SEC Insider: The SEC Is Preparing Crypto’s Biggest Rule Change Yet.

[00:00:00]We've gone from a pretty hostile SEC to now crypto friendly one.

[00:00:03]Could the pendulum swing back the other way?

[00:00:06]Just having a lack of an intermediary, or having someone deploy a smart contract and walk away.

[00:00:11]They create these circumstances where you have to think again about, well, where is this conduct occurring and who's responsible for it?

[00:00:18]The SEC might be preparing crypto's biggest rule change yet, and in this interview, you'll hear from Taylor Lindeman, a former chain link lawyer who is now the chief counsel of the SEC's crypto task force. So if you want to understand what's next for tokenized stocks, DeFi, AI agents and Wall Street on chain, this is the interview to watch. Look, there's been a tension between crypto as an industry and the SEC for a long time. And we all know why.

[00:00:53]But now that's removed.

[00:00:56]And and for anyone that doesn't know you are crypto native, you spent five years at chain link.

[00:01:02]Now you're the other side of the table.

[00:01:03]Realistically, could the pendulum swing back the other way, or is that something that's being safeguarded against?

[00:01:10]It's a question I've heard several times, and I think there's several ways to think about it. But the way that I like to think about it is that I think that there's a certain amount of institutionalization of an understanding of what this technology is, and it isn't within the SEC.

[00:01:22]And that is within, you know, folks like myself as well as many of the folks within the ranks and the staff that are thinking about these issues as a technology, not as a, some specific, uh, you know, positive or negative conduct.

[00:01:35]And I think that when you're looking at this as a technology, you can, you can kind of like bring down the temperature in the room a little bit and treat it on, on its merits for what it is, which is it can bring a lot of value. It can bring a lot of, uh, transparency into the market.

[00:01:49]It can serve a regulator's purposes, uh, but it also can create a lot more risk in other areas.

[00:01:54]So what I would say is when the SEC thinks about like the pendulum swinging, and it was what I think about it, I think about it as a leveling up, the education, leveling up the folks internally who are thinking about this in a rational way.

[00:02:08]And then over time, I think that that that institutionalization will bleed into more productive discussions. You know, moving forward.

[00:02:15]We're starting to see Agentic commerce rise and the use of AI agents in a number of different ways.

[00:02:21]How much is AI on your radar right now?

[00:02:24]Uh, well, on my radar personally, a lot, I'd say as it relates to the crypto markets and the securities markets in particular. I think it depends.

[00:02:32]I think a lot of the conversations are similar to the conversations that are being had everywhere else, which is when is the, you know, the agentic persona representing, you know, some principle, some person behind it. And, and how do we think about that relationship? And when an agent goes and takes an action, how do we think about that action in light of the person who may have set it off on that task?

[00:02:52]We're all kind of rolling with the punches.

[00:02:54]Yeah. And there are a lot of punches at the moment. Privacy, quite unexpectedly to me, became a very big narrative in crypto, which I was I was thrilled to see.

[00:03:02]But privacy has.

[00:03:03]We talk about tensions.

[00:03:04]Privacy has perhaps the biggest tension with regulation, where you obviously have the KYC and AML side.

[00:03:11]And then on the other side, you have, you know, pushing for financial privacy with privacy on the rise in crypto, is that something you're having to discuss how to handle?

[00:03:22]So I think there is an inherent friction there with some of the regulatory obligations of, of entities in the space. So, and also with the regulators trying to do after the regulator wants to know who's participating in the market so that it can police those markets effectively.

[00:03:35]And privacy tools are a potential threat or, you know, can damper our ability to do that.

[00:03:41]But at the same time, they bring a tremendous amount of freedom to, to participants.

[00:03:46]And it's a, you know, a foundational principle in that type of privacy, uh, in our country. And so I think when we think about it from the securities laws perspective, I don't think that it, it, it surfaces as much as it may in the payments or other areas of the market, just simply because there aren't a lot of, uh, private securities, uh, on chain transacting today.

[00:04:06]A lot of the, I think this specifically as it relates to securities tokens, etc., a lot of that is still, you know, mostly happening, uh, just, you know, on a more basic rails.

[00:04:15]But I'm sure that the, you know, the privacy preserving technologies will be utilized in securities markets as well. And then I think they may reflect more similarly, our existing market infrastructure, where you have a permissive environment or a, you know, a siloed environment where participants are only aware of each other's trades on a venue. Uh, and so maybe the privacy markets will look more similar to our existing securities markets.

[00:04:38]Uh, but yeah, they do create tension. They create risk.

[00:04:41]Um, when it comes to the regulator's obligations. And there are an area that we, you know, continuing to watch with interest.

[00:04:47]You've not long joined the SEC really a few few months, four months, 4 or 5 months now.

[00:04:51]Yeah. Let's hope you have a long tenure at the SEC. What do you hope to achieve in the next, you know, five years.

[00:04:57]So yeah, so my primary goal really is like what I said, we're trying to institutionalize an understanding of this technology and how it gets used.

[00:05:05]We want to make sure that we have a proactive and thoughtful approach towards emerging technologies that allow them to grow and allow them to be safe by investors and, you know, still complement our market and its integrity in assuring market integrity.

[00:05:20]So my objective is to shepherd that process as far as I can.

[00:05:24]I want to ensure that existing regulated parties are confident in their use of the technology and understand their rules of the road.

[00:05:31]And I want to see a market that is bringing both, you know, this industry that I know so well and the traditional securities markets in into harmony without creating a some parallel securities market structure. I want this to be a single market structure.

[00:05:46]What does crypto misunderstand about the SEC?

[00:05:51]Well, I'd say the SEC has a really important mission and the SEC has gone about that mission a lot of different ways over the last ten years.

[00:05:58]And for a long time, the way that the SEC was pursuing its its obligations and its mission as it related to crypto, a lot of that was through enforcement, and that was through trying to, you know, identify bad actors in the space and inadvertently sometimes bringing in a lot more of the space than, than, than was strictly necessary to, to, to regulate.

[00:06:18]Well, and I think where we are today is we have an SEC that is trying to right wrongs and amend for, for a past that was very aggressive with its enforcement, but also to identify a path forward that is constructive for positive regulation, that is regulation that is upholding the SEC's mandate, doing all the things that are necessary to protect investors and have orderly markets. Uh, and then at the same time still have a really robust, uh, you know, capital markets that is able to build here in the United States and build these products in the United States.

[00:06:53]There was one thing you said on stage that I found really interesting, and it's something that a lot of us will hold dear in crypto, which is blockchains work best when they're neutral. Um, that's something I know many of us believe, but does that add a layer of difficulty to regulating the space?

[00:07:09]And on our Daily Show.

[00:07:11]I've had a number of guests that have worked in regulation in some capacity, and I've often defended the fact that I think our space is quite hard to regulate because it doesn't fit neatly into existing boxes.

[00:07:22]Do you think that's fair to say?

[00:07:23]And is the new charity part of the problem there?

[00:07:26]Yeah, I think you're hitting on on one of the biggest challenges. I think that exists as a market regulator who is used to regulating, you know, people and institutions and organizations that are acting at the center of, you know, operating a business, etc. and blockchains can push some of that, uh, thinking, uh, in directions that are, that are, can be really challenging for the regulator.

[00:07:48]For instance, just having a lack of an intermediary or having someone deploy a smart contract and walk away, they create these circumstances where you have to think again about, well, where is this conduct occurring and who's responsible for it?

[00:08:01]And I think it generates a, um, you know, a new new thinking as well as first principles thinking.

[00:08:06]So one thing you asked, which is how does, how do you, you think about the rules and the flexibility? And I think that there's kind of two ends of a continuum.

[00:08:14]You've got, um, highly prescriptive rule making that's designed to have very, very specific outcomes.

[00:08:20]And it provides tremendous predictability to a market.

[00:08:23]And then on the other end, you've got principle based rulemaking that is very flexible in the face of emerging technologies, but can be more difficult for market participants to interpret and understand.

[00:08:32]And each of these different, um, you know, polls of, of, of, you know, regulation generate different outcomes for the market. And I think what we are seeing today as it relates to, to DeFi and on chain markets is that the questions of, you know, if you move too far in that perspective, perspective, prescriptive, uh, end of the spectrum, you're going to try and force intermediaries where there may not be one logically occurring. And on the other end, you may end up with rules where people just don't know how to act.

[00:08:59]And so that's the challenge that we as regulators have when it comes to questions of decentralization.

[00:09:03]And I think this is still an area that's being developed.