Max LeValley

Financial regulations are just protocols carried out by inherently self-interested human beings who routinely mess up the rule at each stage of the process--and often do so intentionally to their benefit. Smart contract protocols carry out the rule exactly as stated. While harm may result from, for example, a bug in the code, it still operated as it stated it would. This is a much different risk and belies the absurdity of regulators--who have a duty to understand the tech they seek to regulate--continuing to argue that financial regulations designed to mitigate human deceit should apply, exactly as they are, to open-source computer code.

@ChrisMurphyCT "Our banking system" really gives away the motivation here

The CLARITY Act is the bill supported by the crypto industry to increase their reach into our banking system and broader economy. There are many problems with the bill, but most egregious is that is essentially legalizes Donald Trump's crypto corruption scheme. Let me explain.

@DanSoder @OliverMill47487 welcome to the K-State family. Your initiation? Baptism by Snyder: youtu.be/-u_mmbfbpME?si…

@rstormsf Fraud isn't an existential risk to those most privileged with the existing financial system--it's a core part of it and is thus tolerated. The real existential risk to those with the most to lose is software that offers to sever them from that position.

???

@GwartyGwart VC funding to subsidize price and thus drive out competition is the most obvious-yet-slept-on, anti-competitive practice theory out there today.

This is all true but I would just point out that in basically all of the examples below, the end state of these markets is not materially cheaper or more efficient for consumers, or at least it’s not obvious this is true. A recent example is prediction markets. I actually thought that “peer to peer” betting would or could be much cheaper for participants. The prediction markets definitely shilled this narrative. Vegas sets lines to make ~10% in expectation. My (admittedly naive) thinking was, ok well if *anyone* can now make markets, someone will come in and do that for 5% or maybe even 1% or whatever. Surely they would be more liquid as well. In reality, the cost to trade sports (the biggest markets btw) now on PM and Kalshi is getting very close to this 10% rake we see on sportsbooks. It took roughly 2 years to be back at sportsbook prices More examples: -remember $10 Uber rides? Most Ubers now seem to cost about the same as a taxi. The cost did not *come down* to have someone drive you around, it became maybe marginally more convenient but certainly not an order of magnitude cheaper -AirBnBs are now either as expensive as hotels or they are annoying enough to deal with that you realize why hotel rooms cost what they cost. you may be able to get an Airbnb in a city for $100 where a comparable hotel room is $150, but you will have to deep clean the shower, take the trash out, wash the sheets and then maybe leave out milk and cookies for the people who clean after you just cleaned. The thing about regulatory arbitrage is that there’s very often no real gains or actual innovation occurring. And, because a lot of these companies are VC funded / have big marketing and ~incentive~ budgets, the market is distorted in the beginning: $10 subsidized Uber rides do not persist because that is not actually the market clearing price. There is some lower bound on cost to 1. Have a vehicle that requires maintenance and insurance and ongoing opex (fuel / inspections / whatever) 2. The value of someone’s labor to drive you around This applies in some capacity to almost all of these reg arbs. Maybe someone just will not quote both sides of a sports market for much less than 10% 🤷‍♀️. It’s probably just not worth it let someone stay in your vacant condo for the night for $25. Compare Uber to something like Waymo that is a *real* technological change, this is what is typically needed for orders of magnitude cheaper products or services. (Not saying this is a certainty, there are tons of bullshit regulations that will crop up with FSD that themselves will need to be arbed) In almost all the examples we think of, incumbents are supplanted by new incumbents and the idea of “consumer surplus” does not really come into fruition. This requires real innovation and real progress because eventually with enough demand and public support, they just make all this stuff legal, there’s no regulation to arb. The only real takeaway from building a business on this premise is that you really want to be the winner because then you become the incumbent and you have pricing power (and new regs that provide a new moat) and can just go back to charging what the previous incumbent charged

@SenWarren As currently composed, @SenWarren is a husk of a progressive representative stuffed with the banking lobby's bullshit.

As currently drafted, the Clarity Act is a ticket to sanctions evasion.

@SummerMersinger "better markets" is peak Orwellian doublespeak: it positions them as a critic of the financial status quo (generating progressive sympathy and false alignment) while all the positions they take reveal their actual role: preserving that status quo.

I served with Christy Goldsmith Romero at the CFTC. I saw her character, judgment, and commitment to public service up close. Calling Christy unqualified or untrustworthy is simply false – and it is especially hard to square with the fact that Better Markets itself previously called her “uniquely highly qualified” and praised her experience across banking, securities, derivatives, and law enforcement in a July 2024 statement. They were right then. Christy is a serious regulator, a principled Democrat, and a dedicated public servant. You can disagree with a vote or a policy position without tearing down someone’s integrity. But this attack is not really about Christy. It is about trying to slow the momentum behind Clarity. Rather than having a serious policy debate on the merits of the legislation, Better Markets has inexplicably decided to launch a character attack. While Better Markets spends their time commenting on rumors in a veiled attempt to prevent legislative progress, the crypto industry will stay focused on passing durable rules that protect consumers, support responsible innovation, and keep the future of financial markets in the United States.

It's crazy this is even a debate still. The limits of its application are in the BSA's title. “Bank” has a settled legal meaning: accepting deposits for safekeeping. Noncustodial software does not do that, whether it is open-source protocol code or interface code. That is why the BSA has never been applied that way before, despite analogous software existing throughout the financial system: software that does not take custody, accept deposits, or hold customer value is not banking.

Huge. Thank you to @RonWyden for taking time to deeply understand this issue and advocate for developer protections. "While critics of the BRCA point to the purported impact of the provision on AML/CTF, this is inaccurate. In reality, this provision would unify FinCEN and Department of Justice policy, and ensure that law enforcement resources are focused on criminals and other bad actors operating unlicensed money transmitting businesses."

@OndoFinance @poppiefinance @eulerfinance @BNBCHAIN @chainlink x.com/mt_levalley/st…

@poppiefinance @eulerfinance @BNBCHAIN @chainlink Tokenized stocks are the future.

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@austincampbell @sytaylor @PalmerLuckey The easiest business model in human history. All he did is know enough people to be awarded a banking charter.

@sytaylor This is very impressive deposit growth, and my question is what they do with them. For now, repo and reserves do generate income, but the long term lending diversification and ALM is the key. Curious what the plan is there @PalmerLuckey, that will determine life or death.

🚨 BREAKING: Erebor is at $4.05bn in deposits, per Bloomberg. Their March call report said $1.1bn. Nearly 4x in a single quarter, for a bank that only got its full national charter in February. They're now in talks to raise at an $8bn+ valuation, up from $4.35bn in December. Founded by Palmer Luckey. Backed by Founders Fund, 8VC and Lux Capital. They went from OCC application to full charter in roughly 9 months. Paxos, Ripple, Circle and Stripe have all filed for trust charters. None of them operates a full depository bank. Three details buried in the Bloomberg reporting: 1. They added roughly 400 customers this quarter while deposits grew ~$3bn. Even if every new dollar came from new customers, the average account is north of $7m. A small number of very large depositors, nearly all above the FDIC cap. Sound familiar? 2. Demand for crypto-backed lending came in *below* their expectations. The product winning is the boring one: a deposit account that stays open. 3. Luckey went out of his way to say none of this quarter's growth came from his own companies. When the CEO pre-empts that criticism, you know it landed the first time. My read: after Chokepoint 2.0 and SVB, "we will bank you" is the product. The charter is the moat. The 24/7 stablecoin rails are features. And yes, fast-growing, concentrated, uninsured, correlated deposits are exactly the shape SVB was. The difference so far: per the Q1 call report, Erebor holds zero loans. It's operating closer to a narrow bank than a lender. $8bn on roughly $1bn of equity is ~8x book. JPMorgan trades at ~2.4x. Investors are pricing a bank charter like software.

Banking is capitalism for borrowers and socialism for balance sheets. The chartered bank is allowed to monetize public trust, lend other people’s money for private profit, and rely on the state to prevent system-threatening loss. The result is not a free market in money, but a legally protected monetary nobility: private firms (often long-held by specific families) granted special access to sovereign infrastructure, allowed to capture upside from credit creation, and repeatedly rescued from the full consequences of their own systemic importance.

@LazPieper i.e., when a corp uses a cloud server those are somehow still the corp's private records. but also, somehow, when a natural person does the same they are the cloud provider's business records and thus the natural person has no expectation of privacy in them

Worse, the practical outcome of the 3PD seems to be: a corporation can outsource its nervous system to third-party servers without thereby inviting warrantless government inspection. A natural person, by contrast, can barely participate in modern life without creating “third-party business records” that the government claims it can obtain without a warrant and without you ever knowing. Modern BoR jurisprudence has consistently expanded each for corporations while watering them down for natural persons. This itself could be considered a violation of the Equal Protection Clause.

Gorsuch’s concurrence in Chatrie is incredibly important for Fourth Amendment considerations. His stance can be summarized by this single line: “The Fourth Amendment’s protections do not depend on ‘the breach of some abstract “expectation of privacy” whose contours are left to the judicial imagination.’” The Supreme Court’s stance around the 4th Amendment is interesting, and frankly, arbitrary, which was displayed in yesterday’s majority opinion in Chatrie, despite the favorable outcome. The Court found that Chatrie has a reasonable expectation of privacy and dismisses the third party doctrine when it comes to cell phone location history—despite users voluntarily providing their location in order to use Google’s services—based on the quality of the information (despite citing Kyllo as stating that quality is not a measure as to whether information is entitled to 4th Amendment protections) and the fact that cell phones are a part of everyday life in modern society. I think they’re right to determine there’s a reasonable expectation of privacy here. But this reasonableness test (derived from Katz) is completely dependent on 9 justices in Washington, DC deciding what is reasonable for 340 million Americans—something Gorsuch explicitly points out in his dissent in Carpenter and again in his concurrence here. This has placed the US in a position where certain contexts provide a reasonable expectation of privacy (e.g., cellphone location history) and others don’t (e.g., financial records in Miller and phone numbers dialed in Smith), based on no consistent principle, and instead, on what Supreme Court justices themselves interpret to be reasonable. So while I’m happy about the Chatrie decision, I still believe we need something more consistent and more protective. In his Carpenter dissent and Chatrie concurrence, Gorsuch takes an originalist approach to the application of 4th Amendment to derive a more concrete test, where courts would look at whether certain information qualifies as a person’s papers or effects, and whether the government searched those papers or effects. Simple, binary, and more concrete. From here Gorsuch evaluates Chatrie and determines that: 1. Location History (and computer data generally) qualifies as personal property; 2. Although this data lived on Google’s servers, this does not deprive the user of his property rights; and 3. That this was indeed a search based on the premise that a search happens when the government “looks over or through for the purpose of finding something” and/or when “government officials enlist private parties in that task.” I find this to be a much more compelling approach and further in line with the Framers’ intent. Unfortunately, the Supreme Court hasn’t yet taken that stance, and so for now, the 4th Amendment lives in a state of inconsistency and is less protective than it should be.

@JacobRobinsonJD @patrickjwitt What was made "safer"? Did Circle have to improve the quality of its reserves as a result of GENIUS relative to what was required of them under their MTLs? Nope, just a yield ban without regard to whether that yield adds consumer risk.

@patrickjwitt While also making it safer for Americans. Thank you for the work you’re doing, Patrick.

Another example of how clear rules of the road can unlock massive value. What GENIUS did for stablecoins, the Clarity Act will do for all other digital assets.

@MorePerfectUS Giving corporations full rights as persons while stripping/watering down those same rights from natural persons is a clear violation of the Equal Protection Clause.

BREAKING: The Supreme Court just struck down restrictions on political parties’ coordinated campaign spending, saying that they violate the First Amendment. The 6-3 decision means political parties will be able to coordinate with candidates, and raise unlimited amounts of money.

X suspended my account right after I posted this (and in March when I posted an article on the Clarity Act). They recently lifted it, but it effectively killed its momentum. Give it a read while you can: x.com/mt_levalley/st…

@JBSDC This was not accidental: x.com/mt_levalley/st…

This tax probably won’t raise much revenue but the real lesson for folks in crypto is that knowledge of how the industry works remains poor for most legislators. This is the kind of tax proposal you’d see raised ten years ago in a bull market just because folks see a money tree.

It’s a bad law, but I think folks are missing how it was inserted basically in the final hours of the session before sine die & passed with minimal analysis/hearings. The legislature has no idea what impact this will have on crypto trading in Illinois? So why do it? Revenue.

@JBSDC x.com/mt_levalley/st…

@TeddyRoosevalt @JBSDC It’s worse than I thought: x.com/mt_levalley/st…

@JBSDC I have a hard time seeing this survive a legal challenge Max has a great write up here. I’d also throw in the question of federal preemption. Wonder how this tax interfaces with the GENIUS Act (and Clarity assuming it passes)

@cryptodotnews I’m “certain” Treasury will provide us all “clarity”by interpreting section 302 to require full AML/KYC for all noncustodial frontends

NEW: Senator Lummis says Clarity Act protects retail investors and reduces regulatory uncertainty

@DigitalChamber x.com/mt_levalley/st…

Illinois' proposed 0.2% digital asset tax would negatively impact residents and businesses at a time when digital asset adoption and innovation are accelerating. No other state has imposed a similar tax, and the lack of stakeholder engagement surrounding this proposal raises significant concerns. The Digital Chamber recently joined the Illinois Blockchain Association in a letter urging the legislature to reconsider this measure. Read our full letter: bit.ly/4ujZWfE