Trump Strikes CLARITY Deal!Vote Incoming!INTERVIEW Solana Policy Institute Kristen Smith

[00:00:00]A clarity vote is incoming. It is bound to happen today. We're going to be breaking all of that down. So, you don't want to miss it. It's going to be good.

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[00:00:30]It's an instant line of credit that lets you borrow against your crypto without having to sell. All you have to do is just use your assets as collateral and spend it worldwide using a virtual Visa card. This is the coolest feature I love about this. There are no credit checks and you can repay on a schedule that works specifically for you. It's the smartest way to stay long in the market while accessing your portfolio's value today. Download the Uphold app and get your virtual EXA card in just a few taps. I want to talk about the timing here because timing is going to be almost critical here. Even though that says 16 days, that actually will shrink a lot, guys, because you're talking about certain days that Congress is not in session. You also have weekends involved in this. So, this could get very narrow. So, I wanted to bring on one of our experts, and that of course is Kristen Smith, who's coming over from the Salana Policy Institute. Nice to see you again. How are you?

[00:01:27]>> It's good to be back, Paul. Thanks for having me. It's a really critical time.

[00:01:30]So, lots to talk about.

[00:01:31]>> So, we we are on the last leg of everything. I think Bessant said we're like the one yard line. I'll show a tweet on that. But, let's get into where this goes because there are some big issues. One, the probability jumped significantly this week, uh, actually in the last few days from what was around 32% up to where we're hovering right now with a 48% chance. Kristen, what has happened to cause this major move?

[00:01:58]>> Yeah. Well, listen, I think it's important to remember when we get to the end stage of the legislative process like this, there are a lot of highs and lows and ups and downs. I think, you know, we go from good weeks and bad weeks to good days and bad days to good hours and bad hours. And I think we're somewhere between the hours and days right now where everybody gets really excited because there's been a positive development and then you know there will be a negative reaction and people are bad. But I think the important thing to know is that is actually part of the process and that if we weren't having these highs and lows I would actually be more worried about uh the outcome of the legislation. The fact that these conversations are happening I think is is really really critical. So you're right. We only have about 2 and 1/2 weeks left uh before the August recess.

[00:02:44]Um after the August recess, it becomes very very difficult uh to find enough time to move. Uh but we did have a really big breakthrough uh yesterday in that the White House uh and President Trump himself has signed off on some level of ethics provisions. Uh we have not seen the language yet. um the the White House has sent what they have agreed to up to Capitol Hill and today uh Republican senators are meeting, Democratic senators uh I don't believe have seen the language yet, but they are also meeting and discussing what they need and so uh you know folks are starting to sit down at the table and and really hone in on you know exactly what they need in order to support this bill. So I think it's really promising.

[00:03:31]I think you know the next step is we really need to see the language. Um uh you know because when the language comes out you know that will be the public will be able to react to that. Uh the full you know the senators who have to vote on it will be able to react to that. And so I think what we're we really need to see that as quickly as possible because once that's out and people can see it and react to it, then they can go file the motion to proceed and kick off the clock uh to start getting uh the series of votes needed to get this done. I also think once they file the motion to proceed, that will force any negotiations on any outstanding issues that may exist. But yeah, listen, we are we're in the thick of things. I think I agree with Secretary Bessant. We are we are at the one yard line, maybe the two- yard line, but we we are uh very close to the end zone here. And I think that uh you know, I I I get a little bit more optimistic every day uh that that this is going to get done and and I you know, there's a real pathway here to do it.

[00:04:32]>> Well, of course, one of the biggest uh scenarios has been, and we've talked about this, what Senator Als Brooks continues to push on, and this is what her statement is is an unserious offer uh and says she wouldn't support the bill. basically uh around this enforcement option and this is in reference to ethics but she also left it open saying hey we're going to keep working on the floor to get the agreement uh that holds us all accountable which I thought was an interesting statement holds us all accountable does that mean that this could extend into Congress and maybe into other areas >> yes no I I think the way that it's been described to me is that this is a provision that would apply to the president to the spouse to the vice president uh and to Congress. And so, you know, I think that's important because whatever um they come up with is something that everybody is gonna have to live by. And I actually think that's a good way to do it because it makes it uh not be too burdensome to one person versus the other. And um so yeah, I think that's that's important. And I think, you know, the senators realize that and I think that will sort of narrow the window within uh which they're they're working. And so, of course, we all need to see this again that these are, you know, there's a lot of rumors flying around Washington about what's what Trump has agreed to, you know, what the Democratic senators want.

[00:05:52]I think there's a couple key issues that have been um spoken about publicly, but nobody's actually seen the text. And so, I think I think getting that uh out is a really, really important step.

[00:06:02]>> Well, someone that I'm sure has is privy to a little bit of the text is Bessant.

[00:06:08]And with his statement, you know, we've been talking about it at the one yard line. I mean, Kristen, come on. one yard line. This seems to me like you are right there. So just speculate. What do you think they have done to be able to get Bessant to be this committed that he thinks this is going to go through?

[00:06:27]>> Well, I mean I you know I you have to look back and see how long it's taken us to get here, right? I I started um I the blockchain association where my I previously worked came together eight years ago. uh you know the summer of 2018 and at that time there was a a lot of uncertainty uh and everyone knew we needed to come together and start laying the groundwork for legislation. So we've seen five or six different versions of market structure legislation over the past eight years. We're now to the point where you know the House has passed the Clarity Act. Both the Senate a committees and the Senate Banking Committees have passed the Clarity Act.

[00:07:04]Uh Leader Fun has said they're going to bring it to the floor. President Trump has signed off on some degree of ethics language. You know, this is like the month and the moment. And so, you know, when I see something about the one yard line, um, you know, we've genuinely come so far, so much further than we ever have as an industry before. And I think that, uh, you know, it's probably that breadth of history that Senator Besson is talking about. But, you know, I do think we're close. I think the real negotiations are going to happen in the, you know, the next couple of days. uh and you know we could see uh some some action on the Senate floor starting later this week and and probably headed into next week.

[00:07:44]>> Okay. So the for me I look at this and I wonder to what extent this ethics provision could be really routed in because you've got uh I think the Democrats have been very very uh vocal about this. Obviously it's one of the cornerstones of what many of them have kind of points to. Uh Bernie Mareno was talking about this uh right here where he said this is the most aggressive ethics language in the history of the United States. If that were the case, if that really were the case, what would the Democrats complain about if this in fact is truly that? What would they have to complain about? Just give me that.

[00:08:23]>> Yeah. Listen, I think this is not so much about the policy of, you know, how to have good ethics, but it is u much more the politics of it right now. And so, you know, I think anytime President Trump says, "Hey, this is my plan." Uh, you know, it's not the Democratic in Democrats instinct to be like, "Yes, we will go with your plan." You know, they're going to try to negotiate. And until there's that moment, until there's that forcing function of a vote where they really need to decide yes or no, uh, you know, they're going to try to continue to negotiate. I think that's just good. Uh, you know, those are good the skills that they have and they know they know how to use them. And so, um, listen, I think, you know, from what is been rumored to be in this deal, I think, you know, President Trump has come very far. I think Bernie Marino is right. I mean, this is, you know, kind of unusual to have something apply to a specific type of asset like this. This is highly, highly unusual. And I, you know, I give credit to President Trump for agreeing to that. But, you know, we also, like, this is a bill that absolutely needs 60 votes. And that means you're going to have to have some Democrats on board. and to ask the Democrats to support, you know, their Donald Trump's top priority. Uh, you know, they're going to need to be able to um explain to their constituents and others that they were able to get something in return. So, you know, I think this is this is how negotiations happen. Um, I, you know, I keep saying President Trump knows the art of the deal. I I like to think he knows what he's doing and I think, you know, the Democrats uh that are in the room on this are are very capable as well. So, you know, we need to let the process play out, but the important thing is there is a table. People are sitting at it and they're talking and, you know, these these are the ingredients we need uh to get this across the finish line.

[00:10:08]>> Here's the most important question and that is does Senator Warren vote yes if she sees [laughter] never going to happen.

[00:10:19]>> Okay. Well, >> never going to happen. We We gave up on her long ago. It's >> illicit finance. We're not We're not going to try it. We're not going to try.

[00:10:27]We're going to focus our effort elsewhere.

[00:10:30]>> All right. So, let's go there. Focusing elsewhere. Uh this was an interesting uh development that I thought this actually gave me a little bit of hope here. And this was Patrick Wit. We did a show and we mentioned this not too long ago in reference to Patrick Wit had a military duty that he was going to be going and going to. So, he was going to stepping down and we announced it here on the show. I thought, okay, he's, you know, he's got to go serve. No big deal. Uh, bad timing here. But I asked the question, why can't the president just call somebody say, "Hey, listen. The guy's in the middle of something. Can he just do a couple of weeks here and get this done?" And sure enough, he got this. Somebody made the phone call because the guy who was replacing him, Harry Jung, I mean, this is banker 101.

[00:11:17]Uh, so I was a little concerned about that in terms of that stepping up.

[00:11:21]That's just my conspiracy theory. What do you think? Is is Patrick going to walk this through the line and say, "Hey, we finally got something done."

[00:11:29]>> Yeah. No, listen, I think I think uh Patrick is here for the for for the long run. I think he wants to see this through and I, you know, credit uh the the folks uh you know, with the National Guard and the White House and others that recognize that. I mean, he is he's he's the quarterback of this football game. So, we we need him in that position. And I think the fact that, you know, they were able to work out for him to stay is, uh, incredibly bullish. Um, because I don't think this is going to be done by Friday. I think that was supposed to be his last day. So, um, and listen, I think Harry would have done a fantastic job. You know, he was at the CFTC before. He knows these issues very well. Uh, but it turns out Harry is now actually going to be the one leaving.

[00:12:09]Uh, but Patrick is going to stay. And I think, you know, that makes sense. He's been in the weeds on this for the past year. He's built up relationship with the senators. he knows the issues inside and out. So, I think the fact that he's staying is is incredibly bullish.

[00:12:23]>> Yeah, it's a it's a bullish sign, I think, going going into this. Another bullish sign that I think is starting to develop, but granted, I am highly skeptical only because I have seen this happen so many times, and that is with the banking side of things and the ABA, very powerful lobby. You get to go head-to-head with them every week. Uh but I'm looking at some of the data coming out of some of these reports and earnings calls and I saw something that was very interesting and that was the deposits deposit averages are uh up 7% year-over-year. So that kind of blew up this idea of flight of capital uh tremendously in a bad way I think for the bank. So dare I say, has the ABA lost this battle?

[00:13:14]>> I mean, I think they've certainly lost credibility because you can't go around saying, "Oh, this is deposit flight.

[00:13:20]This is hurting us." And then, you know, have JP Morgan come out and have the record profits, right? I mean, it's just not a real argument. I think the bigger problem is the banks don't have anyone on the hill that is looking to go to bat for them any further. I think, you know, they had a very strong champion in Senator Tillis and also Brooks. I think that Senator Tillis and also Brookbrooks actually delivered on almost every single thing that the banks were asking for. Like they they got it all. So, uh, you know, they they can keep coming up with new ideas and new and new things, but you know that the concerns they raised have been addressed. That language, you know, was changed. I think it is a closed issue and I don't think it's one uh that is that is going to be reopened anytime soon. And so I think the banks know this. You know, we've seen some advertising around town. You bumping a few folks on the hill and things like that. But, you know, I I think this is an issue that is going to going to stay closed. And I think that, you know, listen, the crypto industry lobby in Washington, which I've been a part of for over eight years now, is uh certainly smaller than the banking committee, but we're feistier. We're we're we're ready. We know what to do.

[00:14:31]We're aggressive. Like, we've had to battle the SEC and we've had to have all these all these fights over the past few years. We're we want to get this done.

[00:14:39]And I think um with the exception of me who's here talking to you right now, about every single lobbyist in crypto is up on the hill. There's briefings going on today, meetings in all offices, maybe except for Elizabeth Warren because that's a waste of time. And we, you know, like everyone is going out and explaining the issues, um, explaining any misconceptions around elicit finance or deposit flight or some of these other things and and I think, you know, it's it's in full force and everyone is motivated and we really want to get this done.

[00:15:09]>> You so banks are very quiet this week.

[00:15:11]Do you anticipate any last minute, you know, explosion coming out of the banks?

[00:15:18]Something?

[00:15:18]>> Yeah, I mean, I I I don't think so. Um, you know, certainly, you know, they can uh use the the various, you know, direct lobbying media. They can pull any of any of the tricks out there. But I think there's a real understanding that, you know, we can't have 62 million Americans who own crypto and have uh don't and not have a comprehensive regulatory framework to cover that. And I think you know this bill has um you know gotten a lot more complex than when it came over to the House. There's a whole illicit finance title in there that wasn't there before. They beefed up the spot market protections. there's a disclosure regime for uh new projects that want to launch in the US and so you know there's a lot of real substantive stuff in here and to um you know prevent that type of uh consumer protection from becoming law is you know I think it's just it's just a wrong wrong side history to be on >> very bad look yeah very bad look and you're going into midterms I think especially after the bank earnings that have been so highly publicized it really was good timing for the banks, but bad timing for the banks as well. Uh for all of this coming to to the to the head. Uh hey, listen, but the FUD has not stopped. Uh one of our favorite futters that has been out there has re-emerged and that is Carol House. She is going right at us again. And uh there were some interesting points that she got into and I want to just address this right here. And you guys have probably heard us talk about Carol before. she's been very uh against uh what's going on with crypto and and clarity in general.

[00:17:01]But this one I thought took the cake and that is now that because of an example of AI agents uh where you know they're out negotiating payment terms etc that essentially courts and regulators need to bear or figure out and determine who bears responsibility.

[00:17:19]What am I is this saying that now an AI agent is somehow responsible or or for evasion or market manipulation or any of those kind of things? What how's this >> Yeah, I mean listen, I I think that these are potentially some novel questions that aren't related to what's going on in this bill. Like there have been no hearings on this. There has been no discussion of this. I think that >> you know I I think that if this is something people want to look at later um but this is too far out of the scope.

[00:17:47]this is uh sort of regulating problems that don't exist yet. Um and you know if we try to predict where the future is going you know too far ahead then you know we might prevent it from playing out in the way that it's supposed to. So I um you know I don't I don't think that this that argument carries much weight and I don't think it's going to you know delay the progress that's happening on clarity in any way. anything to make of this July 22nd uh you know meeting that's coming up and this is going to be around the risk of clarity act uh to national security. Do you see any major issues right there? You know, I think listen, there are endless discussions on the intersection of crypto and national security. As I mentioned earlier, there's an entire section of the bill that has been added on elicit finance there. There's new requirements uh that are required. And you know, I think there are going to be these sort of popup efforts to try to uh you know, disagree with the direction of the bill, but I I don't know. I think the momentum that we have is real. And I think when you actually pick up the bill and read through the pages, you see that there is a tremendous amount in there that addresses any concerns related to national security. I mean, I think the reality is this is a technology that is being integrated into our financial system today. And if we don't do it here in the US, others around the world will do it first. And I think, you know, the US wants to lead. I think Congress wants the US to lead. President Trump wants the US to lead. And so, you know, there's going to be folks that are out there that uh, you know, maybe don't have uh, the most credibility that are going to try to argue against it, but, you know, at the end of the day, I think, you know, the reality is this is this is coming and we want to be a part of it and we want to regulate it appropriately.

[00:19:37]>> Yes. Listen, Kristen, I like your attitude on this. I like that tenacity and that you're saying, "Hey, we got this. We're we're there. We're close."

[00:19:46]But listen, as a journalist, I have to be skeptical constantly and I'm always looking at, you know, these nuances. One of course was this Finen meeting and I want to play a clip because this even surprised me. Let's go to the clip.

[00:20:00]>> Standards. Will you explicitly commit today to preserving this bright line distinction so American software and hardware developers are not improperly regulated as financial intermediaries?

[00:20:12]>> Uh, Chair Davidson, let me uh >> I apologize. My time's expired, so I'll ask for that in writing.

[00:20:18]>> We know crypto is here. We know that AI is here. Uh so maybe we can talk about that offline. Thank you, Mr. Chairman, and I yel back.

[00:20:26]>> Yep. Thanks, M.

[00:20:26]>> But I'm concerned in the in reading that Circle the other day did not take action to freeze and burn potentially suspicious illicit accounts, arguing they had to be ordered to do that by the the government. What What are they talking about? Um, this is something I'm not personally tracking and would like to get back to you on this.

[00:20:47]>> Circle chose not to intervene. Tether did under some circumstances. And so, is this an area where you actually need some clarity out of Congress?

[00:20:56]>> I this is something I would like to look into um the uh you know the um I would I'd like to understand this a little bit more before I can provide an answer. Uh, will you include uh the information that I just described by the president of the United States and his family?

[00:21:14]>> I cannot speak to that at this moment.

[00:21:17]>> Why can't you speak to it at this moment?

[00:21:21]>> Right. Member lawyers. I, you know, today I want to talk about what Fininsen has done.

[00:21:25]>> I respect what you would like to talk about and I'm asking, are you going to take up what is necessary?

[00:21:33]>> I'm here to talk about Fininsson and Fininsson's work. Let the record show that the witness evaded the question and that we will continue uh to point to the corruption that's undermining this country.

[00:21:45]>> Thank you, Miss Waters. The >> Okay, so not happy people. Uh that of course was Gaki who is the director of financial crimes enforcement and uh wasn't answering a lot of I mean I don't understand defense seems like they're almost toothless here in the sense of being able to do some of these things. So, uh, where do do you think this has any bearing right now on how many of the enforcement models may play out from Clarity in itself if Finson is in fact going to be in charge of this?

[00:22:18]>> Yeah. Well, listen, Finson, Financial Crimes Enforcement Network, uh, they are a an agency within the Treasury Department. Um and they have a very specific um mission and it's not related to any sort of criminal enforcement but they are there to help implement regulation related to uh you know anti-moneyaundering policy etc. And you know they have a very like limited job so I have some sympathy for her in that she is only allowed to say things that are clearly within the scope. Um, I do think what we're seeing though, both with the Genius Act that was signed into law a year ago and with the Clarity Act, is really a kind of more comprehensive tool set so that, you know, the Treasury Department has the tools that they feel like they need in order to enforce things. I mean, I think, you know, I have some sympathy for Circle because the way they are regulated today, it does make them uh, you know, there are challenges there. They're not able to just go and like freeze things even when they see it that suspicious. And so I think there are ways that the private sector companies within crypto can work with law enforcement and get the kind of information sharing that they need in order for for things to move more quickly. Um but you know I think that's why we're doing this clarity act. You know that again I mentioned there's a whole section on elicit finance in there that will you know provide the type of clarity that that we do need. Um but I would say you know going back to the very first opening question from Warren Davidson around developer protections you know there there is a fine line there and I think that is something with the blockchain regulatory certainty act that is included in the clarity act that does protect those that are really only contributing code. They take no control of customer funds. It it's keeping them you know sort of protected from uh some of the requirements that would be impossible for them to comply with. So I think there's a lot to go on there, but I think that's why we are having um these discussions as part of this legislation. And I think you know I'm optimistic that that uh you know when this gets done um you know that the the committees will have more comfort with with the powers that the government has uh and also the limits to the powers that the governments have.

[00:24:30]>> When you look at genius and how that has now started to make its way into policy and we have so many of these bureaucrats and I'm I understand why you're being political. I won't be and that is that these bureaucrats contemp in most cases are completely incompetent andor lack the knowledge of being able to execute on getting anything done. So you still have that barrier to cross right now Kristen. So I think that is a concern of mine. We're already seeing this playing out uh kind of in in sense right now what's happening with Genius. And remember the Genius Acts July 18th deadline was missed originally and that was finalizing the stable coin rules.

[00:25:09]How much of an impact do you think that's going to have when maybe we get clarity through or maybe we don't on missing a deadline here? Is there any correlation between what happened then and what's happening right now in front of us?

[00:25:23]>> No, I think it's common for there to be extensions in the rule making process.

[00:25:28]you know, this is a process where they take the legislation and and write the details. I think when clarity passes, there are dozens of rulemakings that are demanded in the clarity act, but most of those apply to uh the SEC and the CFTC and less so to those that are implementing the Genius Act. So, there's going to be a tremendous amount of work to do. If you are in law school, I'd highly recommend uh learning about crypto. there's decades of of work in the legal space ahead for those who do it. Um, and so, you know, there's there's, you know, the the end of the road is not genius, but or is not getting clarity and genius signed into law. But I think those are hugely important milestones because that does put the top level framework in place and it will allow more investment to come into crypto assets. It will allow traditional financial institutions to integrate the technology. I think it's going to unleash economic activity in a way that'll make the US uh continue to be the leader in the financial and technology sector for for decades to come. So, I think there's a lot of benefit to getting those done. And I think that's one of the reasons why we're having so much attention to it on on Capitol Hill uh just as even as we speak. And one of the things too, Kristen, because what happened in Japan was a landslide uh and I think a hallmark change of being able to deal with what was like a 50% tax uh taxable crypto uh event versus reducing that down to 20%. And now we're we're looking at tax bills potentially for crypto that could be lost within this. How how could we even get something going on these crypto tax bills, but yet Japan's over here doing it?

[00:27:07]>> Yeah. Well, there there is starting to be more attention to tax policy on Capitol Hill. We've seen a couple bills introduced by members of the House Ways and Means Committee, and it is their job to originate uh tax legislation. I think, you know, whether or not cryptot tax gets done this year, I think, is an open question. I think one of the things that's interesting about tax policy is you very rarely have standalone tax bills, you know, be signed into law.

[00:27:36]Market structure legislation is different. The only way for that to get done is to do it as a standalone bill.

[00:27:42]We cannot attach market structure to the defense authorization bill or an appropriations uh you know omnibus package or something like that because in order to do so you would have to have sign off from all of the committee chairs and ranking members and Elizabeth Warren will never allow that to happen. So it is an incredibly heavy lift to get market structure done because we need standalone floor time.

[00:28:05]Cryptot tax can ride on any tax package.

[00:28:09]Um, and so I think there's a lot more opportunity to move that. I think the really real question is do we have the details right? Is everybody comfortable with where the tax policy is? And have we done enough education as an industry uh on those tax writing committees so that they feel comfortable moving forward? And you know, the reality is we haven't as an industry spent a lot of time with House Ways and Means and Senate Finance because we've been playing defense at the SEC with other federal regulators and now over the past two years have been focused so deeply on the the clarity legislative process. But I think once we get the Clarity Act passed, it's going to be all attention shift and focus to the tax committees.

[00:28:50]And I think there's going to be a real urge uh to get the tax policy updated to catch up with where we're at, uh, you know, with the market. And so, um, you know, I think it's it's not an if tax will get done. It's a when. Um, but, you know, we want to trust the process. This is how we get good policy. And and I I think it'll it'll happen in due time.

[00:29:12]>> Listen, from what I hear you saying, Kristen, is that uh this is kind of step one of many that's going to be taking place over the next few years. moving into that in terms of a change.

[00:29:22]Obviously, the rule making will start to coincide with what you know our bureaucrats are going to be pretty much implementing now, which I'm a little concerned as to how that's going to play out even with clarity because there are some uh to a certain extent loopholes within that, but some of it may even fall within this new uh verbiage around ethics. So, all of this could change things quickly uh very much so. So, we'll we'll definitely keep you on the front page of the Rolodex here. So, when things start moving in DC, we'll give you a call. But thanks for coming in today. We appreciate the breakdown.

[00:29:55]>> Thanks for having me, Paul.

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