Coinbase v. SEC - OVEREXPOSED

Recorded: Jan. 22, 2024 Duration: 1:53:13

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oh hi welcome back to kids um follow your dreams yeah wanna get a mansion a jacuzzi a theater to
watch my movies couple whips and lots of fancy things the kids they call the donies see the
future crystal ball mirror mirror hanging on the wall who the fly's white boy got a mall
got your girlfriend screaming all the calls she bummer man we fucking and you cuddling
like baby where the fuck you been i want to tell you she in love with him so so sweet
ain't saying nothing you could probably tell she bluffing cuz she kiss you with the mouth
she gave me head with my concussions and she blushing all red wanna rush and go to bed
you interrogate that bitch like you the feds so she says she in love with a rock star rock star
wanna smoke my weed so she asked me where the tops are tops are
just a motherfucking kiss
what is up english i don't know dude i was pretty hyped when i picked this song just because it
was the first song i picked and the chorus ended at exactly one minute and 30 seconds and i know
you're kind of a stickler about that so i was like dude this is the fucking jam oh that's kind of
perfect how do we sound by the way okay yeah i think you sound good is this your new setup
yeah yeah yeah it is in fact the only thing that ruined the song for me was i knew you had your
new setup and i was worried that you were dancing at the same time so like that was just like the
only thing that ruined it but i was no i'm watching this not today it's netflix i got 10 minutes left
it's called bitcon so it's all about like bitcoin and like scams and icos it's pretty good
yeah to be honest the dancing today was muted the reason being um i may have broken my finger today
dude dancing no at the gym and yeah i mean it's it doesn't feel broken but i will tell you it is
black and blue completely and it is swollen like a tangerine i don't know if that's the proper
swelling but it's bad dude just because you can't flex on people that don't go to the gym
like i saw you but this isn't a flex i have like nearly a broken finger i'm not talking about that
i'm talking about you trolling on the taproot wizards team saying to you guys anybody on
the team even lift oh that was funny i'm like this that was funny it was kind of funny but
anyway farce response was was how many how many taproot wizards can you live
this because i don't think you got it and i will actually say before we go before we get into things
you know i did do at least today with my broke potentially broken finger i spent much of today
actually out and about filming for the op cat did you really so yeah i spent i have like 45
minutes of uh you could have about that you did the pizza video you did yeah yeah you have fun
with it that's good you're a good yeah i did i had uh i had 45 minutes of film that i sent over
to the editors apparently because there's a whole team that's that's that's working on this i'm excited
you have you have a whole production team dude are we scaling up what's going on
is uh that's not me it was aksu aksu reached out he was like we want you i was like all right
that so so yeah that's what we're up to cool i mean if you can get a dope white list
with your with your goons then so be it anyway what's up guys welcome my name is eddie a.k
dancing eddie i'm joined by my co-host as always english and the daily alpha um yeah man today
hold on hold on your nft phi or d phi eddie i think that's what you rebranded that's like
that's the stronger proposition well well that's what that's what thread guy's been calling me
that's what the red guys look dude thread guy's pumping your bags johanna bought you equipment to
be according to his post the nft uh you know d well yeah so like yeah i mean people are pumping
your bags like how often like you have to pay thread guy to like pump your bags like you see the
job that he does for shrapnel like this guy is doing it for free like the number one influencer the guy
the guy who won 2023 like there's no doubt that like as just like a regular dude like on the timeline
thread guy won 2023 so the winner of 2023 is pumping your new image and you're fading it
well thanks well that's true that's true well anyway okay so nft phi eddie a.k dancing eddie a.k
eddie um and yeah we we've got a lot to talk about today man
so again first things first let's just start things off straight uh welcome thanks again for
joining us on this lovely sunday evening we're here every sunday 8 30 eastern time p.m p.m not
uh not a.m that would be awful so 8 30 p.m eastern every sunday we were on this puppy um and
so for some context i am a 1l in law school so i'm pretty interested by some of the legal
things that go on in the day-to-day of our crypto world here um but again that also means
that i am a 1l which means i'm basically a baby of the law and i know effectively nothing so
so just just to be clear let's start with that as like a baseline okay i i am just a slightly more
engaged citizen of the united states when it comes to law definitely not a lawyer by any means
so do not take anything as of what i say in any sense potentially as legally binding in any way
because it's definitely not all that said also another disclaimer uh since we're doing some
disclaimers just because someone is on my stage does not constitute a tacit acknowledgement
endorsement or any other side of uh condoning of the things that they say
just you know they're on my stage and unless if i literally actively agree with them
um i don't necessarily at least anyway with that and with that in mind and hopefully first off
again hopefully i sounded because i'm on a new setup right now uh today i was actually pretty
interested in talking about coinbase man because what happened last week there was a massive hearing
between coinbase and sec uh and the coinbase has been alleging a bunch of things
we'll get into that in just a second but i got some lawyers on stage hopefully some more join
us throughout the state throughout the uh throughout the experience i think it'll be a good time
so yeah we'll just open with that man yeah no that sounds good to me dude like i actually did a show
with with huda my co-host um and he talked about actually his brother henry and he was pretty well
versed and i didn't pay as much attention as i should have because now i'm like damn this is
the topic of of today's thing but we'll get into it for sure so i have some notes um and i
mean i'll just say this to start man my overall my overall opinion after listening to that and we'll
get into like some of the specifics was wow that that uh that judge was definitely for for coinbase
on this one like i think um the overall sense that i got was this one was definitely leaning
in coinbase's favor there were some things where coinbase was they actually coinbase actually
agreed with a lot of the scc's complaints um and was like we actually don't contest many things
that the scc has to say but you know they they dove into some things more than others and
i guess so i wanted like toss to some of the other people on stage get some opinions i know
that taco taco out here it was actually on like in the courtroom and i thought that was fascinating
taco what was your read gm gm no uh yeah how are you guys man thank you for having me it was
interesting to get the shout out to come join and see you had this going on
uh absolutely i i just i thought it was fascinating and i went and saw that you were actually there
so yeah yeah um it was it was an interesting take um i i do agree with you that the judge
seemed to be leaning more towards coinbase but it was because coinbase gave and the the people
that filed the and i always pronounce this wrong the amakis or amases um the people that file
petitions on behalf of coinbase or on behalf of what is being sued gave a lot better and cleaner
definitions where the scc like when she asked like she asked uh castella like what did what did
these tokens do to be securities and she the answer was oh they didn't pass the howie test and she was
like no i i asked you what they did um and so i think a lot of it was she needed clarification
from the scc for their arguments um and so she gave ample opportunity that was that was
actually pretty funny on the listen back where to be clear the way that that came out in the case
was they're like so why are these why are these securities and and effectively they're like well
because they didn't pass the howie test and it's like okay i don't please don't she literally said
like please don't tell me they didn't pass the howie test and define that as how they didn't pass
the howie test like how exactly did they not pass the howie test i thought that was it was a
pretty interesting emphasis by the judge yeah and and the scc sort of kept giving that that that
roundabout and i agree with you coinbase did a really good job and out of all of the tokens
only one the scc sort of really addressed was chilies and i you know we we know what they
sort of targeted within that um and i have which by the way was probably it was probably the worst
of all the ones that they had listed right um i think out of the the ones that they listed that
was the only one that they could sort of target individuals rather than like you know they
oh my like nexo um and matic and salona and all of these other things and tokens that they
they named in that original suit that one had like the most hype about it i guess from a
from a perspective uh where they then sort of leaned into you know beanie babies and stuff
like that and that was a funny conversation in and of itself i'm sure we'll get into
but coinbase did a really i disagreed at first till i thought sat down and thought about it
but instead of like throwing all everything at the judge of where the scc is wrong they just
attacked like four toothpicks that was holding up all of the scc's arguments and if they got rid of
any one of those toothpicks it would not it would make the rest of it all moot well so just to be
specific there were there were four things that the scc challenged for against coinbase right so
the four things that i have in my notes were one the digital asset spot exchange so that's
effectively going up there and trading back and forth between assets so that's one the digital
assets exchange two the coinbase wallet three they're the staking service and four the prime
service for institutional customers which i actually don't really know what the prime
service is i don't know what that does but maybe that's because i'm not an institution myself but
anyway yeah and and that was and they then tried to use like the asset hub as a defining feature
uh of promotion um that's an attack vector within the howie argument that
coinbase was by providing information about a token and oracle you know price history
that that was somehow uh a promotion of those assets in a way by coinbase and that was well
you know from the previous hearing coinbase had thought the scc had made that be the focus of
their argument but then at the last hearing the scc went completely in a different direction
and so this was sort of a more interesting piece to where coinbase was able to actually
address the asset hub and uh yeah so i thought i thought coinbase did a good job on it and
i think she appreciated the
actual work put in by coinbase and those filing on behalf of coinbase
i think one of the funniest lines that she had said was around the staking aspect side
and i did i haven't listened back to the recording at all so maybe you have a note on this
but when she was talking about uh the scc's version of staking and i remember when that
was a big aspect from the scc we we got to see that great video from gary ginsler telling
us how to spell the correct type the different types of stake um that uh she said that she
got learned a lot from the d5 people as she called them the d5 education uh block but uh the scc's
version of staking is monstrous monstrously wrong and i'm not sure if she said demonstrously wrong
or monstrously wrong i think she said demonstrably or something i think it was demon i think it was i
think there was a d but either way it was it was emphatically wrong which was pretty funny
and yeah it was funny and and the scc sort of had its overarching goal sort of the the blanket
covered when the when the judge asked what finding in the scc's favor would have an out what the
outcome would be and they clearly said that that yes all of these would if they found if she found
in favor of the scc then yet all of then yes all of these are then securities and that's what
they've been doing a lot of the time they've been attacking they've been shooting off to the left
to try to score on the right and uh yeah rather than going after the protocols themselves
right exactly and all right so as we um as we need to dive into things two things one first of
all thanks again for tuning in guys and if you guys like this space like we're heading and um
or just want to help out bottom right purple button you know the real you know the deal bottom
right purple button likes retweets they go a long way you don't have to you don't have to retweet
but i will ask for like um but yeah it does actually help out quite a bit and leave a
comment i don't know if you just you don't have to comment on a case you just tell me
did you listen to it because it was i will know it was actually pretty hard to listen to after the
fact because i listened to it i listened to it after the fact and it was just some like youtuber
dude who streamed it off of his phone into the microphone and was just sitting there like yeah
yeah oh no why are you doing this what's with this peanut gallery dude um but that was uh
it was a five and a half hour or not five and a half hours about five hours about five
hour long hearing pretty fascinating to be honest so going into things a bit first i'm gonna toss to
carlo in a sec because i i do want to hear from carlo as well but taco and this is just a quick
request you don't have to because i don't know what your situation is but if you're able to
switch microphones just because yours has like some i don't know like weird feedback we can deal
with it but if you can change it that'd be also awesome you don't have to though i'll work on
that sure carlo what's going on dude eddie good to talk to you man and thank you for the invite how
are you i'm doing great well except for my potentially broken finger and all of the readings
that i have for this week which i finished about 70 to 80 percent of which but they're
still stressing me um yeah i'm doing great now mostly good for you man um first of all love to
be here and support you as an aspiring web3 lawyer and i'm really excited for what you're doing and
congratulations on the new rig shout out to jonah who's in the house for setting you up really
well i really like the setup you've got going oh i look i look crisp i'm not gonna lie and
sound it too hopefully and your dance i mean cannot cannot overstate uh what an epic moment
that was on x to see you not only have your new setup but then also dance your dance oh dude i can't
wait until like optimally what the end state right is i'm having the show and i have like i don't know
vivek ramaswamy and we're talking crypto and i'm just dancing the background how crazy would that
be but that would be pretty that'd be a pretty amazing end state for how this ends up but
anyway regardless he would probably be open to do it you know nst got interviewed him i know
but that was i will say he basically harassed vivek into doing that um and i will say it'll
probably okay if he if he were to become the vice president that would make things probably
pretty tough to reach him but you know we'll see anyway carlo yeah so look man coinbase um
it cannot cannot under understate the importance of this case for the crypto space because
like taco said it is interesting that they go after the the biggest u.s based crypto trading platform
as opposed to individually targeting the underlying tokens that are being offered on coinbase
and that's for a reason because if you take out coinbase you take out uh probably the easiest
way for people to transact in crypto that remains in the united states you've got kraken which is
also uh fighting its own battle with the scc so stakes are huge and i i didn't get to hear the
entire hearing uh caught bits and pieces of it between meetings but i would say i probably caught
about two-thirds of it and what i heard i was i agree with you eddie super impressed with the
judge uh outstanding remember too that she's the judge that dismissed the uniswap uh class
action lawsuit by uh several people who accused uniswap of being complicit in what was happening
with the token offerings that were being traded back and forth on the exchange uh so this judge
understands crypto and she was well prepared for this hearing she had a tremendous nuanced
understanding of the issues i i was really impressed with her i'm glad you pointed that
out because when i was chatting about this saturday um henry kind of made the distinction like her
having like the history of like um taking these hearings with crypto related and there was another
judge a male judge and i don't remember his name that sometimes is picked and he's has
like an anti-crypto kind of stance so his argument was like this could have looked very
different if it was a different judge yes so the judge by the way the judging question
is judge katherine polk fight phylla or fate phylla f-a-i-l-l-a i apologize for put sharing that but
that's the judge judge katherine katherine polk f um and yeah like you said previously presided
on the uniswap case which effectively and i i didn't read it but from the summaries that i'd
i'd seen i will say like sounded like she effectively agreed that coin uh code is in
a sense law and other people using a platform maliciously does not constitute that the platform
itself is malicious so i thought that was like that was obviously a fairly pro-crypto stance
and she also brought up i i think correct me i didn't look into this but she mentioned at one
point that senator lumis had reached out and and said like effectively wrote a letter to not rule
in the scc's failure favor or something of something to that extent taco did did you catch that
she did yeah so she said that she had actually she received letters from
two senators um one and i think you were talking uh judge raycroft uh about you know sort of
anti-crypto a little bit because if i remember right he oversaw the the terra lunast uh stuff
but um yes uh senator yeah senator lumis and uh i don't know if you guys also noticed but they
instead of saying terra luna they kept saying terra form right because it's terraform labs
yeah and and and so they they they separated that out but then they were talking about like
the form token on the side which was sort of hilarious um but uh no she she said that she
read everything um two two pieces was uh lumis and that was one of the big things that
coinbase um sort of pointed out and i'm gonna i always butcher this but the major major
rule major questions rulings um the coinbase sort of said that this was bigger than any
you know they were effectively saying that this was going to have a bigger impact
than one court should have control over on an economic value and this is where the scc
one was talking about specific tokens having this huge economic impact but then they called
coinbase's valuation of like their tokens as a rounding error and the scc tried to say that
their um ruling would only affect the tokens in the u.s which was sort of hilarious right
because they were saying so the scc called like they said the crypto industry effectively
a rounding error which in some ways it is and in some ways it definitely isn't because they
i think they said that it was a trillion is what they got to so the general stock market
is last that i checked in like the 40 trillions so the the nasdaq and well not nasdaq but like
the u.s stock exchange and the new york stock exchange amounts to roughly 40 to 50 trillion
dollars worth of value and the entire crypto market amounts to roughly one trillion dollars
worth of value and they're like it's a rounding error which i will say uh two percent of uh like
two percent of the stock market if that were to get wiped out no one would say oh the stock
market's two percent down like that's a rounding error no people would freak out they'd be like oh
my god we're going to zero right like this that's not a rounding error but that's that is how they
characterized it for the scc um i thought that was interesting and and like you were saying
that the other thing that it was fascinating was yes the question of okay so so ultimately
the majority of the conversation centered around the idea of like are these securities and well
one just to be clear um the scc themselves at one point i think so according there is a um
i will say i'm referenced when i say time codes i'll be referencing there was a video there was a
there was a video that was retweeted um by the ceo of coinbase and it was um like brian armstrong
retweeted it and it was like a five hour live stream of the of this hearing so when i
reference time codes if you want to check it out i'm blanking on the guy's name right now i could find
it in a second but it's brian armstrong no no not brian armstrong he retweeted some guy's video
and i'm blanking on who that guy is um but anyway so at 27 minutes in roughly the scc said
like the scc themselves said that the token itself like the tokens themselves are not a security
that's what that's what they said so i thought that was pretty interesting
right so but they when they when they were talking about selling them so that the investment contracts
surrounding them that's when they started talking about are these you know security investment
contracts and then they it got into the question of like okay what about beanie babies but but
beanie babies realistically like when you're talking about um economy at scale like beanie
babies don't really matter what does though is commodities things like lumber um steel stuff like
that if you're going to say that commodities are then securities that's a much bigger question
that that the judge was like hold up hold up hold up like whatever i rule here is going to reference
that yeah she tried to go and like ask for the speculative nature of beanie babies and like
limited editions um right because i was talking about burning because because we're talking about
like oh yeah they on on on some of these tokens they'll talk about how they're going to burn
assets and what that means is effectively to make things scarce and she was like well what about what
about limited edition runs on certain toys and beanie babies and i was like oh that's you know
and and it was uh real meat kevin that that brian retweeted out yes yes real meat kevin um
but uh yeah no and and that was where she she also asked she asked for other cases
and this is something that that i what i thought and i'd written down in my notes
um they asked for about assets that are put out created um that are speculative in value and i
i was thinking of you know rookie basketball cards rookie baseball cards you know they're put out
who knows how that player is going to do that year or the next depending on how they play
so that about the value of that card would then go up and so under do you hear what the sec
said it there yeah yeah get into that they they said that that's not uh they they tried to say
that uh there is no value they they're the values already created in them which i'll be honest
that that part when they said that i was like i don't i don't know how you can make this argument
so so what yeah collectibles are not a security is what they said right so basically and i and i'm
going to toss to carl in a second because i want your opinion here but effectively what the sec was
saying was that when you're buying into let's say right when you're buying into eth you're buying
into the ecosystem that is ethereum so you're not just buying an ether you're not just buying
one two three whatever ether you are buying into the ecosystem that is ethereum so you're buying
into the overall growth of the ethereum ecosystem generally and your ether individually um you're
expecting to hopefully at some point increase in value as a result but if you're buying a
baseball card uh or i don't know really baseball that well let's just say like um football right
and you're you're buying zach wilson card dude that's such a horrible zach wilson kind of sucks
what's a better one um cj shroud there we go from the texas if you're buying a cj shroud card
and you're buying his rookie card your the rookie card is already made like the card is physical
there and it's already made and you can't like you can't expect that card to go up like the
value's already there it's not going to go up and i was like when they were when i was saying
when they were saying that i was like wait hold on what like no one no one buys a rookie card
without thinking that they're effectively hoping that cj shroud or whoever the rookie card that
they're buying is going to be like an incredible player no one that's not i when i when they said
that i was like how can you make this logical argument this felt it feels like it was that
to me felt weird personally i don't know um and i i don't know if carlo you can
slash what to comment on this but did you have a follow-up you know it's interesting because
they also the issue of bitcoin came up during the hearing and that that distinction was brought up
as to bitcoin because bitcoin doesn't have this underlying ecosystem according to the scc which
is why they regard bitcoin as being a commodity and if we follow the ginsler logic anything else
uh in the cryptosphere is a security but i think at the crux of this problem is
and the judge very very aptly pointed this out the howie test is probably not the best
vehicle for evaluating these tokens and whether they do have the makings of an investment contract
and the expectation of profits by the efforts of others and it's maybe time to revisit so one of
the things that i take away from this case is this could be the case and this judge's opinion
which will one way or another whether she grants the motion of dismiss and it gets appealed or
whether she denies it in part and it proceeds to trial this is going to trigger an appeal
and that appeal will probably open the door for perhaps either a federal appellate court
or the supreme court revisiting the howie test because we need clarity here this is not an
acceptable way to proceed and the judge sees that big picture she understands that we can no longer
and you talked about the lumas thing the judge was actually uh somewhat ticked off with the scc if
i recall during the hearing because the scc kind of dismissed senator lumen lumas's opinions um
with all due respect and the court kind of charmed back about that uh because i think the
court is understanding you're going about this the wrong way you're making a power grab here
in the absence of clear legislation and you're over regulating the space because there is no
clarity in the law effectively yeah like that's that's at least the sense that i've been getting
and and i will say there was even there there was a really funny comment from the judge at one
point which by the way the judge's tone throughout the case was like fairly fairly loose they were
there was some good back and forth there was some um some some laughing exchanged it was like you know
it was fun to listen to and there was one point where the judge delivered this heater of a comment
so so the scc stated and this is at 23 minutes five seconds if someone wants to go back and
listen to from the real meet kevin guy um the scc states these are just computer code
okay and then she she retorts like immediately she doesn't wait for them to finish she's like
that's what your friends at the back table coinbase are saying and wondering why we're here i was like
like oh my god because it was a fair point it was like they're like yeah these are just computer
code and she's like hold on wait a minute what what are you guys saying
it just i will i will say like the tone across the across the board of this case felt
pretty strongly pro pro coinbase and now just just to wrap back for a second so the howie test is
obviously one of the uh the the prime like centerpiece of this case right so the howie
test and i'll just clarify consists of consists of four criteria so one is an investment of money so
that's just like buying anything right so it's just buying the assets straight up um an expectation of
profits which i will say the coinbase did say that they will admit that they believe that at
least some of the sales that happen on coinbase happen with some level of expectation of profits
so that did they did actually admit that that does happen at least in some of the transactions
if not like all of them but at least in some they said then the third third aspect or third
piece of the criteria for the howie test is a common enterprise so when i was saying like buy in
right so so when they were talking about buy into this collective or common enterprise buying
into ethereum obviously there is a enterprise of let's say i don't know you you could you could say
there's an enterprise of hundreds if not thousands of solidity developers that are working together
to further ethereum via the ethereum core foundation and extraneous whatever you could say or at least
that's effectively what the scc tries to argue that buying into ethereum is buying into a common
enterprise and then fourth like the the fourth part of the howie test is the reliance on the efforts
of others so that's just saying like i'll just buy this and wait for them to make things go great
and then bang we'll profit but again like if you are to consist consider that right and let's say
you're applying that to lumber i mean you could you could say i'll buy lumber so i buy 100 bucks
of wood or lumber and i expect that that 100 turns into 120 bucks of wood and i'm buying into
the lumber industry so those loggers out there in wisconsin i hope that they're i'm buying and
supporting them and they're and they're cutting and i'm just relying on them to cut and they're
good cutting means that i uh you know my dollars go up so then theoretically under under many of
the things that the sec saying i'm buying into a security no like that's it's effectively the
argument that's being made so and by the way just also to set like stage here right um for for you
guys on stage and also in the audience which guys if you want to come up and feel free to chime in
you feel you can you can feel free you don't have to be scared i know we're talking legal stuff
but you don't have to be as scared um it could still be fun but for people on stage you don't
have to raise your hand you could just unmute and chime in literally whenever you want add
whatever you want whatever you want so don't mind oh there we go scoty with the hand up
i will actually toss the scoty because i do want to hear from you what's going on dude
how's your sunday training that's all right so as a an equity partner at bandini lambert and lock
i have some some well thought out opinion is that is that a real thing by the way
bandi lambert lock yeah you should you should i have i have john gersham i have no idea what
that is i've no hold on bandini hold on now at lambert and lot the firm it's the fictitious
law firm from uh from a john gersham book no way that was like dirty like a horrendously dirty
law firm okay all right well nice to meet you um practicing attorney scoty
i no but go for it did uh all right one of the comments you made earlier about about um
the total value of the stock market this is related to that it's just something that's
interesting it's like whenever you're getting into massively complex math like finance for
global finance you you should always like try to boil it down to a few very key easy to remember
metrics and you can use that to figure out exactly how badly the world is getting screwed
by financial industries and these are these are publicly available values like you can you can
find them on you can find them on u.s government websites you can find them on foreign government
websites it's it's it's fairly fairly common tabulations and they're roughly the same you
know there's some variation but but so what they call m1 money which is narrow money which is what
when you think of money this is what you're thinking of it's it's bills and coins right
things like that um if you added all of that up from every country on the planet
but we would consider real money it's right around 40 trillion right so if the u.s stock market is
right around 40 trillion but we know that there has to be some sort of derivative or some sort of
huge leveraging going on because that would represent all the money in the world oh scoty
by the way the this is these are numbers that i'd read probably about like let's say a year or two
ago and at that time i will say the the derivatives market itself like the entirety of
the derivatives market in that same general source was considered to be in the ballpark
of like the one to three quadrillion quadrillion yeah exactly so yeah all you really need is
is the the the all-in number which i think is m4 it's basically like derivatives plus narrow
plus broad plus whatever plus like whatever the other the other the other value is and yeah you're
you're hovering in the in in the like the one to two quadrillion range but there's only 40
trillion actual physical bits of money in the world that's how badly inflated the global
the global economy is like if you want a number that's actually terrifying that's
and it's fine as long as everyone doesn't decide to go take their money out at the same time
yeah it's fine we're doing good right generally for the most part i think it's fine i see
nothing wrong yeah of this but yeah so yeah the the your i i i don't know it's i know you
started law school and i'm not lawyer but yeah i i used to screw a judge in miami so i'm oh my god
i'm a legal expert by proxy that's crazy wow that's a wild statement okay
so there's almost like a holiday and expressed yeah basically yes but without bed bugs uh the um
it's uh what's the u.s code it's uh title 18 section 486 or some shit like that has to do with the
the creation of a of a currency and i'm curious did they cover that in the lawsuit where where
or any lawsuit i guess it wasn't covered in this one where it's i guess the question
is like there are there are laws that basically outlaw creation of certain types of currency
and i don't know if that's limited to like not a competing currency with the u.s like anything
that's trying to compete with u.s fiat currency is clearly outlawed by u.s laws but i don't know
that a creation of a currency is and i'm just curious have they covered that legally in any
of these cases that you've stated seeing i saw them they were and i didn't do my research on
on what the full sections that they were talking about they did uh they talked about section 35 and
33 and 34 i didn't hear of what title they were talking of though um that that's what they
covered at least in this at this hearing but yeah uh they they didn't necessarily talk about
the creation of funds though other than it being a
asset creation they did they did talk at least in some sense right about the idea of primary sales
right so well because i guess that's part of the i guess that's i guess maybe that's part of the
original problem they haven't even defined what it is right they haven't defined it as a currency
they haven't defined it as security they haven't defined it as a competitor to beanie babies or
whatever um yeah it is interesting how much they didn't they didn't really talk about
the primary primary sales other than uh library right um being an ico they they the scc named
as an ico and i think coinbase even the coinbase coinbase did a great job of not actually trying
to argue stuff and being like oh yeah we we agree they they put forth a really valid argument
for something but we're not that something we're this we're different so they didn't even address
us they were addressing something else um that we're a third mystery thing well and they also
they they focused a lot on as well as like look we agree with a good amount of these arguments
um but also they're not addressing specific parts at that we're focused on at this hearing
is what they said i think the way that they i think the way they focused on that was where
they were basically saying that look we don't have an investment contract relationship with
the customers who are buying these tokens on our platform people are not buying these and entering
into a common scheme you go back to eddie your analogy about buying that piece of lumber
where that fails the howie test is because you're buying that piece of lumber and that's
the end of your pooled investment if you were buying that piece of lumber and at the same
time you were getting a share in an individual tree that was being grown in the forest that was
going to be cultivated and cut down and processed into a tree then you'd be in the howie test
scenario because then you'd be that orange grove case right where you're basically collectively
in a common enterprise which carlo here step back for a second just for the audience because
like most people hear howie and they may they might know generally what it is but explain to
me about this orange grove and what was it florida or where was it i think it was florida or was it
georgia i believe it was florida yeah right you know essentially the howie test and you you rattled
oh that's a phone call it sounds like hello ringing sorry sorry so yeah you you you nailed
the elements of the howie test and essentially what the howie test was talking about is
you had a plot of land uh i forget i think it was jw howie and jw howie had this plot of land
and he was cultivating oranges on it and he was offering the the consumers the people who were
investing in it the opportunity to invest in the actual plots of land so the investment contract as
i recall it from the case was basically that you had an opportunity to invest in the land that was
being cultivated and then when the oranges were then harvested you were going to get a share of
the fruits of the harvest and that common enterprise that investment of money in the common
cultivation of that land which would yield the oranges would be the expectation of private of
profits and that's where the supreme court got sideways and found that yeah that's a definition
of an investment contract that's a security interesting well man like i guess here i'll just
i'll ask this more generally like what are your general pull takeaways because we'll probably
dive into some more of the specifics that were brought up in this case but just like as a
general feel and again this case is nowhere near over and a lot of people say that the xrp case
is also over which by the way it's also not um it's it's still there's still more things to be done
so none of these cases have been solidified um their their their takeaways have not been
locked in um except for well the terraform terraform and uniswap have but xrp is not
completely done like there are still opportunities for for more things to be done so whenever
whenever anyone references those those cases you can't pretend that they are complete you could
you could start to like figure out okay this is where things are starting to lean but
yeah anyway all that said how we feeling like what's the what's the thought that's for carlo
or taco whoever i might yeah go taco go man oh and it's good to see you again carlo likewise
last time i saw you was at the ftx trial yeah that was that was a good time um what you guys
that's awesome yeah we we met uh i got i covered the entire ftx trial and ended up getting to meet
carlo one one one one morning and a couple mornings in a row so yeah um it's sick so i i think
there i think the staking and we could talk on on that that was addressed addressed really
well i think by coinbase i think that the judge is going to find in favor of coinbase and
get rid of that i think that uh the spot trading was clearly covered by coinbase and i think the
judge is going to find in their their favor meaning she's not going she's going to not address it
and say that you know the like congress needs to address it i uh i think spot aka uh or institutional
trading aka prime i think she might hear that um and the wallet situation i i'm about i think
it's 50 50 but or like 60 40 that she is going to um finding coinbase's favor with that because
because the way the sec tried to explain what the wallet was was pretty hilarious it was rough it
was it was weird they they said like you know when you sign an approval they were saying that
that was advice yeah that was weird you know and there were there were some weird i guess you'd say
definitional um yeah judgments from the sec there yeah the sec was saying that you know
when you get your final and and coinbase clearly clearly said that you know it is a third party
they they even named some stuff some of the stuff from uh that the wallet is third parties um
as well as the wallet and staking within the wallet and the wallet's connecting to
dapps and staking services but that the main thing that they address that is this is does
not provide any capital increase to coinbase and they clearly define that as well as within
the staking services so um i don't know if anyone one of the things that coinbase uh
did really well that we really William Savat pointed out was that uh though you may be staking
within coinbase you you actually as a user have no slashing risk coinbase themselves may get slashed
but the user funds is never at risk um and uh they have zero ownership loss over staked assets
which is which yeah that was and i actually let's hold on that for a second because i want to come
back to that i thought that was a really fascinating point but but first just real
quick pull me back um and carlo i'm curious if you might have some some understanding on this because
i'll just be straight uh i'm i have no idea like i i am currently learning civil procedure to like
today um and now like that is my that i'm currently in the civ pro class all that to say i don't i
know like none of these rules i know almost none of the functions and and and how to like how
things move in cases where are we like where are we in this case right now do you do you know
roughly like what's status what is the status of this case yeah so coinbase is subject to a complaint
filed by the scc and the scc is charged just like we said that they're offering 13 unregistered
securities on their platform and that they're essentially a broker dealer for securities and
violations securities laws and uh that their wallet program is also in violation of securities
law and that the staking service they offer violates u.s securities laws coinbase responded
filed their answer basically alleging that no these are not securities we are not offering
a platform that trades in unregistered securities staking is not a securities offering the court
even agreed in to the sense that this is basically no different than people putting
money in a savings account and then coinbase's big argument that they are advancing is this major
questions doctrine basically saying look uh the supreme courts recently addressed this and as
it's kind of evolving legal doctrine but they're basically saying that this regulation by
enforcement in the absence of any clear legal definition as far as the digital asset space is
an overreach and this is something critically important that the courts have to step in and fix
so you have the complaint by the scc you have the answer by coinbase and then coinbase uh before we
jump into discovery and before we get too too far along they dropped a very well written
motion under 12 c of the federal rules of civil procedure i learned that literally three hours ago
by the way there you go most times you see that 12 b6 motion which is that uh motion uh for
exactly there you go oh baby oh dude we're learning on so we're not at the summary judgment
phase because summary judgment is rule 56 we're not there yet right right right right we're at
the phase where coinbase has dropped a 12 c motion for judgment on the pleadings that's a little bit
different than a 12 b6 which is a motion for failure state of claim but we don't need to get
into the weeds of that what do they basically need to do in a 12 b6 in this or i should say in
a 12 c in a 12 c motion they're basically trying to persuade the court that under the standard
they have to basically convince the court that if you accept all the allegations in the scc's
lawsuit as true so number one judge accept everything the scc has argued in their lawsuit
as being true despite that fact they have not stated a plausible a plausible legal claim
against coinbase in which relief should be granted so you're stuck by basically the
allegations in the complaint and the response in the answer by coinbase and the judge has the
freedom to pull out other generally no uh generally things that are are known within the realm of
cryptocurrency that are common knowledge that she can also add to her understanding
but there's been no what we call discovery there's been no depositions there's been no
there's been no work done to flesh out these claims which is why it would be such a big deal
if this got granted and the scc's lawsuit got dropped uh in in total because that would
basically be saying that you guys don't even get to go to the stage of discovery
where you can actually take depositions and present me with more outside evidence
we're basically shutting this down right now at the complaint stage it's very difficult to win these
so i predict a partial win uh and we'll probably have something advanced on to trial
yeah i would say oh go for it what does a partial win look like or what would you expect
what does that mean so i think you know first of all a lot of people have have read a lot into
the judges you know she might be partial to coinbase this that and the other thing
i would tell you from years of having been in front of judges they ask very good questions they they
but you cannot in any way infer their ruling from the questions they ask in the hearing
it it's it's very difficult to to tip a judge's hand during a hearing because the judge is
asking questions and wants answers but that doesn't necessarily mean that the questions
this judge asked and some of the things she may have said to the sec point to the fact she's going
to deny uh relief to the sec in this case you've got to remember she's still got to go through
researching it and briefing it but what is a partial win if they dismiss out let's say
for example like taco talked about the staking side of this well then that would mean that
that portion of this complaint would not go forward to trial it would basically be dismissed
out of the lawsuit and then we might go forward with the wallet component of the lawsuit and we
might go forward with the 13 unregistered securities so that's what i mean by a partial win
to get an across the board uh dismissal in this case would be amazing for the crypto community
it would definitely be something that'd be taken up on appeal so no matter what this will jump to
another court for further review but right now we're just trying to figure out what's going
to go to the next stage which is discovery then that motion for summary judgment that you
were talking about eddie and then it'll get teed up for a trial yeah i mean just to be clear like
this is probably what like step one of assuming this goes to discovery at least like a year and
a half to two year case right yeah this will drag on for a while of course absolutely carlo do
you think that if if the if she finds and i agree with you too on the on the institutional
side of things but if she decides uh that she's not going to hear it and that she grants coinbase's
motion um based on the major rulings questions and like basically says this is too big for
court to dismiss or to to rule on that it should go to to congress like statute says
do you think uh sec will appeal that or do you think that they'll then try to weasel their way
out of that no i think so the major questions doctrine is is probably one of the harder
areas for uh for coinbase to win on because that doctrine is suggesting that this significant
regulatory overreach uh should be addressed by congress rather than by an agency like the sec
it's not so much that the court shouldn't address this issue what coinbase is saying is that the sec
is going too far here and we need a court to step in under the major questions doctrine
and stop the sec from having this much power and this much overreach that is something the sec
will appeal because that's going to curtail their jurisdiction so that is something that could get
if it were to get granted could get primed for an appellate decision because that would essentially
be the argument we've all been having for some time now in the space is the sec is here with
really no clear mandate from congress and they're justifying everything that they do in the digital
asset space based upon the howie test and the 1933 and 1934 securities acts and we need to
update those legal doctrines to meet the understanding of what these new because nobody
could have ever predicted back in the days of of the 1933 and 1934 securities laws and in the
supreme court's decision in howie that we were going to have anything like nfts and cryptocurrencies
on a distributed blockchain ledger and it's interesting they didn't touch nfts on this
and at this at all really not at all i don't i don't think i actually like i may have heard it
said once i don't have the transcript in front of me but i i don't recall it being said basically
at all that's why they didn't talk about they collect collectibles and like beanie babies i was
like you just literally said everything you could about an nft i thought but um you know the one
thing that that i did that was really clear on that was coinbase did state like the sec opened
up when the judge asked what what is on coinbase that isn't it was like pulling teeth from the sec
to get them to say at this time we don't really think possibly btc yeah yeah because it has no
it has uh it has there is no ecosystem behind it um but then which is by the way by the way that
is a crazy statement considering that effectively like as far as i could tell bitcoin and ethereum's
general quote unquote ecosystems are extremely similar in structure and especially with the
rise of ordinals like man i i have not heard as much dude i i spent 45 minutes to an hour outside
today filming about opcat and the development of the ecosystem that surrounds opcat and the bitcoin
ecosystem and you're going to tell me that that doesn't exist with bitcoin and i'm i'm just well
oh it doesn't be so you got to understand that ordinals is a meta protocol and it's not it's not
on bitcoin itself so it takes actually a certain amount of belief but once you have like a soft
fork like opcat um like ctv something that's a little bit more robust and then you have bpm
then perhaps you would have something that looks even though not exactly like ethereum or
salon and you would have this ecosystem um that is a little bit more robust so ordinals
because it's a meta protocol i don't think it would augment it enough um because it's not part
of bitcoin itself but ironically what you said this opcat portion might open a window to make it
more and that is actually some of the argument against um these soft soft forks that will make
smart contract like abilities on bitcoin that dude i i would i would love to imagine imagine
udi if you could bring up an opcat in favor of ethereum oh my god that way he would lose his mind
and but and but then coinbase took the opposite stance and clearly even said
cevat said that you know btc is a community an ecosystem and sort of named some stuff off
of that at the end so that was a good piece on that and english i agree with you
it with bitcoin when it was just a financial instrument yes but as more people adapt to the code
and uh and add to it and it changes does it get rid of the original structure and make it a new ship
uh that then could possibly put it at risk that's that's the worry definitely definitely potential
i was just making the distinction with ordinals um just because it's exactly that it's a meta
protocol it's not really it takes a certain amount of consensus um to believe that this is kind of
existing and it's a kind of on top of it yeah there is an ecosystem around it but i i think it's
more fundamentally true once you make like these opcodes that would require a soft fork that would
require people running a different version of nodes um in a in a majority form for it to take
place and then that could then anything off of that would lead into something that's fundamentally
entrenched in bitcoin but yeah i i do think with the culture coming to it more products on it more
speculative products on it it does start to resemble a little bit you know more like that and the only
reason i mentioned it that was kind of one of the i guess the pushbacks you know towards it because
people in bitcoin have enjoyed like this kind of like bubble away from any other coins um even
though ethereum is not kind of as much as like salona and some other ones um they just enjoyed
to say hey listen i'm safe in bitcoin i might not 3 5x 10x but but i don't have to worry about this
and um yeah just making that distinction and by the way let me just be specific about the the tokens
so the sec alleged 13 tokens um that were listed on coinbase and were securities um
the english didn't work but whatever the the 13 tokens that they alleged were as follows they
were salona so they actually and it was funny uh the judge kept referring to it as uh what you say
sal sal she kept calling it sal which i which i thought was funny uh so sal bannance bannance bannance
so sal was one cardano polygon file coin sandbox greatest token of all time axie infinity chilies
flow internet computer internet computer so icp near voyager of the now effectively defunct exchange
dash and nexo so if you're wondering like which ones were they saying are definitely securities
according to the sec it's those 13 and as for the other yes yes file coin and as for the others
file coin uh yes yes file coin and as for the others and as for the others that were like all
the other tokens they're like well the others might be but these are the ones that are definitely
securities so that was effectively the sec stance so it's not like the sec is not saying like only
these 13 they're saying any of them could be but they just pointed to these 13 as as definite
examples of what a security is just to be clear anyway taco what else yeah um my hot take on this
where one of the things that you know as they labeled a lot of layer one or you just get the
gas layer tokens of ecosystems um let's say the sec granted this and you well not even not even
they they won or they they got their their ruling that the all of these tokens disappeared
you know it then affects the entire ecosystems at every other token that's that's layered on it and
so it's it's one of those things that you know it is a it's a fight for these 13 um but at the
same time you know you label soul uh i kept one i kept saying saw for a second after that
the rest of that day because of it but um it's just sort of hilarious how much more of an
economic impact that it would have and that's why i really liked the major questions part of
everything that that um i didn't catch sarah's last name but the attorney for coinbase um
that was sort of that was sort of cool um how much she addressed that and how well i felt that
was addressed too but they tried to do a whole foods comparison and sec um did a horrible job
of that because they trust you know coinbase is a wholesaler or not a wholesaler but they're
just a marketplace and uh the one thing that um coinbase tried to or sec tried to really promote
was that there was contracts and promotion uh on this and that's why coinbase you know was
violating all of these things they were they were violating the broker seller the exchange and the
being a clearinghouse but the sec even then clarified you know it's never been approved
but it is not illegal um and so uh coinbase pointed out even though the sec is trying to use a
contract as a as a form of this being a security that still has said that there is no contract
between all of these tokens and the buyers and sellers so coinbase did a good did a great job
i think and i actually want to dive i want to dive into that question in a second and i'm don't
worry i didn't forget about stashing or slashing and staking but just said stashing stash your coins
no i'm kidding um but first things first guys again if you guys are enjoying this don't forget
purple button likes and retweets on the bottom right they go a long way you don't have to but thank
you if you choose to do so too um if you want to come up and chat feel free if you want to like
we'd love to we'd love to hear some opinions from non-legal scholars or at least like thoughts
from the non-legal scholars among us eddie since you're resetting the room do you want
a football update oh yeah what's happening so it's so the chiefs are up by three points 27 to
24 and it seems that the bills have the the ball with two minutes to go so kind of like the previous
tampa things so i'll keep you updated two minutes two minutes two minute drive is what i'm cool with
either of them winning my roommate who's a huge football nut was like dude if the bills and the
lions go to the super bowl it is a super bowl of sadness and i am before that so i would be
totally down to see that but i would also be down to see the um see the prop bet on how many
times we're gonna see taylor swift at the super bowl so i'll be down for that as well the ravens are
still in there right i know but i i don't i would like to see lamar jackson versus patrick mohomes
again i think that was what a few years back yeah i think that would be an interesting matchup
just although i will say the the ravens in the super bowl would not excite me except for the
fact that my um my uncle's brother is the lead reporter for the raven so that would be cool
anyway anyway totally separate that's off topic um and guys by the way just separately if you guys
enjoy these spaces um i host them every sunday night 8 30 p.m eastern here with english so drop
us both follows and turn on notifications if you'd like i've also got some things that are
cooking up so just you know i pay attention anyway oh and we're also probably i think
maybe as of next week i'm gonna try as the next week might get video ready so there's
a good chance that as of next week i'll have video ready for streaming um english might as well
and that would be kind of crazy so we'll see how that rolls but anyway back on topic staking
so so or actually first the investment contracts we'll get staking a second the investment
contracts is a pretty interesting conversation so explain to me because i actually still and i'm
trying to wrap my head around this um this idea of selling investment contracts and whether or not
that was actually like if that's one a possible like if you could sell securities um to a second
like on a secondary market and that's considered an investment contract or how that works like what
was what was kind of the what was the argument there i know car carlo can get deeper into this
but what they were what coinbase was trying to say was the difference between tokens and you know
stocks was with a stock there is an inherent right to voting to dividends to having um a means of
calling out more than just fraud um and filing grievances and such with the company that you
actually have ownership of a company by having a token you do not um and so that was sort of one of
the part that's one of the prongs of the howie test of that you know there's an investment contract
of expected gains and that's not the right word um profits without any work uh or through the work
of others and so i don't know carlo this is this would be 100 more in your boat than mine but
um the sec tried to use it as as a as a basis as an argument but then they didn't they stated
that there was no contract between in a blind blind sell and buy that there is no contract
exactly uh you nailed it i mean the the the use of the court by analogy of a stock
and the expectations and the rights that that shareholders have does not exist especially
doesn't exist on secondary token sales and arguably for coin basis perspective doesn't
exist with respect to its staking program which was again compared to basically putting money in
a savings account um so i think even the ripple case came up during this as well to support
the notion that there is no investment contract on secondary sales and uh you know all very very
strong points and i have to agree coin basis council did an outstanding job in not only
fielding the court's questions but in also presenting their case uh very effectively
which by the way the uh the sec in that case when they talked about xrp they're like you know well
we like we get what the judge there were saying but we we definitely don't agree like so so effectively
with the sec or the uh with the ripple case what's been decided thus far is that people
like investors and vcs or whatever that buy direct from xrp in the initial sales so they're like
okay we'll we'll give uh 10 million dollars or 100 million dollars to xrp for x amount of tokens
invested over x amount of time that that is a securities contract so that was an initial sale
of securities is effectively what was determined in the xrp sale but the way they did it right right
right in like in the mechanism that they've done it but if i were to just go on on you know on
any exchange right now and go ahead and buy some xrp off that off that that is not a sale of
securities so that's effectively what was determined and the sec is like i don't know i don't know why
we're separating these people like i don't know why we're separating these things ultimately they're
both buying the same computer code as they called it and i don't know why we're making these
categories of buyers we should just make all of them are just buying which is a fascinating
position from the sec and i mean i think it felt like it was taking some convincing to try and
get the judge to agree with that but that was effectively where the sec was leading right what
yeah i would agree with you one of the this was in like the first
10 15 minutes of of court uh session you know taking the stand you know one of the things that
was really hilarious of how the way how the sec asked the court they literally asked can the
court look to howie now without context and the judge sort of came back pretty much and she's like
the sec has not presented a dispute to howie context which um coinbase laid out you know
howie only applies if there's a contract or scheme and they really clearly defined both
sides that a scheme in this aspect is not anything nefarious it is just a plan of action
what some might refer to as a roadmap or financial instrument in some way shape or form or
profit plan for profit um and so that there isn't really that they even said you know your friend
you might be buying the same thing just because your friends are and that doesn't make it a
security but when people are buying just for the speculative side almost like direct from
the individual from the issuer then that can be considered um a security and they're trying to
say that by buying the ecosystem tokens you're buying directly from and that was a really
when when they were explaining it they were talking about the entire ecosystem but when
they said what the effect would have on was just on those within the american ecosystem
which was sort of hilarious which by the way taco i will say so this one thing like in favor
generally of the scc and by the way english if there are any updates just like just unmute
and be like yo dude dude what just buffalo was wide right to tie the game with under a minute
left dude like back to the 90s no type shit dude wide left wide right no i'm joking yeah
cheese are gonna win wow that's not looking good there's like 20 seconds left and they don't
have possession are you do they have three timeouts uh i haven't followed closely enough to know how many
times out but it's not looking great so painful it's 20 seconds it's it's a game over man game
over now wow wow rest in peace buffalo let's put it this way like a guy just did a backflip
so i think it's pretty much yeah it's over when somebody on the opposing team does a backflip i
think it's good damn that's brutal anyway buffalo doesn't really deserve to win oh no yes yeah i i
couldn't agree more as a jets fan anyway i'm a dolphins fan man we like i could not possibly
hate a team more than i hate buffalo squish the fish anyway um although dolphins are not fish
the mammals anyway um what were we saying scc right so um actually there was a point
that i was about to make it's just gone what were we talking about for i just got totally sidetracked
by the game how purple your finger is like the purple button everyone should push below oh my
god by the way that's that's hurting yeah it's not hurting that bad how did you do that did you
like just to be clear i did actually i was doing shoulder raises and i was walking at the same
time and then the two weights came together and they were not aligned so instead of banging each
other they were slightly misaligned and my my finger was the target so yeah it might be broken
i might have a broken finger but we'll we'll see take a bunch of ibuprofen and ice it it doesn't
hurt that bad i've just been icing it all day anyway all that said um hopping back scc
coinbase right which by the way this has been like i've actually really enjoyed this just as
like a space commentary i found this fairly enjoyable um and for for a legal legal space
which by the way there's been zero zero legal advice given in this space literally none don't
take any of it to heart this is just commentary on something i thought was fascinating um and also
extremely relevant to our industry um anyway going back we were talking about extra p
and and also the how that relates well seriously what were we talking about just before we got
i don't know but i have some legal advice based on the documentary that i watched on netflix okay
well i don't want to disrupt that but i'll i'll give my legal advice at the end of this sure
sure sure taco what's going on oh uh we were talking about contracts but now i'm really
curious of to what english has oh oh actually oh real quick well okay we'll go we'll go to
english and then i know how to pull us back in because i remember now but go to english
all right so like apparently the guy who like part of centra um and he did this whole fraud for this
ico and really the moral of the story is like he was the ringleader and like the other two guys got
like eight years and like two years you know respectively and he got zero time and not only
because he rolled over but because he went out of his way to roll over like the judge in the
reading says i've never heard the word extraordinary used when when uh complying
with an investigation not only once but several times by different bodies i do not want to disrupt
your progress as a as a citizen so i'm gonna give you so if you're gonna snitch if you're
gonna comply don't just do it like casually like go out of your way to like comply like go like
give them information before they ask and that's probably your best bet so that's my legal advice
for the space nice and thanks english um english are reputed definite lawyer right
um well i was a philosophy major isn't that kind of like like pre-law like that's actually
effectively it is yeah i was a politics major um which is also effectively pre-law although
i thought philosophy was more of like how to morally break the law all of the above right
at least that's that's why the guy well he ran through the street naked once right like
plate with a plato Socrates one of them um out of the out of the two it would be Socrates it would
be Socrates if it was one of those yeah anyway now i'm getting some hilarious thumbs down fair enough
fair enough all right pulling us back so what i what i what i what i was thinking about right is
this idea like in on behalf of that the scc right so one thing that i think was kind of overstated
by coinbase and whatever was the idea of like okay yes some people are buying ether because they're like
ether's cool and i just want to own ether some people do that some people think that actually
is a true thing yeah it actually is yeah there there are some people like that's just cool i
don't care what what happens but i just want to have some either or i just i want to have
some axi infinity because i actually play the game let's say right like i actually play the axi
infinity game find it really fun and i need some access which was again one of the one of the noted
tokens here i would i would venture to say that the vast majority of people buy these tokens
and at least hope you know somewhat that the price is going up right like i they they
keep saying the idea of like some or they bring up edge cases of well some people might buy it
because their friend has it or some people might buy it because they just like it but i'd say it's
probably a fair assumption to say the vast majority of people who are buying the tokens
are like where's my 20% gain right or with the layer ones you're not necessarily layer ones but
the gas layer tokens that they named you're buying the gas so you can transact and buy other things on
those networks you know right right exactly or like you know buying ethereum for the sake of well
actually you know buy if you're buying ethereum for the sake of buying an ethereum nft or buying
salona for the sake of buying a salona ft you actually don't necessarily care for the price
of the underlying asset to go up even though if you know you'd be happy if it does but you're
buying it for a secondary purpose so that would actually probably lean more towards coinbase's
argument but more so just in the concept of like how many people are buying these assets
and not hoping that a base asset is going up is probably like a a minimal minimal amount of people
and i will and i will say like coinbase and and that party generally tried to minimize that and
they were like yeah some people do that no i mean like some could mean 98 percent like some
the word sum in encompasses 98 to 99.99 percent right well i mean i don't know how we would benefit
them to word it differently like yeah while we realize probably the majority like why make a
speculation on that like it's still speculation like you haven't surveyed everybody no of course and
i will say like obviously it does not help coinbase to say it any other way right but just to like
give a you know throw a bone to the scc because at least you know their space has been overwhelmingly
anti-scc or at least you could read it as such to say like look this is this is at least like
a pretty fair thing to point out is not the strongest argument for coinbase at least in
my opinion but you know it makes sense that they would word it this way i thought that was fairly
interesting i don't know if anyone had thought of that if not i'll just i'm actually kind of
interested in the staking but i i think they i think they did a good job on on limiting
their speculation of of things they were they because they didn't want to seem combative
because you remember at the end of the day they still have to deal with the scc and the scc
could come after them in some other way yeah there you go so staking all right so like let's shift gears
for a second because staking was a pretty big before okay back here let's go neutral okay we're
in neutral where are we going carlo are you there i am here okay before i even tell you this i am
never ever ever telling you the name of this person but my ex-girlfriend went to your law school
during the same years you were at law wow small there's not a chance i'm gonna tell you it was
because there's like a 5000% chance you're gonna know who she was that's so funny but i was like
you gotta be kidding me like what are the odds of this you know what else is funny about that
claim to fame the guy who represented casey anthony as a bias also with the law school with me
same time same wow was it was it fun wait didn't i casey anything like moved in with him or some
crazy shit didn't he didn't she oh i don't know man i didn't keep up with it after the trial but
yeah yeah we jacked up together after the trial i'm not even kidding it was weird yeah he's a
good guy i was ace a good guy i i will also say you know one of the one of the funny thing right
one of the funny things that they brought up maybe four or five times when we started out
at school and this is back in august of last year they're like you know a surprising amount
of people who go to law school end up getting married it's like well okay they said it they
i literally told you that before you went there do you like everyone that i know like so many times
every lawyer i know is married to another lawyer and usually from the same law school not always but
um you may be from like their first practice like and they met at the practice but lawyers marry
lawyers that's just kind of an thing and i will say funny enough dude finals were in december all
throughout december i come back in january there's literally three or four new couples
bonding over trauma it was my friend was not kc anthony well thank you for clarifying yeah we'll see
on that dude we'll see that was that was that's crazy that's actually lowkey hilarious and actually
funny thing i will also know one other weird um law school like tian one of my friends i'm talking
with him this is on friday no thursday on thursday i was just talking with my friend
and he was like oh yeah um one of the kids from my high school is is pretty big and like he really
likes crypto i was like oh what's his name he's like yeah i think he's on twitter i don't really
know anything about it i don't really keep up with him it's like okay what's his uh what's his
handle he's like um let me ask my friend he texts his friend he comes back he's like thread guy
do you know a thread guy on twitter and i was like yeah i know a thread guy on twitter
and they went they went to high school together like one of my one of my classmates
went to high school with the red guy what is this world dude like what this is the tiniest
are you gonna have like a thread guy expose like before he was third guy yeah literally i
i texted i texted i was like dude my do you know a guy from this uh do you know like and i said my
my classmates name he's like yeah what about him and i was like we go to school weird dude it's
just weird it's weird how tiny this planet is like there's no reason i should be going to school with
one of my uh well yeah his name is michael everyone knows that now and he said it multiple
times publicly one of michael or thread guy's friends it's one of my classmates now that's just
weird this world is too small anyway back on topic slashing baby slashing and coinbase
this is the most thrilling of in conversation points now so so talk to me taco what were they
talking about with with staking slashing all that jazz so they were talking about uh you know the
staking aspects that they have within coinbase where people you know stake your mattock stake
your eth um stake your soul eta whatever where they're talking about a return uh uh and so the
sec was trying to say that it was basically it met the howie test because it was an expectation
of profits based on the work of others and that the that coinbase was using it as a form of
promotion um and that they were putting in the infrastructure to sort of guarantee that more
people would put in would bring in funds to coinbase to stake um and they put because there's
the expectation of risk that coinbase was violating um broker dealer um an exchange rules side of
things if remember right um and the judge you know asks coinbase you know or you know it was like i'm
sure that put you know that they're the infrastructure is in place but then coinbase pointed out
that there is within their terms of services there is no slashing risk um that the assets that
people put in or nominate for staking there's zero ownership loss over staked assets because
this was where the sec was trying to say co-mingling of funds um and that's sort of
not the way coinbase explained how their service actually works and um so that that from what i
had heard what i learned outside of court um and what i what i feel that i've seen on my own is
that if those funds are earmarked and they put in their own funds basically um so that i could
see a co-mingling of funds argument but that's not how staking contracts work technically um
and so they're actually putting their money to work um and in my opinion that is the expectation of
of profit i guess you could say uh comes from them putting their money to work by securing
the network they didn't get into the technicals of that uh defi education block did uh in their
in their briefing to the judge on how what staking does for the ecosystem and the sec just
butchered it completely and um so that's sort of where they they gave out uh coinbase gave out this
booklet um uh i i guess it's i i don't know how many pages in total um i talked with
coinbase's uh chief marketing officer um assistant laura who i'm friends with to see if i could get
my hands on a copy of this um and she said that she'll get work on approval to send it to me
and so i couldn't actually see what we're on the slides or if it's been uploaded can you send that
over when you get a chance if you if it does get sent to you and if you are clear to send it
or distribute it yeah yeah this is where they were talking when they were talking like slides
or pages 10 and 11 about library and page 15 on their wallet and staking uh they sort of
like were highlighting specific things within uh coinbase's terms and services that explain the
technicals of what their staking piece was um which by the way just to back up for a second
right so slashing right now a lot of people don't know what slashing is so just so you guys know
right so if you're if you are staking like if you're validating for ethereum one of the so
what they do is you have to have a minimum of 32e you stake you stake that let's just say
32e and you start validating the network and the risk so the reason effectively the way staking
works is you have your 32e at stake right and if you incorrectly are if you're validating
incorrectly like if you're tasked with validating and then you don't do so correctly or adhering to
the standards of the chain you are at risk of slashing so they take your 32 eth and i don't
know if they take all of it um i don't know like what percentage different different schemes for
there's different schemes for different amounts different types of invalid data if you're if
you're like so downtime um malicious inserts or just wrong um broadcasts and so the idea
behind staking is you're putting your money where your computational power is right so
you're you're back yeah and effectively if you fail or do it wrong you lose money
yeah and the idea is to get rid of to that bad it will it would be more expensive for bad actors to
attempt to manipulate the network than it would for just everyone to get along and benefit from
everyone exactly so that's the thesis right so that's that's that's no that's what staking and
slashing is at it's like base level so when you talk about slashing and when you talk about the
risk of slashing you're talking about a risk of financial loss for someone that's depositing and if
you if you were like well the scc's position is if you're taking a look and you go on the
coinbase website and you're like oh wow i can put my ethereum that i've just bought
i could put it in to coinbase and i could put i could get an extra three percent whatever it is
per year on that ethereum via coinbase like awesome i'm i'm gonna get that extra three percent
like that's that's the that's the user mentality now what that user doesn't know is on the back end
there isn't there is a possibility theoretically that they could be slashed like or that the ethereum
that is in coinbase's hands could be slashed due to poor validation right yeah and admittedly
and coinbase dives into his taco yeah uh and and with one of the things that they they mentioned
sal or soul and um as one of those staking pieces what's what's actually really interesting there is
no current slashing within the salona ecosystem that hasn't been turned on yet um what you can
what you'll be do what will happen is your validator will be bumped from the network from
proposing uh anything for a while and you'll have to re uh repurpose and re-enter the network
and stuff like that and get approved for that but um they the coinbase stated with with the tokens
that you stake within coinbase and within their terms of services that there is no slashing risk
and ownership loss or and zero ownership loss over staked assets um and so the two things
that they there are three things that they said um that there's no investment in capital structure
um from staking um there's no risk of loss and this is not based uh of the work of others it's
the it's based off the work of someone out of how much you personally put in so that's where
they sort of said that it is uh it does not meet the howie test and doesn't meet the scc's
arguments um you know what's interesting about this too taco and it just occurred to me is
we we had kraken recently settled with the scc for something like 30 million dollars
and agreed to shut down their staking program it would be quite a twist if this court sides with
coinbase on its staking and what are the implications now for kraken who unfortunately
settled with the scc and killed their staking options that that was that was i agree with
you 100 percent and well that that decision came out i think it was almost like two weeks
before coinbase turn you know turned around and said actually we're not just going to bend over
for the scc and hey that's fine we're going to fight it and that was last year you know because
kraken tried to push it down and and this was where um the scc said that they had jurisdiction
over kraken's staking because of the i think 35 million um or 45 million dollars uh that 32
million of it came from american investors and so the the scc said that there was a majority stake
and they could they had jurisdiction over it and they were claiming that the 17 million that was
paid out um violated securities in that and which because kraken was using part of their
transaction fee profits to juice up um their staking rewards so that to to drive people to
come stake more with them and so they were taking profits from their left pocket and giving it
adding it to the profits to people on their in their right pocket which was was sort of interesting
that if kraken had just waited and seen coinbase being sort of the first one to step up and say
we'll actually take this to court um i think that that would have gone a different way
which by the way they part of the reason why they basically have to or at least from their
from probably their opinion coinbase has to bring this to court um i don't know if you guys know
coinbase is like i think the second either the first or i think the second the second largest
validator on ethereum like massive they have a massive validator for ease so this is pretty
important right like if if they had to stop validating because if they had stuck to shut
down their staking service that's probably like i think 25 something like that 25 of ethereum
validation gone and has to be either just you know wiped out entirely just people will stop
staking effectively um because a bunch of those people are retail investors basically or will have
to be redistributed to any of the other staking services so that that would be like a a pretty
fascinating impact just on ethereum as a as a concept but take that by the way i gotta call
you out eddie uh that was probably the best explanation of staking and slashing i've ever
heard so well done well thanks appreciated as at a base level that's what it is but thank you
appreciated by the way while we're while we're here just for a second what's up rich it's rare
that i get a chance to say hello what how's it going hi it's going good um sorry rich
by the way you are not allowed to have dinner when we're when we're when we're having a legal
conversation you are not allowed to be away for dinner it's just off it was with the former
chief of police if that helps um oh sure yeah yeah yeah my uncle so like i'm going to
while i'm out here in california but um yeah no i i think it was a really good explanation as well
um of staking you do a really good job of breaking things down in a digestible manner
and by the way for anyone that doesn't know e-riches consistently in my dms being like
go study and i'm like all right all right i actually only accepted the speaker invite to
no no you're i actually always appreciate it by the way
shows you care but you rich i'm curious do you have any thoughts just on anything just generally
where we're at any i don't know how much you know or don't know about the case no worries and again
nothing that is said here is legal advice but go for it yeah so i think i think an important
point and i tell this to carlos carlos heard me say this a lot is that like i am an attorney
but like doesn't give my opinion on these things any weight because i'm not like this in the area
that i practice in so like if i don't want people to necessarily listen to my takes on this stuff
definitely don't necessarily listen to the takes that you fear in different litter spaces um because
it's probably not necessarily gonna mean much so i'm glad you've got some more experienced people
up here and then taco i i don't know if you had him up here for this that he like went to
the child for sbs and i just thought that was fascinating um kind of but if you ever get a chance
to listen to this taco bites those are those are really cool which by the way i'm just being
introduced to taco via the space and it's nice to meet you man i and i will say um if any of you
guys there's just even to the space general if any of you guys are in and around new york for any
substantial period of time i am right outside new york city so would love to meet any of you
guys yeah sure why not wait eddie made said the same thing to me last time i was in new york and
he stood me up hey that that was because i had classes okay so you all know i had classes that
he's lying he says you tell me this now eddie the day after i left new york i had classes and i
won't i i'm i'm i'm i'm hitting i'm hitting the road now for the blockchain conference circuit
so i won't be back to new york till like april oh i'll be i'll be at nft nyc actually i'll be
speaking supposedly i will not be at nft nyc because i will be in london for das and then
heading over to do dubai for token 2049 and that one looks sick i'm upset i'm missing that best
yeah damn there's some good stuff over there but yeah i'm i'm looking forward to london das
digital asset summit yeah that's awesome i i wish i could go to either of those dude i want to get
to europe at some point that'd be fun which by the way uh that's a good segue i got a question
for you carlo and e rich and anyone let's just be clear about something so a lot of people look
at these cases and especially the extra p case and as soon as a ruling is given they're like
that's it man we got it we win w and then they forget or at least don't know
what is the level of jurisdiction of this court right like this is this is a this is correct me
if i'm wrong the lowest level court that this could have been tried in right it's the southern
district of new york court right so this would this would fall in the second it's a federal court
it's a federal court right so this would be the district court in new york so it would be binding
on it would be it wouldn't be binding precedent because it's a district court case it would be
guidance if it gets appealed to the second circuit then of course it could trigger binding
precedent in the second circuit which covers the state of new york and it could be compared
to other circuits for a potential circuit split but since we have such little juris jurisprudence
in this area we tend to see that these cases uh have have big ramifications for the space
because they are setting the benchmark going forward so again i think this case more than
any other case that's being litigated right now i think has the legs to ultimately go to the supreme
court and clarify how digital assets should be defined under existing security laws and also
hopefully when we get through this election season finally get congress to present something
in the form of a digital asset bill that can give us some clarity so we can actually build
in this space and advise clients without having to worry about this ambiguity and this confusion
right like just let's just be clear about something right so if even if we go through
the whole thing whole nine yards we we go through the case we go through discovery we
end up with a final you know a final ruling in let's say two years from now that is only binding
in a very specific subset like within this court it is not right the scc said that they would take
the judge ruling in their favor as labeling all 13 of those tokens as securities and
and the the thing that that that's the u.s is still one of the financial you know sets the
financial markets of the world and we and we see people even know that there is clear regulation
being either discussed or already implemented in other world economic centers that this would have
a worldwide economic impact in the aspect of in my opinion everyone would then geo block the u.s
basically oh yeah just to be clear like it would likely have from a global and and realistic like
what would be the actual ramifications if it were to be ruled um against coinbase especially let's
just say like worst case scenario for crypto everything goes against coinbase coinbase
on literally every point it would be tremendously bad the ramifications would be tremendously bad
for crypto but this is not like these do not have the u.s um i guess you'd say globally within the
u.s ramifications in terms of but also only in a d5 sense um so i've i've i've interviewed and
talked with um erin uh caplin from uh promethium and they're the only people that have
svc and federal um licensure to trade in digital asset securities and their take is that it doesn't
matter they don't care what anything is off of their platform but then when it's on their platform
um that that it is a security and they believe that everything is a security
other than nfts um unless you fractionalize those nfts then they believe that that's a security
um so weird and and they're what's really interesting is they they're they're planning
on using coinbase as their institutional settler and and the same aspect they're not going to
be a retail front they're going to just be apis that can be plugged into fidelity so you could buy
and trade crypto within fidelity's app which by the way they're the exchange we're going to get
into that probably towards the later later end of the space where we talk about just
some of the comments that larry think and other pretty major players have been saying about
crypto at large but first i'm going to toss to e and then also say so say oh my god english
sorry english i'm going to toss the bill in a sec as well but just a reminder the people on stage
you guys don't need to use your hands we can just chime in whatever just as long as you're respectful
but basically everyone here is an adult anyway so you get the deal and also guys if you like
this space you like the things we're chatting about you know the deal bottom right purple
button likes retweets they go a long way and i do appreciate it so thank you if you choose to do so
but e what's going on um i just want to say like i saw on the timeline a couple of people discussing
how the the judge in the coinbase case was really favorable and sounded like she was really
gonna like leaning towards ruling in coinbase's favor and i want to caution uh anyone who thinks
that that's an indicator of an outcome because one thing that i learned is that the more you're
praised by the court in certain scenarios the less like they're like kind of pumping you up to
tell you you're wrong um and that i i wouldn't be i just don't want people to think that like
yes they did get a good judge i would i would agree that they have someone who's very knowledgeable
and incredibly um like dedicated i would say to like getting it right if you will um but it's also
it's also um you know it's like the it's a backhanded compliment like i don't know that's
probably not the right way but just so caution that let's just wait for the order and
that's all we have thank you okay bet fair enough what's going on bill what's on your mind
i just i just saw this space i'm really interested um you know it's funny like when i was actually
first thinking about crypto back in probably 2019 um somebody told me like just get a
coinbase account and i did and i'm i'm so happy i did it's it's just one of those like
apps that's really it's like it's one of those like it just works and i've really appreciated it
and if anybody here is in oh i'm sure most of you transact money and stuff it is so refreshing
to just move money and it just makes it just happens you know and um does anybody here have
the coinbase debit card um i do you do okay i use it like which by the way i use everywhere
taco taco was was the debit card ever brought up no right i don't dude it was it was not um right
unless i didn't read everything within the scc's complaint on the wallet piece but i think they're
just talking about coinbase's defy wallet but the the debit card was not at all talked about
the the the debit card was not talked about which i actually wrote a note on it because they're
like people can't like the scc tried to say like people are just speculating and i was like um
i buy stuff to then well you know go and i use coinbase to go right everything i i've
bought in the last week including plane tickets i've bought with crypto nice dude i love it i
honestly like i buy like starbucks with it it's like i mean everything at gas i mean
everything like why not like i'll i'll i'll i'll get some bitcoin from it like everything i pay
i mean like i think so far i've gotten like 60 bucks in bitcoin
why not like if you think about it i'm gonna pay for stuff anyway i'll i'll roll some bitcoin from
it so it's just it's really cool i i i think i i just i i'm a big fan of coinbase um it's
it's easy to use it's fun it's apple-like for crypto um but isn't it funny when you start to
use crypto and the funny thing is like i feel like this has been around for so long but at the same
time there's so many people that are not involved in the crypto space and when you're involved you
start to like get so frustrated with your own bank like when you get like uh when you deposit a check
you have to wait 24 hours for some reason i mean isn't this hilarious like like what all of us know
how fast money can move with the crypto space but then when you do anything in a bank it's
like hilarious how there's like holidays and like things like that it just doesn't make any sense
right though funny funny enough correct me if i'm wrong isn't isn't coinbase applying
actively for for banking licenses i hope so i i believe they are i i think they're actively
applying for banking licenses in the u.s which would be a pretty interesting outcome as well can
you imagine seeing outside of the u.s they've gotten a few approved can you imagine seeing
like driving down the street and seeing a physical coinbase bank it would blow my mind
i'll go there yeah right i bet it makes sense though i was i was on some sort of like webinar
with huntington bank i don't know if anybody's here from the u.s but i said um hey are you doing
crypto and nobody said anything i mean just think about just the disruption it's crazy oh yeah i will
say i've spoken with a couple banks and i've been like what do you got what do you guys think about
crypto and they're like we wouldn't no we're not we're not we're done talking i was like all right
that tells you something doesn't it it's pretty funny yeah but real quick let's keep tossing things
around i want to say hello to some new faces as well first things first naveen dude nice pizza ninja
looking fresh thanks eddie appreciate it man how you doing i'm doing great except for i mentioned
this earlier and i posted a picture about it dude i busted up my finger today i'm really
hoping it's not broken oh no but holy crap it is swollen like it's so black and blue i've never
actually had this happen before but yeah man dude i think you're okay man that's uh yeah i hope so too
yeah but anyway what do you think about coinbase man this has been a fun week
i mean look i think coinbase is a great company you know i've uh i've got i've been very lucky
to spend a lot of time with brian armstrong over the years and i think he's a remarkable
entrepreneur i think would you call him a thunder lizard he's totally a fucking thunder lizard for
sure i mean that's obvious i mean i don't i don't even need to say that like holy crap
guy's a rock star and um yeah i mean i just appreciate how much they're just like fighting
on behalf of the whole industry like they're they're not like representing certain bags or
anything like that they're just like look we've got to fight on behalf of the whole industry we're
gonna we're gonna take it to the man we're gonna do whatever it takes and we'll spend whatever
money we have to spend i mean you know if you add up the amount of legal fees they're racking up
both internally with their incredible general counsel who by the way like paul is like a
fucking rock star i mean that guy is like serious rock star from a legal standpoint um and when
you when you add up the amount of money they're spending i'm sure with their you know incredible
you know external law firms i mean they're spending probably like i don't know probably they'll
probably spend 50 million plus maybe more on legal justice here i mean it's it's not cheap
to go up against uh these three letter agencies and and that's one of the things that i actually
think is really a something that is frankly like undemocratic and deeply unfair about about our
country is that you know unless you have deep pockets like coinbase you really can't fight
i mean you have to have deep pockets like a ripple or a coinbase or or somebody like that
in order to even like begin to fight or you could be like an elon musk or you know somebody like that
i mean if you're a startup or you're a small-time entrepreneur there's no way you can really even
begin to fight so you know and naveen and i i will say just on that point i i've been mentioning i'm
currently in my civil procedure class like currently and i've been studying for today and
among the readings that we've been doing and i will say some of the especially for for legal
students um the readings today generally actually do a pretty good job of focusing on this
they talk pretty like a lot about how expensive this stuff is oh yeah across the board yeah i
mean you know a world-class securities lawyer at uh you know uh an incredible firm is going
to cost you over a thousand dollars an hour like easily and uh it could be 1500 an hour you know
and you know it adds up really really really quickly when someone when you're when you're
expecting a world-class legal mind to like dig into all the details when you think about discovery
when you think about all the stages of a trial you know all the pleadings all the motions i mean i
mean i i've dealt with litigation um you know many times in my career and no matter what no matter
what every single time i've touched litigation it's minimum a six figure check like minimum it's
like not even a question it's a six figure check but when you're talking about fighting a three
letter agency it's like an eight figure check minimum and that's crazy town like i just don't
think that's fair i think that's like a fundamental like lack of fairness in our country that
you have these giant you know like you know unelected bureaucrat