols and services and approaches all competing all experimenting and trying different things.

Some of those things work some of those things do not work. Uh, and it's it's very exciting. I think our role in academia is to kind of be this neutral actor who looks at everything that's happening, who's honest about it, who calls out, you know, when things are not quite true or or when there's some nuance and to try to make sense of it for people and to try to sort of act as a almost like as a as a as a light that is illuminating what is happening in the space. That is very exciting, very complicated. uh there's a lot of risks but there are also ways to mitigate those risks.

So trying to trying to move forward.

That's really interesting. Actually just want to touch on something you mentioned like with your students. I mean how many of them do you see like coming in and actually really understanding this space now? I mean I feel like when I was in college no one was talking about crypto. Nobody really understood any of this stuff.

Bitcoin had barely I mean I say when did I graduate college? 2016. But when I went into college it was 2011. you know, kind of right around the time that Bitcoin was getting off the ground, no one was talking about it, you know, now with these kids, like how are they kind of responding to this? Like, are they active traders?

Like, what are you kind of seeing from your perspective as a professor?

Yeah. Well, I'm not a professor, just to be clear, but research scientist.

Research scientist, sorry.

Teaching and and you know, whatnot. Yes. So, it's so first of all, I think MIT is kind of unique. It's a very unique university to start with. you know, very technology focused, very all about like we we say men's at monis, so mind in hand.

It's all about building, getting your hands dirty. Um, I think that, you know, maybe but I've been there for nine years. Like nine years ago, you had students mining in their dorm room. That's what you saw, right? You had people running miners using the free electricity when they maybe weren't supposed to.

Um, and uh, you know, because it was fun and interesting and they were trying things out. I remember when I was in grad school, someone was uh, mining Litecoin. Um and uh yeah, so you had that kind of experimentation. Things are quite different now. Obviously, you can't really mine in a dorm room.

Um and so you have people who come into it through trading, who come into it through hackathons. Um international students, I think it's particularly interesting. people from certain countries are coming to this because they've been in a place with really high inflation and they've experienced a lack of access to um to digital payments to financial tools and so they're coming at it from the perspective which I think is is really interesting and then also uh something else that I'm seeing is that you know especially with where things like stable coins and DeFi are now people who might have normally been more attracted to traditional finance finance are like, "Oh, this stuff's getting really real now." You know, it's connecting into the infrastructure of traditional finance. And so that excites them and that brings them into it.

So, lots of different views.

That's so interesting. Um, I did want to touch just briefly on this notion of like stable coin yield and kind of what we're seeing with the Genius Act. Um, Bill, how do you kind of just from an audience perspective or for the audience like DeFi yield I think is a little bit different to what we're seeing or maybe it's not but like with what's happening with the Genius Act like what they're trying to do to restrict stable coin yield and staking you know what does that mean from you know like a cryptonative perspective like how is that really encroaching on I guess the freedoms of you know being able to transact freely in a DeFi perspective like and how it really is giving a leg up to banks like can you kind of give the audience like you know from you know where you sit at at consensus like what does this mean for for the industry and is it really just kind of choking off those freedoms that

well it's it's a non-starter trying to retrade on genius there was a long conversation when the genius act was being discussed as to if you were issuing a stable coin meaning taking in a fiat dollar and giving a token in return if you go invest that dollar in treasuries can you share some of the yield on the treasury with the token holder as an incentivization mechanism as a general sort of user feature. U there was a lot of debate on it. Crypto thought you could. Genius Act says you can't. So what else can you use that stable coin?

Now you can use that stable coin for anything on in DeFi. They're now trying to change that. uh I understand bank lobby generally understands that in DeFi you can go lend that peer-to-peer using an onchain tool and re realize some yield by virtue of of you engaging in that lending to someone else borrowing it. They say well we shouldn't allow that either. So imagine you have a dollar in your pocket.

It's it's analogous to a lobby saying the only way you should be able to earn sort of a return on that dollar is if you deposit it with me, the bank, and we'll give you just a pittance of a yield. But you shouldn't be able to go and lend that dollar to anybody else and get yield. That's equivalent. That's essentially what they're advocating now. Stable coins are a killer app of crypto.

They're putting a United States dollar in the hands of every single person on Earth who has an internet connection. And this lobby says, let's take one of the key features of that, allowing people to earn money on the money in their pocket, and let's make that illegal. I I think that's just a non-starter. I think it's obvious. Like, I understand the the we're we're out here protecting consumers.

We're we're worried about the integrity of deposits. What they what they leave out is that they're worried about the integrity of their business model. And I think people in the legislature, I think policy makers should really recognize all that's going on here. And so, yes, if if there's going to be trillions of dollars of stable coins in people's pockets around the world, they should be allowed to use independent protocols to allow their money to make money for them. And we can talk about how they need to be regulated and all that stuff, but to say it's categorically illegal is a fatal is a fatally bad step.

Can I just add to that really quickly? Um 100% agree with Bill. I think we have to go back to some of the core principles of why decentralized finance like kind of started and the whole cryptocurrency movement. It was to decentralize the existing power structures of banking. Okay, it came out of the financial crisis.

So we wanted more financial access for people without that central authority of what we have in the existing banking infrastructure and we have to come up with a way for us to coexist and you can't do that with regulations that are fair for some and not the others. and we want to like work together with all the traditional finance um actors, but like there has to be some fairness in it all. DeFi has to be able to grow and people have to be able to earn yield in DeFi without having like a bank in the middle or any intermediaries that are Yeah.

Any thoughts, Ben?

Yeah, I think and I I agree with what was said. you're you're starting to see, you know, DeFi players running ahead and innovating and the the more traditional banks are catching up. And I think we're seeing a time where we're going to get to some sort of confluence where they're just choices. There are better things for um consumers where consumers aren't at risk. If if you're want to use your tokens in a certain way, there's going to be a choice.

there'll be some level of consumer protection, but let that develop over time and let it make sense for the actual risk that's attended to it. And so, a lot of that's dealt with in DeFi through transparency through uh decentralized governance and but mostly about the fact that it's still traceable on chain and u as long as the rules are clear, you know, people can use their money how they want. Um, there are good reasons to use banks, there are good reason reasons to use brokers, and there's good reasons to use DeFi. And I think that they can all coexist, and they will uh over and we'll see those rules develop over the next few years.

All right, let's move on to tokenized equities because that's another, you know, massive use case in uh in the DeFi space. And I I did bring this up in my panel yesterday, but I can keep bringing it up because uh I thought it was really interesting to hear Larry Frink, who kind of started out as a you know, Bitcoin evangelist. I think he still is a Bitcoin evangelist, but now he seems to be the uh evangelist of tokenization as well. And I wrote about this in my newsletter yesterday, but um if you believe what he's saying, I think in 10 years time, you know, everything uh at least at Black Rockck, everything's going to be tokenized in the next 10 years. Um, so obviously this is gaining major traction in Wall Street circles, but kind of like how does this what does this look like from a D5 perspective?

Um, so Ben, current trade reporting um rules don't really fit neatly on chain at the moment. Um, how can compliance be encoded into smart uh smart contracts?

Yeah, I mean uh I think we're going to see the ability to have decentralized compliance over time. There really three elements to that. identification which will live offchain and be trackable onchain. Uh the actual transaction which we've already that's easy uh identification still nent. Um and then rules engines um we've got uh chain link automated compliance engine which is aiming to do just that.

uh I think in in the interim period where um identific ID and all these uh other factors are being developed the ability simply the ability to report uh isn't there yet. So I think what you'll see is this interregnum of uh intermediaries uh filling that role and as as things develop you'll start seeing it be more decentralized give more tools develop so that it can be it can move on um completely onchain um given you know the onchain offchain dichotomy of certain information like PII so I think this is I mean, for somebody who uh lives in capital markets like I do, uh it's a really interesting time. I think things are moving onto blockchain rails and I um but you know, we're in early days and I think this stuff uh is you know, one of the reasons why I got into the space in the first place.

Um Bill, from the lawyer perspective, what should projects be [laughter] what should projects be kind of looking out for maybe with guidance from the SEC when it comes

Yeah, I think we should expect some guidance from the SEC. I think what you got from Commissioner Pur was really potentially her only serious individual instance of okay, pump the brakes guys and consider what you're doing. If you are wrapping essentially securities and then releasing them into the wild in DeFi, um I you're going to have I what what we haven't been able to get over the last four years is any sort of um licensing or registration mechanism through which an entity could handle both securities and other things like crypto tokens. Uh I think what you're going to get is um whe through one of the many procedures or authorities of the SEC a new type of entity or classification which allows you to do both and then there's going to be guidelines on how you do both and I think there's going to be guidelines on the types of wraps you can put around a security where you can offer them how you can offer them. Um, but it's all horribly complicated and I think it's going to take some time.

But I would expect, but hopefully in the next 6 months you start to see some of that guidance coming out. And I will say without naming names, there are plenty of players in the space who are focused on real world assets and and tokenization of financial instruments in particular who are going ahead and getting ahead of the the curve on getting registrations and talking to the SEC and other regulators about what the requirements will be and how to square away the paperwork so they can hit the ground running when a regime, at least the contours of a regime, team are are more publicly known. They're so this is coming. Um and I' I'd start getting ahead of it if this is a area that you want to play in.

And do you anticipate safe harbor sandboxes or more exemptive authority from the SEC?

All of it. But I think for the current iterations I think exemptive authority or it will manifest itself in like if you're going to be a BD or a transfer agent or any of these like this is how you qualify for that but also add these different sort of functionalities or or ability to handle and trade in certain assets. I mean

there are certain rules that just need to be interpreted or tweaked in order to do things in terms of transfer agent. We went and spoke to staff about the transfer agent rules and said okay well if you are able to look at this way we we can unlock innovation and they said great and they gave guidance and I think we'll see you know as Bill's saying that you um in various different areas where from a policy perspective from principles perspective you can use the rules as they are and existing rails legal rails and um just to say hey yeah that's okay so that the people that want to build the banks um the financial intermediaries the DeFi um protocols have the comfort of doing it.

It's like the notion of like not having to reinvent the wheel type thing.

I mean a lot of it's just there and it's like yeah like this is the same thing, right? People moved from uh paper to computers to you know we've we've done technological change without freaking out before. Um, and we just need to, you know, take that same approach. It's just technology.

There's one thing the crypto task force and commissioner purse and chair Atkins says repeatedly, like no one's here to delete or completely reddraft securities laws. The idea is that there's enough play in the joints that we can introduce these new technologies in a responsible way into what is now the traditional capital market system. previous regime utterly uninterested in doing that. In fact, thought it was like horrific. This regime clearly a different view, but it's like these laws and the interpretations.

The SEC has incredible discretion over how these things are thought about and how it actually works. And they're being thoughtful about how we can evolve it within the regulatory contours, which are are more the bones to allow us to advance capital markets and how they work. I was just going to say I at the protocol level you already have token standards being developed um and different you know actors that want to launch um these type of tokens coming together to discuss the token standards and like the inter in integrations around that. So, can you Oh, yeah. Go ahead.

Yeah. Yeah. I was just going to offer like a slightly different view and I I want to encourage a level of intellectual honesty in terms of sometimes our existing regulation really isn't right. Like sometimes a new technology actually shows that existing regulation was making assumptions like the existence of an intermediary or like the requirement to collect certain data or something like that that just doesn't make sense anymore. And I totally understand not wanting to rewrite all of US securities regulation.

That is a that is a daunting, arduous task. And you know, industry just wants to move forward and they want to build cool products and they want to innovate and they want to make users lives better. And I get that. But I also think we need to create the space for conversations that ask the hard questions of does this even still make sense? If we could do it all over again, would we still do it this way?

and and have some kind of space where we can discuss that and we're not afraid to discuss that and and I think that'll get us to a better place.

I I am just picturing you standing behind Gary Gensler in the line at the cafeteria getting for lunch just biting your biting your lip to like tap him on the shoulder.

Do you see him at MIT?

Yeah, Gary Gary took the the first iteration of our class in 2018. That's where he learned a lot about how cryptocurrencies and blockchains work. I I I I uh um yeah, I take no I take no responsibility for, [laughter] you know, we're all we're all independent people who make our own choices and have our own um our own views. There's several things that I agree with Gary on. There's several things that I disagree with Gary on.

Do you see him there now? Because I know he's back there, right?

Uh not not as much. No.

Okay. Gotcha. Um, do you think we are starting to have those conversations where like sort of those safe spaces maybe those like are we are we getting to that point at those

I was just at the DC privacy summit where I think we were having some of those conversations around privacy. Commissioner Pur uh gave an excellent speech a few months ago on thinking about privacy in this new world. So, I'm very optimistic and I think, you know, I mean, truth be told, it's great that the new administration is creating a space to have the conversations and to to talk about this and people clearly feel less afraid. So, I think that's that's step one is safe space. So,

and it's it's you the regulators need to have conversations with the industry is a need for them to do their job. Um, they uh find it very useful. Um, I would say notice and comment takes six to nine months, you know, if you're lucky. And, um, people are ready to innovate now. And I think that's why we're seeing, you know, as Bill suggested that you're you're seeing incremental guidance given so the industry can move ahead.

Uh, one of the main goals of of the SEC is for facilitation of capital formation. It's not, you know, and investor protection and everybody wants these things in the this industry. It rewriting the rules takes a lot of time. I think there's a lot of things that over time uh will fall away just because they develop. But I think the period that we're seeing now is the the shift over and that shift will be gradual and as people say like, well, nobody does this anymore.

Nobody actually uses this intermediary because they use a smart contract. So, we don't really need this rule. You know, a lot of rules that exist in the securities laws today, they're just not used anymore. Um, but where something says paper and they made it, you could use digital and now you can use blockchain, like those are just incremental steps that the same principles based stuff. I think they're lowhanging fruit.

Um, Shaylee, I for some reason I'm like trying to picture like tokenized equities on Bitcoin layer. like is that that's a thing right with stacks you guys make that possible?

Um it is possible. We are thinking through what the token standard would look like on stacks and we've actually talked to a few partners globally that want to see this come to fruition. We are not quite as far down the line on talking to regulators so would love to have that conversation although I'm not a lawyer so it should probably not be be with me. Um I do growth like ecosystem growth but yeah I mean it's possible and we would love to have that and I agree with Nha like um it's really hard to IPO as a business why not launch a token instead and you know it's easier faster I like I it would be awesome to be able to rethink what it is to launch a business in this day and age um without all the compliance burdens because many of you run work for these businesses where it's it's just you know how difficult it is to get to the IPO level. Um so

yeah that's an interesting one. I feel like that's there are a lot of crypto companies coming to market though coming to IPO at the moment. So clearly there's still there is appetite to come to market to tap the public markets but I don't know maybe that's something to to tap into. Ben you have any thoughts on that?

Yeah I mean I think you know in terms of u capital formation generally u the US public markets are the best place in my opinion to to raise capital. you've um you have investor protection rules that uh provide a a foundation for more traditional equity rates and I that's what I used to do for years. Um that was my career up until I got into this space. And you you have a burden though was when you're when you're raising that much capital and from retail investors, you have a burden a regulatory burden because that's what we've decided in terms of our balance of uh investor protection versus capital formation. I think you're seeing a shift when with this space.

Some of it is more hopeful than real. I think in terms of well this is different and a lot of it isn't when you're fundraising there's concerns. I think there needs to be a path for private raise of capital where it's harder to raise capital and it there are more restrictions around who you raise it from but you should still be able to do that. It it shouldn't be a one-sizefits-all um in terms of of how you raise capital. I think um hopefully that's going to be worked out through market structure um through SEC guidance and and the like.

But, you know, IPOs are powerful. They're great marketing. Um, you know, it's a pain in the neck for a CFO who's got to report quarterly, but maybe it's going to be by annually someday.

And these are big, you know, centralized companies. A lot of exchanges have come to market, but I don't know, Bill, would consensus ever consider an IPO?

No comment. [laughter]

Fair enough. Fair enough. All right. All right. Well, let's talk about market structure then because I feel like that's the sort of the maybe the elephant in the room, right?

It's like, are we getting this done? Are we not getting this done? And how does this affect DeFi? Does it affect DeFi if there is a market structure bill or not? Um, let's kind of go down the line, Ben.

I mean, what where are we, you know, a year from now if there's no if there's no Clarity Act? Um, I know Clarity Act is the House's version, but also the Senate is uh is also doing their own their own bill. um TBD whether it gets done by the end of the year but if we somehow get to this same point you know next year and there is no bill um you know is DeFi still in the same spot as it as it is now I mean it's made it this far right um sort of what are the implications that you're looking for um you know kind of where market structure is concerned

well this isn't a loaded one thank you for this question so

I've got many more

yeah no appreciate it um so first of all I'd say the efforts um by u both the house and senate that there's tremendous amount of work being done, tremendous amount of care and and applaud them for the efforts here. It is just very complicated to do and I think we just need the patience uh to do it. Um you know creating broad bipartisan support in an environment such as today is also messy. So it you're you know you're sort of you know you know juggling on a unicycle with you know flaming um batons. So uh you know applaud them for the efforts and I think you know they can get it done.

Um, you know, I part of it is just getting a fundamental understanding of DeFi and understanding what it actually means as opposed to, you know, throwing out your broad-based uh criticisms of of how it works and how it doesn't work. Um I think that there's been a pretty mature view within the uh traditional financial markets towards DeFi and I think that'll spread over time and um but ultimately DeFi will will will be fine. It will survive and um it will grow because people want to do it and you know there's a market demand for it. I I hope that that demand remains the United States as well as everywhere else. Um I don't see any signs that it's being driven off.

I'm hopeful. And uh that's it.

Could there be maybe like a shadow market structure bill kind of going on behind the scenes if we don't get a real one? Bill, I'll give you that one.

No, there's no shadow bill. Um no, if uh I'm still bullish. um the people trying to pull it together, including the White House, you know, when you bet against them in previous instances, you've lost. So, there's lots of reasons to be hopeful. Um I think if one doesn't happen, you have Chairman Atkins and Hester Pur at the SEC coordinating a regulatory response to update the status quo in ways which continue the US to be aggressive on the innovation curve.

I think the big stumbling block with market structure, yes, it is complex generally. Um the sort of the general criticism has always been like nobody understands this bill. It's like well that's fine. Um we can try to educate on it but the learning curve is always going to be steep. The the policy problem appears to be um how one handles illicit finance in DeFi.

And generally the Republican versions um they they are are pretty good although they do it differently on putting their finger on what constitutes decentralized like how do we separate traditional structures from these new crypto structures generally has to do with like the level of control one person or a group of people have over a particular piece of technology. Um, but those bills generally sort of say for DeFi, let's analyze it, deliberate on it. To the extent there's going to be legislative pronouncements on it, we're going to wait till later after more education. uh the recent Democrat Democratic proposal from a group of Democratic senators, including some who are are um have been um holding themselves out and and I think sincere to to a large degree as being like pro- crypto generally and pro innovation. The the proposal was very much akin to what uh in 2023 if memory serves was the CANC act which was Senator Reed and Rounds and Warner and um Romney basically saying in the United States we're going to have a whitelist DeFi meaning that all of DeFi in the United States is going to be permissioned and we're going to place the burden on a variety of different actors to ensure its permission.

That means it's completely gatekept and um you know anybody acting in it as a service provider like an interface provider is going to be um treated like a financial institution. That is obviously the antithesis of where DeFi views itself as as being and um and as a matter of process I think it prejudges it um both in both both meanings of that term. I think it it actually prejudices DeFi like materially, meaning it sort of takes away um a lot of its promise to to dictate that as America's approach to it, but it also prejudges the issue in that it prescribes a regulatory solution without the CFTC or SEC really getting their hands in and Treasury for that matter who's in charge of policing illicit finance um at least from a policy perspective. So uh I think the Republican solutions are more sensible on this. This is this is going to be a gatekeeping mechanism to see whether we can even bring this forward in committee.

The dichotomy between banking and a and house finance and the house a committee that that can be worked out but I think this is a central issue of policy which needs to be resolved and it's it's going to be hard.

I should have been more clear on my on my original question. the the shadow bill I meant is it would that would kind of be more of like an enfor like a shadow enforcement like we don't get a market structure bill with some like provisions on DeFi like could that

the the biggest mistake I see people seeing and and our devs come to the legal department all the time and ask me like well so this is going to be I'm building this and we think it's compliant with the Clarity Act because I'm like guys clarity act isn't law like we don't know what precisely the rules are going to be nor do we know necessarily the the standards and guidance and and thresholds that clarity act prescribes are going to or let alone like how the SEC and CFTC are even going to um apply those uh in terms of like a a rule structure. So people are doing the best they can, you know, to build given the signs, but there's going to be no um back way to legislate this. I think it's we're ultimately going to get market structure legislation. it is ultimately going to look something like clarity or what Senate Banking put together. And um we just need uh a core set of Senate Democrats to there needs to be some resolution as to what to do about this AML issue with DeFi and then and then we can proceed and and then then it's just a logistics thing.

Is there enough time in the calendar for for this year or enough time in the first four to five months next year and uh I'm not going to handicap that but I'm optimistic

but these are the tough questions right we regulate intermediaries that you talked about reporting earlier trade reporting and like intermediaries do that and so in a world that where you don't have intermediaries what do you do it's a fundamental question and one that's very very hard um hope you know we're seeing tools develop where you can solve for that and you in terms of Treasury been um they've done a great job um and the SEC so you're seeing engagement um on the regul regulator side to try to understand how to fill that gap um I think everybody's interested in providing um some level of of you know

yeah I mean one more thought DeFi is not scared about building into a regulatory vacuum especially in an environment where it's been made clear we're not going to haul you um to the stockade for breaking some rule which isn't sufficiently clear. What DeFi builders are terrified of is being beaten by the next guy who's also building.

You're you regulation is like fourth or fifth in your stacked ranked risks if you're trying to succeed in this business. like being the lead in the industry for whatever you're building is number one and it's cutthroat. And so yes, we're going to continue to build and there's going to be continue to be an incredible risk to appetite and yet we should want a regulatory scheme in place so people can accommodate it as they're doing this. But the longer we wait

um

but there's that there's going to be no slowing down. There's gonna be no slowing down

regulation by criminal prosecution like we saw with Roman Storm.

We can get into that if you'd like.

Yeah. I was gonna say just really quickly speaking from the builder perspective, there are still a lot of businesses that can't afford a Bill Hughes on their team. Um that are

I'm a I'm a big value.

I'm a I'm a steal.

I used to work with him so I could say awesome. Um but we we um you know we do have builders that are creating applications that are not available to US citizens today and I think many of us may have participated in an airdrop for one of our favorite apps and then it's like you know people might be using VPNs. I mean this stuff is happening in DeFi and let's not like turn a blind eye to it. So like Bill said, people are moving very quickly at building and um getting the best user experience, but they might not make their applications available to US citizens um during this like without the bill, without some clarity.

I feel like we could go on for another 30 minutes, but I know we're running out of time. Um, n I do want to ask you, have any of your work at MIT um included like any objective like metrics for assessing like how decentralized a protocol can be? Are there any metrics that could like objectively assess that?

So, I'm I'm going to be honest. I get really worried when I hear about trying to encode definitions of decentralization into the law of the United States. I I get I get very afraid of this and you know I mean for the all of you may be regulatory policy experts here I am very much not like the the clarity stuff is not the genius act 2.0 know genius act was pretty simple I think like relatively you can get your head around it you know back your coin by treasuries uh the the market structure stuff is way more complicated there's a lot more going on here there's there's a lot more a lot of other concerns to think about a lot more detail and I I don't have a full grasp of all of it but um I I remember many years ago you know attempts by regulators and policy makers to define decentralization are you decentralized enough. What are the metrics?

Guess what? Those metrics are all gameable. We're not going to think of all of them a priori that you know I just I just want to be honest about that. That doesn't mean that we can't make progress. We can't move forward.

I think look, if there is an actor who has a fair amount of control, then that actor should be regulated as the laws dictate. That's just the simple fact of the matter. That's how it should work. That's the principle that we should be thinking about. If there's a company that, you know, collects money from an ICO, if there's a if there's a um if there's a foundation that, you know, employs all the developers who work on something and they control the governance of a protocol, they control what gets pushed out.

They control what users see and do. You know, they can fork the code, they can change balances. I think we need to acknowledge this type of level of control. And you can't just sort of make this argument, oh there's a hundred validators or there's, you know, a million validators and we don't know who we are. Who they are.

Guess what? They know who they are. They like, you know, it's it's like this stuff is so hard. You can't just like define a priori, you know, what it means to be decentralized. And I think we have a lot of the tools we need to look at is there an actor or set of actors who have control.

Now that said, I think it's incredibly important that we don't punish developers simply for writing software. Right? There there are some other principles on the other side of that that we need to make sure that we adhere to. But I think I think trying to define this stuff I think regulators and policy makers trying to define this stuff really frightens me, really scares me because the technology is changing so fast as well. We're going to come up with a whole new consensus mechanism in six months or a year.

It's going to work completely differently. It's you know and you so you can't enshrine this stuff into law. I get really worried and you know something that I've been thinking about as I' as I've been hearing people speak I remember you know someone Ted said to me once like surgeon if you're a surgeon the answer to any medical problem is you got to cut into the person that's that's the way surgeons think right and if you're a technologist the answer is you build some software to fix the problem if you're a lawyer you know certain kind of lawyer the answer is you go to court you sue you do this you do whatever if you're a policy maker it's to it's to write policy right and so I think we need to remember that actually there's many different ways to go about about fixing something. I I I and and everybody's kind of coming from their own angle and sees their their way as the solution to fix things. I also recall I remember um you know learning about financial history and the first stock market in the UK.

They actually had to shut down stock issuance for like decades. So, for because it turned into this crazy free-for-all of scammy stocks, like people were just I don't remember if this was the 1600s or 1700s or 1800s, but you know, people were just issuing stocks for everything and it was a nightmare and you couldn't figure out what to do and and they were just like just shut it down. Just shut it down. No more no more stock issuance. Right?

Like regulation is important. We need to we need to get this right. We need to set the rules of the game correctly. Um so so I'm not I'm not sure where I was going with that, but there's just [laughter] all of this stuff is incredibly important. and I'm listening to you all talk about it and I'm realizing there's a lot of challenges.

Um, but I don't know if enshrining technical definitions in law is the right way to go.

I love it. Just to wrap it up really rapid fire, where should we be where in DeFi should we be paying attention to in the next 12 months? Ben.

Um, rapid fire.

Yeah, rapid fire. I know I have pass. Uh,

I I I'll go. Um, there's an existential question as to whether peer-to-peer payments should even be allowed in an unsupervised fashion. And so I think we're at the crypto is calling a broader question as to whether we accept pervasive financial surveillance on everything we do or whether we should be granted some some long-standing privileges, freedoms, and and um and privacy. And I I think it's existential to to DeFi and and a lot of what crypto is supposed to stand for. So, I think that plays out over the next 12 months.

Uh, not financial advice, but check out the dual stacking uh white paper on stacks. We're launching a dual staking product where you can earn Bitcoin yield slashrewards. I don't know what I'm allowed to say. Um, yeah, check it out,

Ben.

Yeah. So I I would say focus on um the tools DeFi is using for for um for consumers as the frontends get more interesting um where it's less developer focused in terms of and more consumer focused. It's going to be an exciting time where you know people can interact with these protocols more easily. Um

cool. So

N

yeah I I guess I would say um try to remember what we got into this for. There's going to be a lot of large financial institutions. They're already coming in. There's going to be more right now that there's now that there's more clarity, now that now now that things are okay. Going to be a lot of large balance sheets coming in.

And I think, you know, to the builders, to the people working on this who got in into this for missiondriven reasons, like remember those reasons. Remember what we're trying to do and don't just recreate the existing financial structure on top of a new rails. Cool. And for me, check out Crypto in America podcast and newsletter. That's all.

Awesome.

Thanks, y'all.

Thank you. Uh thank you to all the panelists. A quick note on lunch. Uh it's a bit decentralized second floor and fifth floor. So, uh this stage will kick back off at 2 p.

m. So, thank you all.