‍Katherine

So for as long as I've been in crypto, one of the biggest existential crises looming over all of us is this - will regulation stifle innovation in crypto, and can crypto and regulation co-exist peacefully? Headlines around the world flip flop daily as regulators change up their stance on crypto, welcoming it one day and being hostile the next. And for the longest time, the gap between lawmakers and the crypto industry was glaring, with a lot of miscommunication and lack of understanding on both sides.

In recent years, folks who are experts on the intersection of crypto and regulation have come in to fill that gap, attempting to educate on both sides and work with lawmakers to ensure that responsible and sensible regulation happens in a productive manner. One of these such organizations is the Crypto Council for Innovation, and today we will take a sneak peek behind the scenes of crypto regulation in the U.S. with Kai Summer in DC. So with me today is Sheila Warren, the CEO of CCI. Welcome to the show, Sheila.

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Sheila

Hey, Katherine, so great to be here.

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Katherine

I'm so excited that you're here. So for listeners who don't know, I spent some of my time as a research fellow with CCI, and so I'm very honored to work with Sheila, who I've known for many years, and I think she does such a great start for the industry. So I wanted to start off this conversation with asking the big question that's on everyone's minds - why is regulation so hard when it comes to crypto?

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Sheila

Yeah. Yeah. Where to begin, right? It's hard for so many reasons and that's part of what makes it so complicated. So it's hard because there's not even an understanding of what the opportunity is here or what the challenges are across the regulatory environment. So there are some folks at this point who still are very new to the game, don't understand a lot, and policymakers here don't really understand what's going on, why this industry has really blown up and taken off. There are others who are quite well educated and know a lot, and then there's some who have just misperceptions that they are very solidly rooted in. And it's very hard to move them after those misunderstandings. And that's true globally.

And so what you have is - and this is true of a lot of places - the difference is the innovation space is so fast here, shifting and moving and growing. And there's new things that are happening all the time. And that's really complicated. It's really hard for any policymaker to feel like they have their head around it, they have their arms around it. So that's the challenge we face on a daily basis. And I'll also say I think we have to point fingers at the industry itself, because in the industry we really didn't do ourselves a lot of favors in the earlier days. We had this kind of attitude, how dare you try to regulate us. We are beyond the reach of the nation. This kind of attitude, which not only is patently untrue, because from the beginning of time there have been some regulations that have applied in a lot of these spaces. But it also kind of did not exactly lead to a collaborative engagement with the regulatory mainstream policymakers. And I like to think that we've really shifted that over the last couple of years. Something that I and CCI really do try to articulate as important is this kind of partnership that we have with these folks who are going to determine to some extent the lay of the land.

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Katherine

So I guess on that topic, do you think there's kind of this main tension? So in crypto, we kind of tout the concept of decentralization, which inherently means, oh, no one's in charge. And so people often cite the tension between decentralization and regulation. Do you think these two things are at odds with each other?

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Sheila

Yeah, it's a great question. And I think that they would seem to be if you only examine the kind of preexisting regulatory landscape, which is predicated on certain assumptions, it's predicated on a small group of folks that hold power within any kind of system. It's predicated on an extractive model of capitalism, right, where you're really taking out value and giving that to shareholders or others rather than putting it back in systems. There's a certain predicate assumption space where I do think decentralization doesn't really make sense.

However, I think we should be preparing ourselves for the idea that regulation itself is going to adapt and evolve to accommodate this new landscape that we're all building. And I think that's an important miss on the part of a lot of people. So we often say, you know, as the whole concept of extreme risk regulation - it doesn't always work that way. You might have something that appears to be the same risk, but it's articulated very differently. And the accountability is different, the liability is different, the ability to affect the system is different. So it isn't the same risk. It might appear to be the same category of risk, but the actual way it manifests is significantly different.

So I think we have to prepare ourselves for doing a lot of education around this and saying, look, I don't think anybody would argue that we don't want scammers in this space. We don't want people who are exploiting people who are, you know, uneducated about the topics. That's not good for the industry. It's not good for society. How do you kind of deal with that? How do you kind get your head around, like, how to identify and spot and hold accountable those kinds of individuals or projects? There is a way to do it and is predicated on an understanding of what decentralization means and what it doesn't mean. Because let's be real -  you don't start off fully decentralized for the most part. You start off with somebody who builds a thing and is doing a thing, and then the model decentralizes itself over time. But in that early phase was where a lot of scams and kinds of things happened. There is a model that is more centralized to some degree, and we have to be honest about that as an industry and talk about how do we engage in consumer education that allows people to know what is real?

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Katherine

Yes, so much of it really comes down to good education, good communication, both sides. And so that's probably, I assume, what I was doing in D.C. So I know you certainly try. And I know you had spent the last month, maybe two months in D.C.. And so, even outside of crypto, the world of DC just seems really far removed from my day to day. And to an extent, it's very mysterious. So I wanted you to give me, and also our listeners, just the day in the life of your schedule this summer as you work to meet with lawmakers in DC about crypto legislation.

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Sheila

Yeah, well, I'll start off by saying I had not spent a ton of time on the Hill prior to this role, which makes me a bit unusual. But I also think it's turned out to be a tremendous advantage because when I come into a conversation, you know, I'm like, I don't know how to lobby. Like, what is that? You know? Like, I go in and I'm having a conversation. I'm saying here are the things that keep me up at night. Here are the things I find challenging. Here are the amazing opportunities. Here's why I personally am so passionate about this space and have put my entire career into this basket, if you will, all the eggs in one basket. And that tends to be, I think, very compelling content for people because they're like, oh, it's authentic, right? I'm not I'm not here to too. There's things I think are important and I want to make sure the message has gotten across. Like this particular, you know, way of thinking about crypto’s unproductive or counterproductive or is going to have consequences that are not what you think they are, right? We're going to cut off the innovation space. We're going to allow certain kinds of people not to engage with whatever it is. I can kind of draw those lines there and create a through line.

But day in the life, I mean, it's really back and forth on the Hill, going to meetings with senators, people in the House meeting with those who are around the influencers of the influencers, right? So meeting with think tanks, meeting with the press, doing a lot of media, trying to really land a very solid narrative that is consistent, that is thoughtful and strategic about why the digital economy is predicated on the expansion of crypto beyond where it even is today, why digital assets are so important to the world and particularly United States. And frankly, landing the note that the United States is quite behind when it comes to global regulation. We have not been cutting edge in the way we're thinking about this and other jurisdictions are moving ahead. They're really moving ahead and not waiting for the United States to act.

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Katherine

What have some of the reactions been in D.C. on the Hill when it comes to crypto? What are some of the biggest takeaways from the summer? Is there anything surprising through your conversations, either good or bad?

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Sheila

So I think the industry kind of assumes that, you know, progressives are vilifying us and Republicans/conservatives love us, you know, and I think that isn't universally true, which I suppose is probably obvious. Like nothing's a monolith, right? We've actually been able to make a very strong progressive case for crypto. I, of course, you know, come from that side of things with my background. And so I think it's been a compelling case. I'd like to think we've had a lot of inbound from various folks on that side of the aisle who are trying to make sense of this and trying to make sure it can be a tool to help black and brown folks, historically excluded people, people in rural areas, those are banking deserts. So I think we've landed that in a more robust and concrete way than kind of some of the talking points that were used before.

I also think it's been really interesting to see that this is an issue that does span both sides of the aisle. It is not a partisan issue as much as we talk about it sometimes, or I think the perception might be from industry or industry players who are involved in policy that that's not the case. It very much is the case. There is a tremendous amount of people, Democrats, conservatives, Republicans, like all across the political spectrum. There's been a tremendous amount of interest here. What I think I did not quite have my head around before the summer here is the tension between states and the federal government around this stuff. And there's an interesting question - what will federal law or regulation preempt on the part of the states and will there be room for states to, you know, be innovative themselves? And frankly, do we want that? I don't love the idea of a 50 state regime, where you have to go register in 50 different states at the same time. There's some innovation at the state level I think we should be paying attention to. So that's been an interesting learning as well. And of course, for senators and folks like that, they're focusing on their state and federal government. There's always that duality for them at a district level. There's that even more micro focus on their constituents.

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Katherine

At the heart of the narrative for crypto, I think it's so much more about financial inclusion and I think, you know, whoever you're talking to, especially senators or even statewide where they care about their people, their constituents. At the end of the day, crypto is about financial inclusion. And I think it's really unfortunate that a lot of the mainstream narrative has run with just a complete misunderstanding of what the heart of the issue is about. So I think actually sitting with lawmakers and talking to them face to face, bringing a human kind of face and narrative into it is really important.

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Sheila

I couldn't agree more. You know, I often say the price of a crypto asset is the least interesting thing you could possibly ask me. Like, it's just not about that for me. But I do think that there's this sense that, oh, the irony, this is my nightmare. There's a sense that, Oh, this is just something that rich people are using to get richer on the backs of poor people. And I'm like, oh, my God. Like, if that's what we're building, we've all failed miserably, right? That's like the worst possible outcome. And the reality is regulation could actually force us into that universe. We could have a regulatory environment like accredited investing that says, hey, surprise, you're just too poor to be able to make this investment. It's not about how much you know, how educated you are. Are you being able to make choices that are best for you and your family because you know your financial situation? You're just too poor to do it. That's kind of the baseline, if we're honest. That's kind of what the accredited investing schema is sort of telling people, right? So it's like, just sucks to be you. Well, you know, that's not okay in my mind at all.

Now, not to say that we should not be honest again about the fact that there are people who exploit folks - don't steal their money. And that is a human reality that goes back, you know, all human history. Right? What if there was ever a time that wasn't happening, right? I mean, Ponzi was like, what, from like the 1800s? A really long time ago. But the reality of what we have to do is focus, again, as you noted, on education. It's about education. How do we make, maybe not apples to apples precisely, but at least apples to oranges comparisons among these different opportunities o people can educate themselves about what makes sense for their opportunity, for their portfolio, for whatever they want to do? And of course, thinking beyond the investment case, there are so many other things crypto and digital assets are unlocking and doing that aren't about investment. That also just gets lost.

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Katherine

Yes. I'm so glad you brought up the accredited investor standard because that to me is just archaic, nonsensical, and this is a perfect example where regulation can actually do more harm than good, particularly for folks who are born rich or who don't come from money. The accredited investor standard for those who don't know  - the US basically says you can't invest in anything that’s not on the stock markets, on the public markets, you can't invest in startups, you can't invest in your friends' companies, unless you have a net worth of at least $1,000,000, which is insane.

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Sheila

Yeah. And the Jobs Act looked at a little bit of this and opened that up the aperture a little bit and said, okay, if you're local communities doing X, you can put a very modest amount of funds into that in this way, and that could be listed in this way. A slight improvement and I commend that, but not anywhere near far enough. And in crypto, I do think the default is more the accredited investor model and as I say, like it requires you to be pre wealthy, you know what I mean? And that's not an okay condition.

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Katherine

Yeah. So obviously I think the work isn't just done on the lawmakers side. I think a lot of it should also come from the industry, people who are building the crypto industry. So on the builder side or for folks who are working full time in the crypto industry, what can people working in this industry do to push crypto regulation along in the right direction?

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Sheila

The number one thing we hear from folks that they want to see is use case. They're like, Show us the use cases around financial inclusion. Show us the use cases beyond speculative investments. So we're putting together a lookbook essentially that just articulates all the different opportunities that exist, that are currently active out in the world, that are not about they're not predicated on speculation or investment that have other things behind them. And so I think that talking about that a bit more, rather than focusing on price of token, go up go down, because we're guilty of it as well as an industry. Like overly focusing on that, going on the news and talking about it, responding to all those questions and not bringing in other information I think is a huge issue. And we have to own that. We have not done a great job of that. So that's the number one question that we get.

And then also, if you are talking to a lawmaker or if you're not taking your questions more, assuming that you're not, but we need pieces that are relevant to those people, like, what are you doing in this state? What are you doing in that state? How are you helping different categories of folks who do not have access to the legacy financial system? And what is it? That's just one kind of use case that comes up a lot, I think is just being less defensive about this and recognizing that we are still, relatively speaking, in the earlier days of this industry. The innovation is older, but the industry and the way we're thinking about building in this space is quite new. And I don't have a problem saying that the reality is somebody is the AltaVista Northern Lights and someone is going to be the Google. And like we don't really know. I don't think any of us can know. It's kind of arrogant to think that we could.

So we're at that phase of development and being honest about it and saying, we need the room to experiment, we need the room to kind of engage in these activities. But also acknowledging when things aren't working, I think is important. So that's easy for me to say, but I think it's just something that I think the arrogance that's seen by lawmakers in this space is not doing us any favors. Yes.

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Katherine

That I know we've talked about in the past. And yes that definitely grinds my gears. No one's going to like it if you don't act like just a normal human who wants to solve real problems. Like when you come up in their faces and it's like, ra ra, you don't know anything about this. That's not the right attitude. I agree. So, yeah, it should definitely come from both sides, I think, in this conversation. So one of the big things - one question I get a lot from founders or just from friends who want to build something in crypto but are unsure how to best proceed, giving regulatory uncertainty, what are some best practices? Or do you think that like taking regulatory risk, this is part of the job working and building in crypto?

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Sheila

You know, I think trying to game regulation is not a winning strategy. I think you kind of have to build a thing that is solving a problem and focusing on that. And a lot of folks, let's be real, you know, did not do that in the 2017 to 2018 period. We know that's the case. And I would even argue to some extent in the kind of the very recent, you know, last year or so. So if you're actually solving a problem, I like to think that the work that I'm doing and CCI is doing and others our peer groups are doing, it's going to enable a playing field for that to happen. Like that's the goal because part of the issue here is, is this just speculative or is it solving a real problem for solving a real problem? You know, I don't think anyone's interested in shutting off that avenue, you know, I’m idealistic about this, but I think that's I think that's true in my experience. That's been quite true. So I would say, you know, what is the problem you're trying to solve? Are you building with a community you're trying to serve in mind? Are they part of your process? That kind of authenticity is going to build something very sticky. And even if regulation comes out and tries to kind of kill that thing, there's going to be a way that the community rises up to demand that service. And that's the most powerful thing that you can possibly have is your community getting behind you. And I don't mean like on Twitter yelling at people or whatever. I mean, like actually voting on these issues, right? Like thinking about how important this is to them, their families, their communities. That's the most powerful thing that you have. So I would say trying to game regulation is a little tough. There are certainly places in the world that are better or worse to start a company. I would not recommend starting a company in China, for example, for a variety of reasons. India is not necessarily, right now, a great place to start a company. But I think Dubai, Switzerland, the United States are honestly good places to start these kinds of companies. And I think that's pretty, well traveled territory and it's kind of, you know, there's a reason folks are building in and HQing in those places. Beyond that, at the micro level, it's really too soon to tell what's going to happen with this space. And I would just say pay attention, have it in mind, follow what CCI is doing, you know, just kind of pay attention, but don't overly index on it.

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Katherine

Yes. And I want to touch on the global nature of it in a second. But just for now, a lot of people often ask like, what can I do? What can I do? It's literally like call up your local politician that oversees your district because that's honestly the best you can do. If there's legislation coming out, something that's harmful to industry, the power of the people is really, really insane. And like not a lot of especially, I think younger folks don't think about engaging with it.

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Sheila

I think that's right. I mean, I think that, you know, getting a meeting with the district office, with your representative and saying I engage in the space, I'm here in your district, I hire in your district, my product works in your district. And certain people here, you know, you're not going to maybe get a meeting with the congressperson, but you might get it with their staff, and then you're on their radar. You know, they want to hear from people in their districts. They want to know what's top of mind. What do you think about? There are actually requirements to open every piece of email that comes from a constituent. All of this is logged, you know, so it's just something to be aware of. And this is true, you know, we've seen this very successfully with social issues, like people just get engaged and, you know, all that stuff. It might seem trivial, it might seem silly, but it actually does move the needle and make a difference. And a lot of folks, we said to them, did you know that X companie is HQed in your district? And they were like, I had no idea. I don't know what you're talking about. And then we'd make a connection, an introduction. They're like, I had no idea that this was happening in my district, you know? So no, it's not true in every district, obviously. But I do think that's important. And when things do come up for a vote, which is much rarer, it's pretty rare that our issues come up for a vote, but when they do come up then activating and just saying, this is a really important issue to me, it's important to my family, you know, and calling in and just saying, look, we want to make sure that this goes the right way to preserve the innovation space, that it preserves that widest space possible so that we can build these better systems.

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Katherine

Yes, I know there's a joke about millennials and Gen Zs being scared to pick up the phone. But if you really care about an issue it’s worth it to pick up the phone for.

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Sheila

It really is, and it's not the intimidating thing you think it will be.  You know, it's a very quick interaction, right? You just say this is the bill number, I would encourage the Congressperson to vote this way and maybe a two sentences why and that's basically it. Yes.

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Katherine

Yes. Okay. So so far we've talked about really mostly getting involved in the U.S.. Crypto is obviously global. And I think it also makes regulation hard because it's basically a gigantic global coordination effort. Do you think the global nature of crypto makes it just impossible to regulate on a global scale? Are people talking to each other in different countries? Like I actually don't even know this.

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Sheila

Yes and no. So I think it's important to understand, like who are the peers of people who are in very senior positions? They don't really have peers. Their peers are folks in other countries. And so I can tell you, you know, Janet Yellen and Christine Legarde are really good friends. And Kristalina Georgieva, like they are friends. You know, they talk to each other. They are aware of what's happening in each other's new jurisdictions. Those layers connect at different places. Right? So the Swiss and the Singaporeans talk all the time and the US and Finma have a close relationship through the BIS a lot of central banks get together and know each other. You know, this is a community of people like any other community. The way that crypto founders and builders know each other, respect geography, the same thing is true of regulators. They all know each other. Now the extent to which they take under advisement what someone else is doing varies widely. And I would say on the regulatory side or career people who work at the agencies and that kind of thing, they have strong connections on the political side. You know, these people come and go. They're in office. They're not in office. You know, their staff turns over a lot. So do they have the same connections outside the country? Usually not. And so there are some senators who did a lot of foreign relations. They were an ambassador, whatever. They will have strong relationships. But if they're kind of new, they may or may not. So it really varies on the legislative side.

We're often reminding people, like in the U.S., I've been going in all summer and saying this thing called MiCA in Europe, it's coming. It is comprehensive. It's the first global comprehensive platform. They're like, Oh, why do we care about that? I'm like, Well, every time you open your phone and you have to accept cookies, that's not an American regulation, that's Europe. That's GDPR, right? Like that's why you do that. And they're like, Oh. So the effect on consumers is very real because in the absence of some other comprehensive regulation, businesses are going to build to comply with the stricter standard. And that's going to bleed over into other jurisdictions because what you want them to do, you know? So that's an eye opener for some folks who I think have not thought about it that way.

So do they talk to each other? It varies. Do we connect those dots? That’s exactly what we're here to do. We do that all day long. That’s exactly why we're a global organization from the very beginning, and I took the CEO role here articulating we had to be global or it was a pointless exercise, in my opinion.

And then lastly, you know, what do they understand the threat to be? Well, if I talk about China, everyone's ears perk up. If I talk about India, everyone’s ears perk up. If I talk about Europe, people tend to be a little bit more naive about the importance of that legislation because they're not thinking about how it instantiates in the consumer experience. So, again, we're here to connect all those dots. I do think that the understanding by those who are in the know, they get that crypto's global. They really understand that the US will miss out on the opportunity if we aren’t smart and strategic about this. But others really do not understand that at all. High variance as usual.

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Katherine

So I have one last question. Where can listeners go to follow the good work that CCI is doing on the global regulation front?

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Sheila

Oh, well, thank you for asking, Katherine. As you well know, to follow the work Katherine is doing with us as well. We're on Twitter. We have a website where we post a lot of where we are, what we're doing. We are constantly writing really detailed letters to various agencies about things to educate yourself about what's happening and why it matters. We have calls to action that come out. So I would say follow us on Twitter. You can follow me on Twitter or us on Twitter. We're @crypto_council. I’m @sheila_warren. And then our website as well, cryptoforinnovation.org or cryptocouncil.org will get you to the same place and that's where you can see what we've got going on.

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Katherine

Yes. And just the link to my listeners. I know we have a lot of works coming in the pipeline, publications that we want to do. We are also compiling lists of resources also for beginner and intermediary learners. And so stay tuned for that.

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Sheila

Exactly. Lots of good content coming out. Yes.

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Katherine

Well, awesome. Thank you so much for coming on today for talking about such an important topic. And we hope to have you on again at some point.

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Sheila

Thanks, Catherine. I'd love it.

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Katherine

Thanks again for tuning in to another episode of Cross-Chain Examination. Next week will be episode ten, which is the end of season one. I can't believe it's already wrapping up. We're gearing up for season two in probably September. And so in the meantime, I would really appreciate any comments, suggestions, advice for starting season two and making this better for all of you. As always, remember to subscribe on YouTube, Spotify, Apple Podcasts and follow our podcast Twitter handle @crosschainpod to stay tuned for more.