FailsBothProngsLagrange

This Memorial Day is especially meaningful as we approach our Nation’s 250th anniversary—a milestone made possible thanks to generations of American heroes. May their sacrifice inspire us all to be faithful stewards of the inheritance for which they so nobly gave their lives.

@cryptoreine @jonah_b Shopping online is more relationship based in China vs the US. It’s harder to trust brands in developing countries. The behavior you’re noticing may be emergent from the same underlying problem. @earthwalker.claude/behind-chinas-influencer-craze-a-failure-of-governance-and-public-trust-7777c1d8f5bd" target="_blank" rel="nofollow noopener">medium.com/@earthwalker.c…

@jonah_b Have you noticed regional differences? LATAM / APAC founder ecosystems feel more relationship-dense than US ones

Private market investing is a relationship-driven business. One thing I’ve consistently noticed with our LPs is that, at the end of meetings, they almost always ask which other fund managers we recommend. It’s a smart question because trust is everything in private markets. More broadly, I think this is a tactic VCs should use more often with founders: asking which other founders they respect. And founders should do the same with VCs, asking which investors they respect. In ecosystems built on trust and reputation, those signals matter.

@jonah_b It only worked out bc BoA did americard themselves first in California. Then expanded to a network play. Lesson in there

Stablecoin builders often underestimate the business logic behind traditional payments. Visa, in particular, has incredibly elegant network effects. Why did merchants accept all those fees? Why do consumers get rewarded so heavily for spending? There’s a lot to learn from the history of payments infrastructure. “Learn the rules like a pro, so you can break them like an artist.” ― Pablo Picasso Here’s an old @AcquiredFM episode on Visa. It’s long, but absolutely worth the listen imo.

Prediction: innovation exemption is going to be very cool but still leave almost everyone unhappy

Real question on the same-security framing. Doesn’t 5310 attach the moment GLXY-token = GLXY? And if so, who owes it? My understanding is: The LP isn’t a dealer, the AMM isn’t an exchange. The wallet isn’t a broker. Curious how you’re thinking about this or is the master plan to have someone become a ATS or broker?

years ago, when i was confused or stuck on a writing analysis assignment, my father (an english professor) would always give me the same advice: look to the text hester is advising us to do the same thing >> read the SEC’s existing guidance for clarification on these terms

every crypto policy person and tokenization firm is debating this morning what hester means with this specific word

If people want to understand what synthetics mean to me in this context, see the staff statement on tokenization, which distinguishes tokenized versions of issuer-sponsored stocks and of stocks that SEC-registered firms hold for their customers from synthetic instruments that provide exposure to stocks. sec.gov/newsroom/speec…

Naive question about market structure. Correct me if I’m wrong anywhere. Historically in Defi: No KYC -> unified liquidity -> Defi I get that per broker/venue/issuer KYC fragments liquidity so it’s not deep. Per gatekeeper KYC -> shallow liquidity -> “Meh”-Fi My question to you @banamlas is why is the conversation no KYC or repeated KYC? Wouldn’t one time KYC that follows the user get us to the holy land?

My prediction is that @SECGov innovation exemption will provide a testing ground for KYCfi for US, mostly, @The_DTCC tokenized securities + directly onchain securities, while providing room to test AMMs. Will still need a broker-dealer to whitelist KYCed wallets. DeFi won't love it. TradFi might sue over it - but onchain brokers will have an opportunity to show PMF.

@BillHughesDC cc @dawufi

How I’m looking at all the guys in chat who were saying fartcoin on NYSE bro

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@HesterPeirce Ty for your service 🫡

I appreciate the interest in--but not the hyperbole about--the contemplated innovation exemption for the onchain trading of tokenized NMS stock. Keep in mind: I've always expected that it'd be limited in scope & would facilitate trading only of digital representations of the same underlying equity security that an investor could purchase in the secondary market today, not synthetics.

Good article. First-time founder naivete (myself included) is thinking only about the institution's incentives. It's a bunch of people organized into departments reporting to a board. Questions to answer before taking intros: - If you're selling something real, what person and department do you need as your internal champion? - What emotional driver or KPI are you satisfying? - Who else does your champion need to convince? (e.g., compliance) - If you're selling a network, do you need it bootstrapped already? The one shining example of pure blockchain infra that genuinely works is Canton. You're selling padded margins.

1/ Some thoughts on yesterday’s EO instructing the Fed to expand access to Fed accounts and services to nonbank fintech firms. 

Overall, I’m bullish.  But first: this is not a summary — Claude or ChatGPT can do that for you. Instead, I will try to explain the context behind how Fed staff thinks about these kinds of issues as a recovering central banker.

@g_co @EleanorTerrett How do I get into law school without a college degree?

@EleanorTerrett Both are wonderful lawyers and public servants.

🚨NEW: SEC Commissioner and head of the Crypto Task Force @HesterPeirce will join Virginia’s Regent University Law School as an Associate Professor in November, according to a university press release circulated today, signaling her tenure at the agency is nearing an end. In the new role, Peirce, also known as “Crypto Mom,” will teach subjects including securities regulation, financial markets, digital assets and public policy.

@amandalfischer Yes. A working one. Americans used to participate in the growth of the companies they paid. Now they just subscribe. And the same people who patched public markets into a punishment are first in line to fix private ones.

@EulerLagrange So what you’re describing is a public market brother

Bingo. Prediction: all of these haphazard, quasi-legal global tokenization efforts are going to lead to company executives waking up to valuation and market integrity problems real soon.

Alright: $1k that someone gets Section 36 relief for AMM-based tokenized securities trading with shared cross-asset liquidity, no broker/ATS/exchange/clearing. Treasury/FinCEN follows on the standalone TA BSA piece. With a pathway for US and international investors to eventually share liquidity and use their tokenized securities in DeFi (AMMs + lending protocols).

TAs are already BSA-covered in some cases. banking TAs through their bank status, and TAs with BD affiliates pull in AML obligations through the affiliate. If you're predicting standalone 17A TAs become subject to BSA on their own, that's a FinCEN/Treasury determination, not an SEC one. On the exemption question, you don't necessarily need Section 36 relief to trade a tokenized security without a BD/ATS/exchange in the path. Consistent with the Jan 2026 Corp Fin tokenized securities statement, a registered '40 Act fund can issue a share in tokenized form on Ethereum via a registered TA, provided the TA holds exclusive asset-level controls (mint/burn/freeze/reverse), KYCs holders, and maintains the offchain master securityholder file as the authoritative record. That token can trade today among whitelisted holders. Where I agree with you is that the moment you add solicitation, transaction intermediation, or market operations on top, you're back in BD/ATS territory and the frontend's economic position collapses into exactly what you describe.

Yesterday, some commentary landed on the tokenization of securities and freely trading in DeFi. By free, it means apparently without a whitelist or KYC. I find this quite interesting and a positive step from the SEC, though I also suspect some of the claims in the article are probably a bit... out of context, because it's going to be very hard to freely trade stocks in DeFi without issuer permissions and without KYC. I say that as a former Wall Street trader and practitioner in this space. Why? One: dividends. When we think about the prospect of securities trading onchain, we also have to port to the chain all of the actions that come along with the security and the rules around those. In the case of dividends, specifically, that requires payment (on a specific date and time) of dividends to the holders of those securities, which means you need to know where the security was located at the time and who was holding it, how much of it they owned, and where to pay them. So on the surface, that seems easy on a blockchain, right? You know the wallet of the owner, and the history of the chain will tell you exactly who owned it. In addition to an ex-div date, you probably need an exact time and block, but that's a solvable enough problem. Except, you don't know WHO the owner is. This creates two problems. The first is tax. Who is doing the withholding here? How do they do that? It's going to be hard to do this properly without knowing who the holders are... The second, though, is even more severe: OFAC. Without knowing who the holders are, especially given the known actions of sanctioned entities onchain (IRGC, North Korea, etc.), there's probably no way to pay a dividend without knowing you have committed an OFAC violation, and unlike the arguments around diffusion and immateriality for paying a quarter of a tenth of a fifth of a cent on Solana, here, uh... yeah, no, that could be super material. So what will happen? Do you just not pay the onchain people? Do you put them in a container that will require them to come KYC to get the dividend? How do you do that? It's not obvious to me how this would work. This also generalizes to any coupon payments, prepayments, etc. for fixed income. Second: Control rights and voting. If you study some of the nonsense around insider pools, around corporate "mergers" (where one side controls a voting share of the other side), and more, there's going to be a lot of issues with voting where you don't know the holder of the stock. I might go one step further and say that under some of the aggressive interpretations of law, it creates fiduciary problems because a board will have no way to know if a shareholder vote is legitimate or not. But suffice to say, I think the complication here is exceptionally real. So where does this lead me? Could you get some sort of price index onchain, through a perpetual or something? Almost certainly, though now we are into derivative and security based swap questions instead. Could you get literal voting rights and dividends onchain? I think it's very possible, yes. Can you do the latter on in DeFi and without having to know who the holders of wallets are? There I have some very big questions. I think you have to be quite careful here. Could an ADR type situation work, where you strip voting rights and dividends? Yes, in theory. Would that fragment markets and maybe trade at a discount to stocks? Also yes. Is that good? YMMV. Can you do any of this without issuer permission? Well, in theory, probably, but how is that going to work when either the issuer or a bank refuses to pay a dividend citing OFAC concerns and then makes (at their own expense) holders come identify themselves and provide tax info to be able to do this? How will it work when they simply refuse votes from tokenized shares for fiduciary soundness reasons as they can't know things like the shares aren't held by nation-state enemies or insiders at competitors? It will be a mess. In short: this is a super complicated issue and I don't envy the SEC dealing with trying to maximize distribution while staying within the bounds, and I think there are likely to be compromises that we all have to live with.

Prediction: There will be new rules that make the transfer agent a BSA obligated entity 😉. I don't disagree with James' analysis, but I don't see the commission spending their time on a model that leads to the same market structure we have today. If you assume that some broker/ATS/exchange takes on the compliance burden downstream of the frontend, then they will extract all the value. A frontend would be Robinhood minus the custody/KYC moat. What's the point? @xjehmz or @milesjennings prop bet $1k that someone gets a section 36 exemptive relief to let tokenized securities trade without broker/ATS/exchange/clearing, with full BSA and full investor protections (best ex) AND they fail BOTH prongs of 3b16 in the 34 act. You only need to fail one prong to avoid being an exchange. Cmon take my money

My point (poorly made) is it doesn't matter if the asset is a security. Under a strict reading of the joint Release's separation framework, secondary trading of many (and virutally all newly issued) non-enumerated network tokens are securities transactions, even though the token itself is a digital commodity (to the extent it has not separated). That puts every potential intermediary in the position of having to vet separation status token-by-token, and reject tokens that fail (unless the intermediary is a BD). Arguably manageable for a CEX with a listing process, but structurally impossible for a non-custodial frontend that has no relationship with issuers and no gating mechanism. Not suggesting the CUI statement is limited to addressing only this type of securities tx (it isn't, it specifcally references tokenized securities). To attempt to answer your original question more clearly, the CUI statement insulates CUIs from securities tx intermediation exposure in connection with the separation doctrine, but it expressly does not eliminate intermediation compliance entirely. It relocates it to CEXs (and arguably, market makers and dealers). Likewise, the CUI guidance probably isn't intended to eliminate securities reg guardrails for defi trading of tokenized securities entirey. Just relocate away from CUIs to other actors.