Episode 1

February 14, 2023


Ep. 1- Ari Redbord and the Future of Crypto Regulation

Hosted by

Shylia Ward Jason Dukes Dave Uhryniak
Ep. 1- Ari Redbord and the Future of Crypto Regulation
TRON Policy Report
Ep. 1- Ari Redbord and the Future of Crypto Regulation

Feb 14 2023 | 00:25:51


Show Notes

Welcome to the very first Tron Policy Report!

Ari Redbord of TRM Labs joins us to discuss the latest in Crypto policy and regulation. We talk about the future of crypto regulations and learn about the focus of the SEC, and the new Congress! Buckle up! It is a fast moving in depth conversation that you will not want to miss! 

Till next time! Your host- Andrew Hemingway 

DISCLAIMER: The contents of the TPR podcast and the opinions expressed therein are solely for informational purposes and do not constitute financial, investment or legal advice.


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Episode Transcript

Andrew 00:00:14 Hello and welcome to the premier of the Tron. Policy Report Regulation and policy is the hottest conversation today in crypto. Nearly every government and jurisdiction are studying, preparing, writing, or actively enforcing new laws and regulations. As a leader in the global blockchain and crypto community, Tron felt it necessary to proactively educate its vast user base and to provide for them the very best insight possible on all that is happening in policy and regulation. So we have launched the Tron Policy Report a biweekly podcast where we will update and educate our listeners on the latest news and headlines, bringing expert analysis and interviews, thought leaders and legislators working every day in this space, we will interview members of the US Congress and Senate members of Parliament, educators, lawyers, CEOs, investors, a M l experts, regulators, and other stakeholders in the policy space. I'm your host, Andrew Hemingway. I lead the policy effort here at Tron, and it's my pleasure to welcome you to the very first episode of the Tron policy report. Andrew 00:01:32 And now for a look at some headlines, Tron may soon be officially adopted by the government of the Eastern Caribbean Island of Saint Martin, member of Parliament, Rolando Bryson, the leader of the United People's Party, and second Vice Chairman of St. Martin's Parliament, has been outspoken for some time now about the benefits of blockchain technology and cryptocurrency for the people and economy of his homeland. He has now initiated the proposal of a law to designate the Tron protocol as a country's blockchain infrastructure and the Tron based cryptocurrency, T r x as legal tender for everyday use. Justin son, the founder of Tron, tweeted about this. He said, quote, another milestone for Tron St. Martin to adopt Tron as legal tender marks another achievement for our push on worldwide blockchain adoption. This news follows on the headlines from October, 2022, the Commonwealth of Dominica officially announced the adoption of seven Tron based cryptocurrencies as legal tender along with the designation of Tron as its national blockchain. Andrew 00:02:40 And so we see the Caribbean nation's adopting Tron very exciting, both for the, uh, adoption of blockchain and also to see countries and governments, uh, starting to participate. And finally in our headline segment, US Congress is back in session and the chairman, chairman of the Financial Services Committee, Patrick McHenry, has formed a new subcommittee called Digital Assets Financial Technology and Inclusion. The chairman is rep French Hill, a Republican from Arkansas. In a recent interview, he led out his priorities. He said, quote, I will lead the subcommittee in creating a regulatory and legal framework for digital assets, including digital payments that protects consumers and investors while keeping America as the leader in FinTech and blockchain innovation. It'll be interesting to watch the headlines and to continue to see how this subcommittee comes with new legislation. Of course, in the last session, there was several different bills, approximately 17 different pieces of legislation brought forward. None of those were passed. And so we'll be interested to see now with the new session, new leadership, if there can be some, uh, movement forward. French Hill as also stated that he will be looking at, and one of the bills that seems to pass will be passing soon could be some additional regulatory framework around stablecoin. Andrew 00:04:02 Up next, our guest, Ari Redbord from T RM Labs gives us expert analysis on the state of regulation globally, Andrew 00:04:12 And we are excited to welcome Ari Redbord to our, show the head of Legal and Government Affairs at T R M Labs, one of the leading firms in the cryptocurrency space areas, regularly featured on C N B C, M S N B C, any number of of other cable outlets, but is certainly a thought in the blockchain intelligence space and has been a leader throughout his career. Let me just give you a little bit of a, of an introduction to who we have as a guest. Prior to joining, T R M he was the senior advisor to the Deputy secretary and the undersecretary for terrorism and Financial intelligence at the United States Treasury. He has held a number of positions, in government and oversight and has a vast experience with regulators and the formation of policy. And so really excited to have you on the show tonight. Ari Redbord 00:05:02 Andrew, thank you so much for having me. Really looking forward to the conversation and excited to be here. Andrew 00:05:25. Absolutely. So we've just come through the year 2022 where it seemed like for the first time, besides the obvious blowups that occurred, that regulators really started doing more than just what I would call saber rattling. They finally moved perhaps away from the talking points to actually saying, we need to do something. But you have a vast background and experience with lots of cases that you've been a part of, investigations, you've been a part of, things that you've seen. How does Crypto 2022 from a regulatory perspective compare to the 2008 financials to Enron, to the other sort of big things that that we've here? Could you give us a context of where this fits? Ari 00:05:52 Yeah, it's an amazing question. I I don't wanna date myself too much, but I was a young associate at a law firm just around nine 11, and as you mentioned, that was the age of accounting fraud where we had clients in Worlds com and Enron and these cases. And, and yeah, I think that just as a jumping off this FTX moment, if that's where we're going with this is more akin in my mind to to that right to fraud at large institutions rather than fraud that occurs on blockchains or fraud that involves the technology itself. And I think it's a really important thing to consider when we talk about how to regulate the crypto space more broadly. And even just jumping off from there, you mentioned my background. I was a prosecutor at the Department of Justice for about 11 years, and most of that was in the illicit crime space. That intersection between money laundering and national security, what I call threat finance, terrorist financing, export control, sanctions, criminal. And I can tell you that it is very hard to follow the money when you're talking about bulk cash smuggling and high value art and networks of shell companies and HOAs. There are no t r m for those things, for lack of a better description, right? What we are able to do now is follow the money on open immutable public ledgers or these blockchains where crypto lives and moves with tools like T R M in ways that we really have never been able to do that in traditional finance. So look, there is going to be fraud in financial crime and crypto because it, as the ecosystem grows, we'll likely see more of it. But the reality is we now have ways to track and trace financial flows in ways we never did before. And that is really a significant change. And when I talk about sort of building this new financial system, building a safer financial system, it's because agents and investigators and compliance professionals now have tools where they can monitor risk in ways they never could before in the traditional financial system. Yeah, absolutely. I think that's a great, it's a great way to set the table here for this conversation. One of the things that, that I've seen, and it seems to be m coming more prevalent. I know when the tornado cash event occurred in the last year, you were certainly vocal, vocal about that. You, you had t r m certainly had a perspective on that. One of the troubling things that occurred to me at least was that it seemed like the technology was being punished and not necessarily the bad actors. And that has seems to be something that that is occurring more. Andrew 00:08:24 And I'm wondering if A, you agree with that? If B it is a maybe, what's the root of that? Is that a knowledge gap in our law enforcement and regulators understanding? And is that something that that is a threat as we think about regulation going into into the new year? Look, I think the challenge for regulators, policy makers and really the sort of crypto, the broader crypto industry community is how do we thread the needle between ensuring that bad actors are not taking advantage of this new financial system yet at the same time providing the privacy that is necessary as you're transacting in a more and more open financial system. And I think that's the, the challenge of our day. I think, look, to me the most interesting conversation that started in the wake of tornado cash was this question of security and privacy on blockchains privacy versus security. Ari 00:09:15 It post nine 11, we had this conversation in airports and on city streets, and I think tornado cash forced us to have this conversation o on blockchains. I will say that tornado cash was unique in that we were seeing North Korea launder according to T R M, over a billion dollars of funds through this decentralized mixing service. So on the one hand, we need to stop North Korea from laundering funds because when North Korea commits a hack, it's not two kids in New York City like Bitfinex, right? This is a nation state actor that can shoot a missile, a Guam that is engaging in a destabilizing activity globally, wants to create weapons of mass destruction. So how do we stop North Korea from laundering those funds, but at the same time not affect regular users of these tools? Because I absolutely agree that people are gonna need more and more privacy as they transact on blockchains because of the nature, the open nature of blockchains, right? Yes. People aren't gonna want their employer to see how they're spending their money. They're not gonna wanna see where they're sending funds to dissidents across the globe, what whatever it ultimately is. So I think we need to continue to figure out where to balance. And quite frankly, that's what we think about at T R M all the time. How can we give Defi protocols the ability to monitor and for sanctions and to stop bad actors while at the same time not affecting regular users? And I think the sort of dusting attacks, right, where people were sent small amounts of funds Yeah, connected to tornado cash addresses was something that, that, that happened immediately after. I think it was mostly figured out because now these sort of larger defi protocols are able to make more granular decisions about what addresses to potentially tr transact with. So think tornado cash was a really important moment. Yes, as you said, we talked a lot about it, but we really thought a lot about it as well because it really is this moment where I think we're gonna see this con really important conversation. The last point I'll make on it is, look, in the age of the internet hack meant the loss of like usernames and passwords. But in the age of crypto, a hack means the loss of life savings. Yeah. So like on the one hand, we wanna enable that the crypto ethos, right? The sort of classic libertarian privacy ethos. But on the other hand, we really gotta stop very bad actors like Russia, North Korea, Iran, and others from taking advantage of this sort of new crypto ecosystem that we're all building together. Yeah. And I, that is the policymaker. I think that is really Congress's challenge. Not only the breadth and scale of what crypto represents today, but also the number of significant, what I would call like paradoxes, basically it's like along the, the lines of what you're saying, it's a public ledger as a basis of technology, and yet there's a need for privacy. Andrew 00:11:58 There's a, a democratization for the average person and and those uh, members of third world countries who are for the first time are AC have access to actual capital and the ability to be able to transact. And yet at the same time there are no security issues. It's such a difficult thing to get around. It's fascinating. I always go back to the technology, I'm sure, as do you and I think the promise of the technology, permissionless decentralized, yes. Programmable cross-border value transfer at the speed of the internet, right? I think that these are the qualities of blockchains that we're going to have to really utilize and enable in as part of a regulatory framework. Understand that we're talking about something different here. But there are qualities of blockchains I think allow us to regulate potentially in new and super innovative ways. You don't need to regulate intermediaries anymore when a regulator has visibility on their entire ecosystem. Ari 00:12:47 Yes. Through, through through public ledgers. So I think there's, I think that what I would, what I always talk about is the need to really lean into the technology as a regulator or as a policymaker and really dig in and understand this. And I think to your point, as you open the show, I think we're seeing more of that. I think more understanding around that. And uh, and ultimately I think 20 23, 20 24 will be really important as we move forward. And that is the, uh, that is o obviously the work of Congress at this moment. The delegating of authority still seems to be a little unclear with the, even just this week, the cftc, some of the commissioners making comments that they should have more authority. Of course we know S E C and Gary Gensler is very interested in having authority has been saying for a number of years, they need clarification, I think from Congress to say who's gonna regulate to enable them to do that. Andrew 00:13:32 But do you feel like this isn't an interesting thing because institutions are continuing to adopt and we continue to see almost every day another institution or another large bank or another large enterprise figuring out some other ways to interact and use crypto. But of course, they're really dependent upon regulatory clarity and understanding who they are going to be talking to from a regulatory perspective. How is that, how has that hindered or how has that helped the industry overall? And is that a, an accurate picture of where we stand? I think it is actually. And uh, I guess a couple points on that first, yeah, I think these big institutional investors, banks that, that have been really dipping their toe into the, yeah. Cryptocurrency sort of ecosystem. We at T R M, we work with a number of large financial institutions and they're all at a different stage of their crypto journey from Hey, should we bank this crypto customer to, should we offer crypto assets to our customers? Ari 00:14:27 To ultimately like, Hey, should we issue a crypto asset like JP coin or something like this? Yeah. Don't think we're going to see full institutional investment in the space until we have more legal clarity. And I think that's just the nature of conservative financial institutions. And I think unfortunately the specific issues that you're getting at the definitions, is it a security? Is it a commodity? Who's to regulate? I think we're probably a ways off from getting those types of answers. I think we're already hearing in this new Congress that we're likely to see something on stable coins I thought would happen in the last Congress, quite frankly. And stablecoin is an area where there's general consensus, right? There should probably be one-to-one backed a stable coins in the wake of Terra. So I think that's like maybe low hanging fruit and I'm hopeful that'll be something that'll move forward. Ari 00:15:10 I think in the meantime, we're gonna continue to see regulatory enforcement action by places like DOJ Treasury, S E C C F T C, and we've absolutely seen that. And I think some of it is hard because in some of those enforcement actions, these regulators like the S E C are defining what is and what is not a security. Yes. And that's become this regulatory regulation by enforcement. But I will say on the flip side of that, ask how can regulators go, uh, engage with that paradox, right? Thread that needle between stopping bad actors and allowing the crypto ecosystem to grow. I think we've seen that from treasury and that is, if you look at the way treasury has used sanctions in particular, they have really targeted what we call the illicit underbelly of the overall crypto economy. Non-compliant exchanges like Sue X and chat X and Grant X and just last week bitz Lato, we've seen them go after Darknet markets like Hydra, right? Ari 00:16:08 I don't think anyone thinks that Hydra should be able to operate. We, we've seen them go after Darknet mixing services, right? Like Helix and Bitcoin fog where they're actually conspiring with Alpha Bay to say, Hey, this is where you should launder your funds from narcotics sales. Like I don't think anyone in the crypto ecosystem wants that to flourish, right? Because the only way this works is I think if people have trust in it. So I think that the targeted approach is the right approach. And I think so far with the exception maybe of tornado cash, we've seen actions that have not really affected regular users but have gone after bad actors within the ecosystem. And I think that's what I'm hopeful that we'll continue to see. Yeah, for sure. During our attention, maybe a little more, more globally, are there countries that you feel like today are perhaps leading on these exact conversations and are perhaps setting a great framework for regulatory conditions? Ari 00:17:01 And I think is there a consensus globally that, that there would be like the W E F asked for a global framework? Do you think there's enough consensus to see something like that form? I don't know that I'm naive even enough to believe we'll ever have global regulatory standards in the crypto space. And why I say that is we really have never had global regulatory standards for anything. But I do believe what we're starting to see develop, and I think what I, if I had to make a prediction for 23 or 24, it would be, we're gonna start to see consistency across countries and regions is what crypto related standards or regulation could look like. And I think we're already starting to see that. When you ask where I look in the world, I think you gotta start with Europe today. Yeah. And Mika, the markets and crypto assets legislation really the first, first comprehensive framework and there's all kinds of interesting things, all kinds of definitions about what is a crypto asset different. Ari 00:17:55 Yes. They delve into stable coins. Interestingly, you asked about my, my background as we started off the thing that informed Mika, the reason Mika exists in the first place is because in 2019 Facebook launched Libra, the sort of now failed stablecoin project that was linked to a basket of global fiat currencies. And that's what caused regulators globally to freak out, for lack of a better description, a cryptocurrency that 250 million users or whatever had access to. And that's why that's, I was at treasury at the time Libra launched and I could tell you we very much had that reaction too. Where's the anti-money laundering? What are the standards? How are we gonna regulate this? Went to Switzerland to meet with Swiss regulators around the topic. But that's really where Mika developed. But the coolest thing Mika does is it creates what they call a past portable license. Andrew 00:18:43 So if you get a license in one jurisdiction, you talk about consistency, you know that that license is good A across the entirety of Europe. And I think that provides the regulatory clarity that businesses need to operate. So I definitely think Europe is doing great work. I think we're gonna see more and more from the UK in 2023 and 2024. We're gonna see consultations on stable coins I think as early as like now CBD cs. I think that's a really interesting place. Uh, I think Singapore for a really long time has been one of the sort of leading jurisdictions in the space. The monetary authority of Singapore has done amazing work I think that they have really leaned in and and are strictly regulating the space in a way they weren't even a few years ago. And we'll see if causes crypto businesses to lean in because they have more clarity, right? Ari 00:19:30 Or lean out because of strict regulation. But I think they're doing a really terrific job, at least pushing out clear, concise, yeah, clear concise regulation and doing a really good job across all of these different topics, particularly consumer protection, which is really top of mind for a lot of folks in the wake of F T X finishing, finishing the global R trip around the world. And where is Carmen San Diego? I think Dubai is somewhere really interesting today and really all of the UAE to include Abu Dhabi, A D G M and Abu Dhabi is really one of the few regulators that have even delved into, Hey, how should we regulate and defi in a more decentralized space? Dubai has the first ever crypto only regulator on earth vara the virtual assets regulatory authority. So I think that you can almost throw a dart and cool things are happening in crypto. Ari 00:20:14 I didn't even mention Latin America. Where Brazil now has is developing a framework Yes. And all kinds of other interesting work. I will stop there cuz A, I need to catch my breath and b I went on for too long. But yeah, there's it. This is where I get excited cause I think there's a lot of interesting work happening in the world and I think there's probably a lot we can learn here in the United States. Yeah. So 1, 1, 1 glaring absence from the, from our trip around the world is perhaps one of the continents that maybe is most opportunistic for crypto, which is Africa. And I know that there has been a, a lot of talk and a lot of hope. Ha Have you seen ha have you seen any meaningful movement in the continent there? Yeah, it's a great question. It's, it it, what's so interesting is even when you talk about Europe and you talk about it's country by country, really at the end of the day, yeah, it's easy to make these sweeping and it's really true in Africa. Ari 00:21:03 We, we've seen law enforcement in South Africa to really try to lean into the tools, really understand how to stop fraud and financial crime in the space, but particularly some of these pig butchering scams and other things that are going on. And we've seen other countries start to really think about and talk about regulation. But I think probably not as far along as some of these other jurisdictions that we're talking about. Andrew Yeah, no, for sure. I was recently, my family and I, we support an orphanage there in South Africa and we were, you see visiting and they was, I was just fascinated to learn that some of the ways that transact business is by sending each other minutes on their mobile plan and peer-to-peer, just phone to phone, they're able to charge. And so someone might do work for you and uh, the way you pay them is by giving them 20 minutes on their, on their mobile plan. Ari 00:21:50 I've never heard that, but I'm absolutely moved by it. That's absolutely extraordinary. You talk about alternative payment systems. Exactly. Exactly. And you just see how that place obviously into the broader picture. So lemme just, let's just, this is where the opportunity is. I think that quite frankly, we, and look, I have 15 years in the US federal government almost all in illicit finance. I now work for a company that works with regulators and law enforcement to stop bad actors. But we don't talk about the positive use cases enough. And I think as a, as an industry, we need to get better at that. What you just said there is amazing. And, and we do see extraordinary use cases in places like Ukraine. Yeah. And elsewhere, we're able to finally for the first time, transact peer-to-peer outside of a traditional financial system that could potentially be controlled by malicious nation state actors. And it, there are, so that's just that, that there's so many other examples around the unbanked and other types of use cases, but we should talk about it more. And I, I'm glad you raised it at the end here. No. Ari So just concluding as you look to to, to the 20 23, 20 24, what is your calculation or vision of what perhaps this congress might be able to work through or what we might see on the EU or the UK side? At which, which to your comment earlier, I think the UK has done a really, they're building up the right framework, they're really taking their time to do it. But what do you see as the end result here we get through 2024? It's a great question and I think that just, I'll start macro and, and get down to the us but I think that what we'll see is sort of what we just talked about in that is not global frameworks or standards, but I think what we will have is much more consistency across jurisdictions, which I think will provide the clarity that businesses need to operate. Andrew 00:23:28 I think that's gonna be a really important factor. We're already seeing that develop in all those places. I just mentioned Singapore to divide to the eu, to the uk to hopefully eventually the US will have more consistency, which will provide some of that legal clarity that businesses need. I think the other thing that I'm really excited about is more and more I hear policy makers talk about wanting to be a crypto hub, wanting to be a safe place for the development of digital assets. We've heard that from the uk. We've heard that from Singapore and Dubai. Not just, hey, this is a space that needs to be regulated, but we wanna regulate this space to attract business. And sadly, or not sadly, depending on where you're from or who you're talking to, colleague in the European parliament recently said to me something along the lines of, this is a business, Mika is a business advantage for Europe today. Speaker 1 00:24:11 Yeah. And I've shared that views with policymakers in the us I th I think, yeah, I think having that type of legal clarity is a business advantage for Europe and will be for Dubai in Singapore and these other jurisdictions. And I'm really hopeful that if not this congress the next, that we will be able to get something more comprehensive. But for now, I think it's a look, I wanna leave on a solid note here too. Look, chairman McKendry of the House Financial Services Committee, first thing he did was develop a subcommittee on digital assets. That's right. That's what I'm talking about. Right? Let's focus on this, let's get it done, let's get it done. And let's ensure that we're talking to industry and technologists and builders as well. And I think the House Financial Services committee in the last adminis, in the last Congress, and actually in this one, we're actually pretty good at that. Speaker 1 00:24:55 Yeah. And I'm hoping that those conversations will continue. Yeah. I'm excited that I think this could be one of the very few issues, that it has bipartisan support and that it's, it, it is a non, it is a payments cross quarter value transfer. These are nonpartisan issues and I really hope that we can get over that, get over that hurdle. Absolutely. Harry, thank you so much. We've just, this has been a wonderful time. I appreciate you taking time outta your busy schedule to, to join us on our premiere show. And you've added a super honored to be your first guest. This is so cool. No, thank you so much for having me. Very good. Thank you. And I look forward to, to doing it again. Let's do it. All right. Thank you so much.

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