WEBVTT
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Even if you didn't comply with the first parts of
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red crypto, the startup or the fundraising exemption. And so
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what that means is existing projects today can qualify for
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that safe harbor so that they can say, hey, everyone
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should feel comfortable purchasing our asset because it's not a security.
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Link will be in the description. Hey folks, welcome into
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the Thinking Crypto Podcast. I'm your host, Tony Edward, and
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joining me is Tiffany Smith, who is a partner and
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co-chair of the Blockchain and Cryptocurrency Working Group at WillmarHale. Tiffany,
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it's great to have you back.
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Thanks for having me, Tony.
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Yeah, Tiffany, we were talking before the recording, I had
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to get you back on because we had an in-depth
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conversation back in May about the SEC and crypto legislation
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and guidance And recently the SEC provided regulation crypto for comments.
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And we touched on that in our interview. So I
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definitely want to get your take and your perspective, you know,
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with your plethora of experience with securities law and much more.
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So why don't we kick it off with that? Tell
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us about the SEC's guidance and what was your initial
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reaction to that?
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So at a high level, so it's called reg crypto.
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At a high level, it provides an offering exemption for
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crypto assets that are subject to.
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An investment contract.
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So it has some of the framework that Commissioner Purse
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had laid out years ago. And so the question is,
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if you have a crypto asset that's subject to an
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investment contract, it's first, how is it registered? Is there
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a fit-for-purpose exemption from registration? And number two, how do
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you determine when the investment contract is over and it's
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no longer subject to the federal securities laws? And that
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is exactly what this proposed red crypto does.
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I don't know if you got a chance to go
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through all the details because you let me know. But,
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you know, what was the good for you and what
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was maybe the bad if there's anything like that?
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So, I mean, the good is that we frankly have
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like a fit for purpose regime for crypto asset offerings.
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I think we talked about this before because we didn't
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have anything in the US. What was happening were two
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different things. One, the crypto asset offerings were limited to
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accredited investors. And so that's kind of like anti-crypto, right?
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It's supposed to be every man and little man can participate.
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And so we had this regime where only accredited investors
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in the US could participate. And then the second thing
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was that a lot of projects were going offshore to
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raise capital, which was basically taking US investors out of the,
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you know, away from having the ability to participate in
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these distributions or these offerings. And so, This proposed regulation
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is a fix to that. I want to commend the
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SEC and the staff for all of the hard work
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they did in putting this together. They had a lot
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of different mediums to receive feedback on what it should
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look like. I think people are still digesting, but there
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are questions about, okay, this is the offering talks about
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issuers and secondary market transactions, but what is less clear
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is how platforms or other types of intermediaries, how it
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applies to them. For example, at the end of the regulation,
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we can kind of get to the end of it.
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It talks about the safe harbor where an issuer can
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file a form and basically say, my promises have been
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fulfilled or abandoned. Therefore, I'm no longer subject to the
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federal securities laws. And so it also talks about how
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the SEC has the ability to sort of, you know,
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question that filing. And so if you are a third
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party intermediary exchange that is offering that asset, like what
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do you do in that instance? Do you just rely
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on the form? Do you wait some period to sort
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of determine that the SEC is satisfied with it?
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Like, right. So there's like some open questions.
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And I think that through the comment period, because this
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is just the comments, the proposal, we'll see a lot
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of that feedback sort of come into play. The other
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thing that's worth mentioning is that you can apply for
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the safe harbor that allows you out of the power
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securities laws, even if you didn't comply with the first
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parts of red crypto, the startup or the fundraising exemption.
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And so what that means is existing projects today can
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qualify for that safe harbor so that they can say, hey,
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everyone should feel comfortable purchasing our asset because it's not
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a security. And so I think, you know, a lot
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of the, there's a lot of pages in the proposal
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that really thinks about projects that are just raising funds
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or sort of in the beginning. But I think there's
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going to be a lot of comments and really thoughtful
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comments about existing projects and how they get comfort that
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the investment contract is distinguished so that they can sell
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their assets without fear of them being deemed a security.
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That's such a great point. I was going to ask
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about that because what happens to all the ICOs that
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took place in 2017 around that time and then the
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existing blockchains and projects that are out there right now,
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is it like a retroactive thing or it's just moving
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forward any new token issuance you know, has to come
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into alignment with these new laws. So it sounds like
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the existing projects will be able to, so to speak,
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register and, you know, come to some sort of safe
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harbor as per the lingo.
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Yeah, so it's just interesting. I've heard this is some
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of the commentary that's out there. So right now, there's
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nothing that would give you any type of comfort for
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past offerings or distributions. And so it's kind of like,
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So if you're an existing project, for example, you've been
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selling assets for six years, right? You can qualify for
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this safe harbor and going forward have comfort that the
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investment contract is now extinguished. But there's a question about
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what happens to all of your distributions in the past.
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And so I expect folks to comment on that because
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like to your point, like the statute of limitations, frankly,
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is still open for some year.
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So moving forward, this guidance would allow institutions, entrepreneurs, and
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so forth to be able to launch their own blockchain,
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their own token, and obviously within this SEC's guardrails, but
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you don't have to worry about having, you know, violating
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securities laws or getting a Wells notice or a lawsuit
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or anything like that.
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Yeah, so it provides an offering exemption, right? So right now,
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There's various exemptions. There's Reg D, which is only available
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to credit investors. There's a Reg CF, which the startup
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exemption is sort of modeled from. And Reg A, which
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the fundraising exemption is modeled from. And so there's requirements like, right,
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you have to make disclosures. And especially for the startup exemption,
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when you're getting to the higher levels, you need to
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have financials and sometimes audited financials. So it's definitely not
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a free pass. I say the distinction is that the
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other types of offering exemption we have out there were not.
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Fit for purpose for crypto offerings.
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And so there would be questions about whether or not
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having disclosures about the company and a company's operations actually
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made sense when you're actually talking about a protocol or
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blockchain or a project, right, that's going to create value.
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And so this proposed regulation addresses that by having questions
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and disclosure requirements that are actually tailored to a crypto business,
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but it's still an offering exemption. And so it's not
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sort of a free pass at all. It's just more
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tailored so it can actually be a workable framework so
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that there can be offerings and distributions.
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In the U.S.
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And what were the specific numbers as far as the
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limits you can raise per year? And I know there's
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like a, is it a five-year window or something along
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those lines?
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Yeah.
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So for the startup exemption, that's really like someone who's
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just really starting out. It's $ 5 million over a four-year period.
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You can only use that once. And then there's a
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fundraising exemption, which it's either 25, it goes up to
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75 million. So there's a tier one, which is 20 million.
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You need financials that don't have to be audited. Tier
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two up to 75 million need audited financials. That's in
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every 12 month period. So you have, you know, more
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compliance requirements.
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The higher that you go.
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The other thing that's interesting is that like two things
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are interesting. One, assets so pursuant to these exemptions are
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covered securities, meaning that state law is preempted. And that's
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huge because like sort of like we saw when the
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SEC took a different approach and some of the states
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sort of came out and said, we're going to pick
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up where the SEC left off. You don't want to
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have to worry about compliance, you know, with the blue
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sky laws. So that's like helpful. And then the other
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thing that's sort of interesting, you know, about these is
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that they're not exclusive, meaning that you can raise some
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capital using startup or fundraising, but you could also rely
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on Reg D. itself to accredited investors. So it gives
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projects flexibility, but the most important part is that it
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creates a pathway for individual, you know, non-accredited investors to
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participate in these offerings.
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So let's say Tiffany, I have a brilliant blockchain idea.
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I want to start my own blockchain under the thinking
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crypto banner, so to speak. I want to issue a token.
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Do I go register with the SEC first or I
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can get myself started, then I go in and register?
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What would be the best path?
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So the best path is for sort of having an
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idea of what you're going to do.
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You don't need to build it, but you need to
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have a business plan.
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So that when investors decide to give you money to
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build it out, they know what your promises are going
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to be.
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And so.
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Even for the startup exemption, where you can raise up
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to $ 5 million over a four-year period, you don't need
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to actually wait for the SEC to qualify your offering.
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You can provide the disclosures and post them on a
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website that's free and accessible to the public.
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But you do need to disclose.
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Such things as what your plans are, the ecosystem, the
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management team, etc. So there are required disclosures that mean
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that it would be like sort of impossible for someone
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who's just starting today to sort of like take advantage
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of it. But once you actually have a business plan
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and are able to complete the disclosures, then you can
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go out and try to raise funds under the startup.
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And now you're dealing with a lot of firms within
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the crypto industry and more. How are they viewing this guidance?
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I know this is very early in the comment period.
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Are they seeing this as a positive? That's something that
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they can, you know, kind of build into the strategy
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that once it becomes fully law, they can hit the
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ground running and launching different things.
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Yeah, it's definitely positive, right? Because it, as I mentioned earlier,
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it provides a pathway for there to be, you know,
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crypto offerings in the US. So definitely positive. As you
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mentioned earlier, it's over 400 pages. And so, you know,
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from an administrative procedures process, like what happens is that
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rules out for proposal and comments are due, I think,
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October 20th.
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And so right now, I know folks are very excited
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about it. They're really going.
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Through it carefully and trying to be thoughtful about the
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comments they're going to submit, because pursuant to the APA,
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the SEC has to sort of deal with and address
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the comments.
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Right.
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And then from there, either make changes to the rule
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or sometimes if there are a lot of comments, it
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will have to go up for reproposal. And so people
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are excited, but also trying to think, be thoughtful to
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make sure that if there's any concerns about how the
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rules propose, they're including them in this comment period so
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that they can be addressed by the SEC.
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But that absolutely makes sense. And I'm sure the SEC
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might have a roundtable around this, getting different folks like
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yourself to come in and talk about it.
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Yeah, absolutely.
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Like, yeah, even, even like the, the, the proposal mentioned,
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you know, commissioner purses, 48 questions and other efforts that
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the SEC had, had already taken that, that resulted in comments.
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And so now, you know, they're, they're taking feedback and
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I assume that there's going to be, you know, even
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more opportunities for feedback as they are getting to creating
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a final rule.
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This is great. I can't wait to see the comments
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and how this all pans out. But as you mentioned,
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definitely a positive. So I did want to ask you
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about tokenization guidance from the SEC. We spoke about it
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in our last interview. The SEC gave a bit of guidance,
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but it seems there's a delay in the full guidance.
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What can you tell us there? Are you hearing anything specifically?
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So I've heard a number of different things.
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I'm not going to speculate on what's actually true, but
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I think like what we're sort of waiting for in
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that vein, like what we had back in March is
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was a tokenization taxonomy where the SEC described various types
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of ways to tokenize assets, whether issuer-driven.
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Or third-party-driven, whether.
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The tokenized asset was intended to behave like their traditional
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asset or would just provide a synthetic exposure.
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So all of that was sort of set forth in
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the taxonomy.
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And what folks are waiting for is what's called the
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innovation exemption, And what, you know, Chair Atkins, Commissioner Perth
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said is that that was supposed to be a limited
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exemption for on-chain markets. And so I think it's going
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to describe how markets like AMMs and other types of automated,
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like on-chain markets are regulated, right, or should be regulated
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and provide like a limited exemption to sort of like
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help those markets sort of transition.
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And so.
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Obviously, with tokenized securities, you can trade them within regulated intermediaries,
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but to really get to the full promise of them,
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you want to be able to trade them in on-chain markets.
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And so my understanding is that's what that innovation exemption
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is going to address. Like I said before, I've heard
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a number of different rumors as to what the delay is.
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So I think we'll sort of see when that comes
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out and what it looks like.
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I'm assuming, well, I shouldn't say I'm assuming, but My
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hope is that we would get it, you know, towards
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the end of Q3 or maybe into Q4, because the SEC,
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the CFTC and a lot of crypto industry folks met
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at the White House just last week, you know, talking
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about getting crypto legislation done if the clarity passes or not,
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providing the guidance. So maybe we might see some fast
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tracking of these things.
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Yeah, yeah, that's what I mean. That's one of the
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many rumors I've heard. I've heard that In part, it
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was delayed because efforts with Clarity didn't, they didn't want
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to interfere with efforts going on with Clarity.
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So we'll see.
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I think the same understanding with RegCrypto, because if you
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look at the actual RegFlex agenda, that was supposed to
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have come out in April. It came out in August.
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So we'll see. But obviously, we'll probably talk about it
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more later, Clarity is still, no matter what the SEC
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or CFTC does, Clarity is still very, very important.
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And so I think it needs to work in tandem.
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And I'm assuming, and correct me if I'm wrong, a
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lot of these guidance are already in the Clarity Act.
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Like I believe Red Crypto is already in the Clarity Act.
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Yeah, yeah.
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There's versions of it that are like, it's very similar
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to what is in Clarity. But obviously Clarity is much
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more broader and covers other things.
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Got it, got it. So before we go further in
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Clarity Act, yesterday, and we're recording this on Thursday, August 27th,
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the SEC, it was reported that the SEC is looking
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to update the U.S. crypto custody rules, and they sent
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some documentation to the White House. What are you hearing
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about that? What impact will this have?
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Yeah, so I just view it as like another piece
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to bring markets on chain.
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And so....
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In order for a lot of the institutional players to
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feel comfortable having their assets on chain, they need custodians.
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And if they're regulated, they have to keep their assets
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with a qualified custodian. And so I believe this rule
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is just going to, it's the custody or safekeeping rule.
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So I think it will provide guidance about how qualified
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custodians can maintain crypto assets, like what is considered good
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custody for those purposes. And then also provide guidance on
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who is a qualified custodian. There's a very cumbersome, I'll
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call it, analysis to determine whether a state regulated trust
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is a qualified custodian. And some of that was touched
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on in a prior version of the safekeeping rule. And
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so I think like under this administration, they'll probably be
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more clear and probably more forward leaning. But I think
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that's something that you just really need for another piece
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of the puzzle for markets to come fully on chain.
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Yeah, in custody.
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I mean, Tiffany goes without saying one of the pillars
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in ensuring this market functions well, because we've seen a
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lot of hacks and exploits and all these things. And
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last thing we want is another FTX type situation, of course.
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So definitely custody. We got to get it right.
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Exactly.
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Yeah.
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And it's something like both, and it happens, you know, frankly,
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really with any intermediary. So my understanding of the rule
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that was filed with the white house, it's going to
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be the investment advisors custody rule, but there's also questions
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I've heard. There's also going to be a rule that,
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that relates to broker-dealer custody rules. So broker-dealers comply with
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what's called the customer protection rule. And there's been some FAQs,
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but there's more guidance necessary to make sure that those assets,
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that broker-dealers feel comfortable that they're holding the assets in
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a way that won't get them in trouble with their regulators.
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That makes sense. Let's jump to the Clarity Act. There
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is a vote scheduled for September 15th. We'll see if
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that pans out, or maybe that's just a start at
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a process. I'm curious, how are your clients, how do
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they feel about the Clarity Act not passing before the
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August recess? You know, are they disappointed? Are they still
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optimistic and things like that?
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So I think there was initially some disappointment. I think
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the fact that, you know, a vote was set. So
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it was like disappointment. Then very quickly the vote was set.
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So that provided some optimism again. And I think having
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read crypto also provided some optimism. And so I'd say,
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you know, the mood is sort of, changes almost on
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a daily basis, depending on the news that's coming out.
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But as I mentioned before, even if the SEC and
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CFTC do everything in their power to create policies and
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rules and frameworks for crypto assets, you still need federal
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00:21:49.880 --> 00:21:54.859
regulation because there is no federal regulator for the spot
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00:21:54.960 --> 00:21:59.849
crypto market. And so thinking about red crypto, let's say
403
00:21:59.869 --> 00:22:02.809
you use a fundraising startup exemption, you get through the
404
00:22:03.150 --> 00:22:06.309
four years, you file your transition report and say, hey,
405
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I'm done with my promises or obligations to my investors
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are over. This asset is no longer subject to an
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investment contract. What that means is that asset is no
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00:22:16.599 --> 00:22:20.230
longer subject to the federal securities laws, but there is
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no primary federal regulator for that asset right now. And
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so the safe harbor even says this in the proposal, it's...
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Binding on the SEC, but not other parties. So that
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means a state, a private party can come out and say, hey,
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we think that this asset is still a security. And
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so that is the big hole that we have. And
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only Congress can fill that. And so we can have
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the greatest policies in the world from the agencies. And
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00:22:49.470 --> 00:22:52.990
they've been terrific and really thoughtful. But until Congress fills
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that gap for crypto spot regulation, we're going to continue
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to have a potential issue.
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That's great insight. See, for the most part, I thought,
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you know, the agencies do their thing, provide the guidance
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and rulemaking.
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We're fine.
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We just need the Clarity Act to, you know, kind
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of put a rubber stamp of approval that all this
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is law. But to your point, there are gaps there
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that this legislation would fill.
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Yeah, absolutely. Absolutely.
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Another thing, like since we're talking about is, you know,
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even the good guidance that the SEC has put out,
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that has to be codified in a rule. So red
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crypto is a rule. Like, right, we're talking about the APA,
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the Administrative Procedures Act.
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And once you have a.
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Rule, you can only essentially undo that rule by proposing
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a new rule. So you have to go through this
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whole process, which you can sort of, you know, fight
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in court if it's not fair or correct. Guidance, on
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00:23:48.039 --> 00:23:51.380
the other hand, right, then the next administration can sort
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of just take that away. So take all the great
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guidance we had in March 2026 that talked about All
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of the different assets that weren't securities, crypto assets, NFTs,
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digital collectibles, digital identity tools, like the next administration can
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come in and undo that commission level guidance. So the
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only way to really have it more durable is to
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actually have rules. And so I expect that we're going
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to see a lot more rulemaking taking place, both at
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the SEC and CFTC to codify all the guidance that
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they've already put out.
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That makes sense. So to recap, the SEC, they got
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bright crypto in place on token issuance. They're tackling custody.
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We expect to get more details on tokenization and the
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innovation exemption. What would be the next major thing they
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have to tackle, in your opinion?
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I think it's just.
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So we talked about broker-dealer custody as well. Another big
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thing is reg ATS or definition of exchange. That came
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out under the prior administration. They looked at having a
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broader definition. And so I think that sort of dovetails
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with the innovation exemption. The question is when it comes
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to on-chain markets, what qualifies as an exchange? So I
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think that's the next big thing I've seen on the
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reg flex agenda.
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That makes sense. And that's going to be a big one, Tiffany,
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because there's a lot of, to your point, there was
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a lot of debate over broker-dealers and still a lot
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of debate going on there on the DeFi side and
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much more. But that would make sense. Because there's also,
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I guess, in parallel, the crypto mixers and all these
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things that there's lawsuits and all type of litigation going
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on on that front as well.
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Yep, exactly.
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Yeah. Well, Tiffany, I always appreciate your insights and your perspective.
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Thank you so much. And I'm sure we're probably going
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to have to do another one of these in the
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coming months as things heat up with the SEC and
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they provide more guidance. But thank you so much for
478
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joining me.
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Absolutely. Thanks. Always a pleasure, Tony. Thank you for having me.
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Even if you didn't comply with the first parts of
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red crypto, the startup or the fundraising exemption. And so
3
00:00:08.449 --> 00:00:13.320
what that means is existing projects today can qualify for
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that safe harbor so that they can say, hey, everyone
5
00:00:16.140 --> 00:00:19.019
should feel comfortable purchasing our asset because it's not a security.
6
00:00:24.440 --> 00:00:27.539
This episode is brought to you by iTrust Capital. iTrust
7
00:00:27.579 --> 00:00:30.280
Capital allows you to invest in crypto as well as
8
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precious metals like gold and silver via an IRA. And
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this gives you huge tax advantages. So you can invest
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in over 90 crypto assets, including Bitcoin, Ethereum, XRP, Solana,
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and many more. You also get access to stable coins
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such as Circles USDC and Ripples RLUSD. And as it
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relates to precious metals, you can invest in gold and silver.
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And these are the physical assets. So you're not investing
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in paper gold and silver. So on this platform, you
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can redeem the gold and silver if you choose to.
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And not many platforms offer that. Now, the big advantage
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to investing via iTrust Capital's IRA is the huge tax advantages.
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Many of you know you incur capital gains taxes when
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you sell at a gain. Well, you can minimize the
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effect of some of that by doing it via an IRA,
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especially if you have a long-term view on crypto as
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well as precious metals. And you can buy and sell
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crypto and precious metals 24-7. It's low cost and no
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monthly fee. So this is a great option to get
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exposure to these two great asset classes. And in addition,
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they have a great custody solution. It's called Premium Custody Account.
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So it uses institutional-grade crypto custody, such as Coinbase Prime,
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which BlackRock leverages. iTrust also uses Fidelity Digital Assets, as
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well as Fireblocks. And it's a closed-loop system. So if
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someone hacks into your account, They can't withdraw funds. I
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believe this is the second safest way to custody your
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assets right behind self-custody where you control the private keys.
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And within the custody account, you could buy and sell 24-7.
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It's low fees. So this is a great option for
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custody of your assets. And you can sleep at night
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knowing that you're getting the institutional grade custodial services. So
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once again, two great products here from iTrust Capital, the IRA,
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where you can roll over your existing 401k or IRA
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to iTrust Capital's version. getting the huge tax advantages and
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the institutional custody. And folks, if you sign up with
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my link at itrustcapital.com slash go slash thinkingcrypto, you could
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get a $ 100 funding bonus. I have an account with itrustcapital.
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So I encourage you to go check out itrustcapital, learn
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about their services and see if it's right for you. Again,
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you can get a $ 100 funding bonus by signing up
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via my link, which is itrustcapital.com slash go slash thinkingcrypto.
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Link will be in the description. Hey folks, welcome into
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the Thinking Crypto Podcast. I'm your host, Tony Edward, and
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joining me is Tiffany Smith, who is a partner and
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co-chair of the Blockchain and Cryptocurrency Working Group at WillmarHale. Tiffany,
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it's great to have you back.
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Thanks for having me, Tony.
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Yeah, Tiffany, we were talking before the recording, I had
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to get you back on because we had an in-depth
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conversation back in May about the SEC and crypto legislation
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and guidance And recently the SEC provided regulation crypto for comments.
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And we touched on that in our interview. So I
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definitely want to get your take and your perspective, you know,
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with your plethora of experience with securities law and much more.
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So why don't we kick it off with that? Tell
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us about the SEC's guidance and what was your initial
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reaction to that?
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So at a high level, so it's called reg crypto.
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At a high level, it provides an offering exemption for
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crypto assets that are subject to.
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An investment contract.
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So it has some of the framework that Commissioner Purse
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had laid out years ago. And so the question is,
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if you have a crypto asset that's subject to an
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investment contract, it's first, how is it registered? Is there
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a fit-for-purpose exemption from registration? And number two, how do
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you determine when the investment contract is over and it's
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no longer subject to the federal securities laws? And that
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is exactly what this proposed red crypto does.
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I don't know if you got a chance to go
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through all the details because you let me know. But,
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you know, what was the good for you and what
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was maybe the bad if there's anything like that?
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So, I mean, the good is that we frankly have
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like a fit for purpose regime for crypto asset offerings.
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I think we talked about this before because we didn't
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have anything in the US. What was happening were two
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different things. One, the crypto asset offerings were limited to
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accredited investors. And so that's kind of like anti-crypto, right?
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It's supposed to be every man and little man can participate.
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And so we had this regime where only accredited investors
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in the US could participate. And then the second thing
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was that a lot of projects were going offshore to
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raise capital, which was basically taking US investors out of the,
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you know, away from having the ability to participate in
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these distributions or these offerings. And so, This proposed regulation
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is a fix to that. I want to commend the
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SEC and the staff for all of the hard work
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they did in putting this together. They had a lot
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of different mediums to receive feedback on what it should
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look like. I think people are still digesting, but there
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are questions about, okay, this is the offering talks about
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issuers and secondary market transactions, but what is less clear
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is how platforms or other types of intermediaries, how it
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applies to them. For example, at the end of the regulation,
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we can kind of get to the end of it.
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It talks about the safe harbor where an issuer can
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file a form and basically say, my promises have been
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fulfilled or abandoned. Therefore, I'm no longer subject to the
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federal securities laws. And so it also talks about how
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the SEC has the ability to sort of, you know,
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question that filing. And so if you are a third
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party intermediary exchange that is offering that asset, like what
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do you do in that instance? Do you just rely
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on the form? Do you wait some period to sort
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of determine that the SEC is satisfied with it?
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Like, right. So there's like some open questions.
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And I think that through the comment period, because this
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is just the comments, the proposal, we'll see a lot
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of that feedback sort of come into play. The other
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thing that's worth mentioning is that you can apply for
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the safe harbor that allows you out of the power
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securities laws, even if you didn't comply with the first
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parts of red crypto, the startup or the fundraising exemption.
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And so what that means is existing projects today can
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qualify for that safe harbor so that they can say, hey,
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everyone should feel comfortable purchasing our asset because it's not
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a security. And so I think, you know, a lot
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of the, there's a lot of pages in the proposal
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that really thinks about projects that are just raising funds
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or sort of in the beginning. But I think there's
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going to be a lot of comments and really thoughtful
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comments about existing projects and how they get comfort that
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the investment contract is distinguished so that they can sell
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their assets without fear of them being deemed a security.
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That's such a great point. I was going to ask
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about that because what happens to all the ICOs that
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took place in 2017 around that time and then the
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existing blockchains and projects that are out there right now,
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is it like a retroactive thing or it's just moving
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forward any new token issuance you know, has to come
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into alignment with these new laws. So it sounds like
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the existing projects will be able to, so to speak,
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register and, you know, come to some sort of safe
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harbor as per the lingo.
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Yeah, so it's just interesting. I've heard this is some
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of the commentary that's out there. So right now, there's
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nothing that would give you any type of comfort for
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past offerings or distributions. And so it's kind of like,
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So if you're an existing project, for example, you've been
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selling assets for six years, right? You can qualify for
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this safe harbor and going forward have comfort that the
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investment contract is now extinguished. But there's a question about
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what happens to all of your distributions in the past.
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And so I expect folks to comment on that because
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like to your point, like the statute of limitations, frankly,
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is still open for some year.
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So moving forward, this guidance would allow institutions, entrepreneurs, and
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so forth to be able to launch their own blockchain,
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their own token, and obviously within this SEC's guardrails, but
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you don't have to worry about having, you know, violating
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securities laws or getting a Wells notice or a lawsuit
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or anything like that.
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Yeah, so it provides an offering exemption, right? So right now,
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There's various exemptions. There's Reg D, which is only available
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to credit investors. There's a Reg CF, which the startup
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exemption is sort of modeled from. And Reg A, which
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the fundraising exemption is modeled from. And so there's requirements like, right,
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you have to make disclosures. And especially for the startup exemption,
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when you're getting to the higher levels, you need to
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have financials and sometimes audited financials. So it's definitely not
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a free pass. I say the distinction is that the
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other types of offering exemption we have out there were not.
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Fit for purpose for crypto offerings.
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And so there would be questions about whether or not
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having disclosures about the company and a company's operations actually
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made sense when you're actually talking about a protocol or
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blockchain or a project, right, that's going to create value.
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And so this proposed regulation addresses that by having questions
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and disclosure requirements that are actually tailored to a crypto business,
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but it's still an offering exemption. And so it's not
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sort of a free pass at all. It's just more
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tailored so it can actually be a workable framework so
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that there can be offerings and distributions.
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In the U.S.
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And what were the specific numbers as far as the
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limits you can raise per year? And I know there's
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like a, is it a five-year window or something along
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those lines?
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Yeah.
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So for the startup exemption, that's really like someone who's
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just really starting out. It's $ 5 million over a four-year period.
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You can only use that once. And then there's a
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fundraising exemption, which it's either 25, it goes up to
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75 million. So there's a tier one, which is 20 million.
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You need financials that don't have to be audited. Tier
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two up to 75 million need audited financials. That's in
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every 12 month period. So you have, you know, more
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compliance requirements.
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The higher that you go.
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The other thing that's interesting is that like two things
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are interesting. One, assets so pursuant to these exemptions are
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covered securities, meaning that state law is preempted. And that's
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huge because like sort of like we saw when the
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SEC took a different approach and some of the states
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sort of came out and said, we're going to pick
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up where the SEC left off. You don't want to
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have to worry about compliance, you know, with the blue
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sky laws. So that's like helpful. And then the other
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thing that's sort of interesting, you know, about these is
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that they're not exclusive, meaning that you can raise some
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capital using startup or fundraising, but you could also rely
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on Reg D. itself to accredited investors. So it gives
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projects flexibility, but the most important part is that it
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creates a pathway for individual, you know, non-accredited investors to
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participate in these offerings.
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So let's say Tiffany, I have a brilliant blockchain idea.
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I want to start my own blockchain under the thinking
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crypto banner, so to speak. I want to issue a token.
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Do I go register with the SEC first or I
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can get myself started, then I go in and register?
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What would be the best path?
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So the best path is for sort of having an
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idea of what you're going to do.
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You don't need to build it, but you need to
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have a business plan.
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So that when investors decide to give you money to
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build it out, they know what your promises are going
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to be.
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And so.
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Even for the startup exemption, where you can raise up
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to $ 5 million over a four-year period, you don't need
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to actually wait for the SEC to qualify your offering.
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You can provide the disclosures and post them on a
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website that's free and accessible to the public.
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But you do need to disclose.
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Such things as what your plans are, the ecosystem, the
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management team, etc. So there are required disclosures that mean
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that it would be like sort of impossible for someone
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who's just starting today to sort of like take advantage
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of it. But once you actually have a business plan
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and are able to complete the disclosures, then you can
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go out and try to raise funds under the startup.
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And now you're dealing with a lot of firms within
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the crypto industry and more. How are they viewing this guidance?
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I know this is very early in the comment period.
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Are they seeing this as a positive? That's something that
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they can, you know, kind of build into the strategy
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that once it becomes fully law, they can hit the
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ground running and launching different things.
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Yeah, it's definitely positive, right? Because it, as I mentioned earlier,
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it provides a pathway for there to be, you know,
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crypto offerings in the US. So definitely positive. As you
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mentioned earlier, it's over 400 pages. And so, you know,
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from an administrative procedures process, like what happens is that
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rules out for proposal and comments are due, I think,
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October 20th.
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And so right now, I know folks are very excited
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about it. They're really going.
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Through it carefully and trying to be thoughtful about the
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comments they're going to submit, because pursuant to the APA,
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the SEC has to sort of deal with and address
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the comments.
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Right.
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And then from there, either make changes to the rule
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or sometimes if there are a lot of comments, it
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will have to go up for reproposal. And so people
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are excited, but also trying to think, be thoughtful to
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make sure that if there's any concerns about how the
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rules propose, they're including them in this comment period so
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that they can be addressed by the SEC.
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But that absolutely makes sense. And I'm sure the SEC
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might have a roundtable around this, getting different folks like
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yourself to come in and talk about it.
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Yeah, absolutely.
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Like, yeah, even, even like the, the, the proposal mentioned,
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you know, commissioner purses, 48 questions and other efforts that
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the SEC had, had already taken that, that resulted in comments.
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And so now, you know, they're, they're taking feedback and
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I assume that there's going to be, you know, even
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more opportunities for feedback as they are getting to creating
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a final rule.
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This is great. I can't wait to see the comments
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and how this all pans out. But as you mentioned,
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definitely a positive. So I did want to ask you
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about tokenization guidance from the SEC. We spoke about it
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in our last interview. The SEC gave a bit of guidance,
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but it seems there's a delay in the full guidance.
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What can you tell us there? Are you hearing anything specifically?
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So I've heard a number of different things.
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I'm not going to speculate on what's actually true, but
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I think like what we're sort of waiting for in
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that vein, like what we had back in March is
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was a tokenization taxonomy where the SEC described various types
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of ways to tokenize assets, whether issuer-driven.
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Or third-party-driven, whether.
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The tokenized asset was intended to behave like their traditional
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asset or would just provide a synthetic exposure.
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So all of that was sort of set forth in
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the taxonomy.
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And what folks are waiting for is what's called the
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innovation exemption, And what, you know, Chair Atkins, Commissioner Perth
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said is that that was supposed to be a limited
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exemption for on-chain markets. And so I think it's going
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to describe how markets like AMMs and other types of automated,
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like on-chain markets are regulated, right, or should be regulated
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and provide like a limited exemption to sort of like
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help those markets sort of transition.
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And so.
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Obviously, with tokenized securities, you can trade them within regulated intermediaries,
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but to really get to the full promise of them,
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you want to be able to trade them in on-chain markets.
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And so my understanding is that's what that innovation exemption
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is going to address. Like I said before, I've heard
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a number of different rumors as to what the delay is.
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So I think we'll sort of see when that comes
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out and what it looks like.
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I'm assuming, well, I shouldn't say I'm assuming, but My
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hope is that we would get it, you know, towards
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the end of Q3 or maybe into Q4, because the SEC,
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the CFTC and a lot of crypto industry folks met
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at the White House just last week, you know, talking
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about getting crypto legislation done if the clarity passes or not,
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providing the guidance. So maybe we might see some fast
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tracking of these things.
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Yeah, yeah, that's what I mean. That's one of the
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many rumors I've heard. I've heard that In part, it
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was delayed because efforts with Clarity didn't, they didn't want
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to interfere with efforts going on with Clarity.
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So we'll see.
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I think the same understanding with RegCrypto, because if you
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look at the actual RegFlex agenda, that was supposed to
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have come out in April. It came out in August.
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So we'll see. But obviously, we'll probably talk about it
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more later, Clarity is still, no matter what the SEC
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or CFTC does, Clarity is still very, very important.
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And so I think it needs to work in tandem.
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And I'm assuming, and correct me if I'm wrong, a
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lot of these guidance are already in the Clarity Act.
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Like I believe Red Crypto is already in the Clarity Act.
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Yeah, yeah.
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There's versions of it that are like, it's very similar
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to what is in Clarity. But obviously Clarity is much
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more broader and covers other things.
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Got it, got it. So before we go further in
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Clarity Act, yesterday, and we're recording this on Thursday, August 27th,
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the SEC, it was reported that the SEC is looking
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to update the U.S. crypto custody rules, and they sent
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some documentation to the White House. What are you hearing
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about that? What impact will this have?
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Yeah, so I just view it as like another piece
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to bring markets on chain.
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And so....
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In order for a lot of the institutional players to
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feel comfortable having their assets on chain, they need custodians.
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And if they're regulated, they have to keep their assets
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with a qualified custodian. And so I believe this rule
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is just going to, it's the custody or safekeeping rule.
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So I think it will provide guidance about how qualified
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custodians can maintain crypto assets, like what is considered good
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custody for those purposes. And then also provide guidance on
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who is a qualified custodian. There's a very cumbersome, I'll
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call it, analysis to determine whether a state regulated trust
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is a qualified custodian. And some of that was touched
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on in a prior version of the safekeeping rule. And
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so I think like under this administration, they'll probably be
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more clear and probably more forward leaning. But I think
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that's something that you just really need for another piece
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of the puzzle for markets to come fully on chain.
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Yeah, in custody.
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I mean, Tiffany goes without saying one of the pillars
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in ensuring this market functions well, because we've seen a
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lot of hacks and exploits and all these things. And
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last thing we want is another FTX type situation, of course.
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So definitely custody. We got to get it right.
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Exactly.
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Yeah.
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And it's something like both, and it happens, you know, frankly,
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really with any intermediary. So my understanding of the rule
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that was filed with the white house, it's going to
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be the investment advisors custody rule, but there's also questions
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I've heard. There's also going to be a rule that,
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that relates to broker-dealer custody rules. So broker-dealers comply with
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00:20:35.829 --> 00:20:39.309
what's called the customer protection rule. And there's been some FAQs,
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00:20:39.329 --> 00:20:42.849
but there's more guidance necessary to make sure that those assets,
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00:20:43.519 --> 00:20:45.960
that broker-dealers feel comfortable that they're holding the assets in
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00:20:46.000 --> 00:20:47.960
a way that won't get them in trouble with their regulators.
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That makes sense. Let's jump to the Clarity Act. There
385
00:20:53.220 --> 00:20:56.480
is a vote scheduled for September 15th. We'll see if
386
00:20:56.519 --> 00:20:58.990
that pans out, or maybe that's just a start at
387
00:20:59.029 --> 00:21:02.150
a process. I'm curious, how are your clients, how do
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00:21:02.170 --> 00:21:05.329
they feel about the Clarity Act not passing before the
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00:21:05.410 --> 00:21:07.990
August recess? You know, are they disappointed? Are they still
390
00:21:08.029 --> 00:21:09.150
optimistic and things like that?
391
00:21:10.269 --> 00:21:13.710
So I think there was initially some disappointment. I think
392
00:21:13.750 --> 00:21:15.670
the fact that, you know, a vote was set. So
393
00:21:15.690 --> 00:21:18.539
it was like disappointment. Then very quickly the vote was set.
394
00:21:18.559 --> 00:21:21.980
So that provided some optimism again. And I think having
395
00:21:22.039 --> 00:21:26.140
read crypto also provided some optimism. And so I'd say,
396
00:21:26.440 --> 00:21:31.119
you know, the mood is sort of, changes almost on
397
00:21:31.500 --> 00:21:33.940
a daily basis, depending on the news that's coming out.
398
00:21:34.079 --> 00:21:38.099
But as I mentioned before, even if the SEC and
399
00:21:38.140 --> 00:21:45.259
CFTC do everything in their power to create policies and
400
00:21:45.339 --> 00:21:49.859
rules and frameworks for crypto assets, you still need federal
401
00:21:49.880 --> 00:21:54.859
regulation because there is no federal regulator for the spot
402
00:21:54.960 --> 00:21:59.849
crypto market. And so thinking about red crypto, let's say
403
00:21:59.869 --> 00:22:02.809
you use a fundraising startup exemption, you get through the
404
00:22:03.150 --> 00:22:06.309
four years, you file your transition report and say, hey,
405
00:22:06.430 --> 00:22:09.549
I'm done with my promises or obligations to my investors
406
00:22:09.569 --> 00:22:13.210
are over. This asset is no longer subject to an
407
00:22:13.250 --> 00:22:16.559
investment contract. What that means is that asset is no
408
00:22:16.599 --> 00:22:20.230
longer subject to the federal securities laws, but there is
409
00:22:20.279 --> 00:22:23.259
no primary federal regulator for that asset right now. And
410
00:22:23.339 --> 00:22:26.640
so the safe harbor even says this in the proposal, it's...
411
00:22:28.809 --> 00:22:31.690
Binding on the SEC, but not other parties. So that
412
00:22:31.769 --> 00:22:37.680
means a state, a private party can come out and say, hey,
413
00:22:38.140 --> 00:22:40.779
we think that this asset is still a security. And
414
00:22:40.819 --> 00:22:43.299
so that is the big hole that we have. And
415
00:22:43.359 --> 00:22:46.680
only Congress can fill that. And so we can have
416
00:22:47.019 --> 00:22:49.430
the greatest policies in the world from the agencies. And
417
00:22:49.470 --> 00:22:52.990
they've been terrific and really thoughtful. But until Congress fills
418
00:22:53.029 --> 00:22:55.910
that gap for crypto spot regulation, we're going to continue
419
00:22:55.930 --> 00:22:56.829
to have a potential issue.
420
00:22:57.789 --> 00:23:01.589
That's great insight. See, for the most part, I thought,
421
00:23:01.630 --> 00:23:04.309
you know, the agencies do their thing, provide the guidance
422
00:23:04.349 --> 00:23:04.890
and rulemaking.
423
00:23:04.910 --> 00:23:05.490
We're fine.
424
00:23:06.079 --> 00:23:09.279
We just need the Clarity Act to, you know, kind
425
00:23:09.359 --> 00:23:12.779
of put a rubber stamp of approval that all this
426
00:23:12.839 --> 00:23:15.240
is law. But to your point, there are gaps there
427
00:23:15.299 --> 00:23:16.759
that this legislation would fill.
428
00:23:17.460 --> 00:23:19.160
Yeah, absolutely. Absolutely.
429
00:23:19.180 --> 00:23:22.450
Another thing, like since we're talking about is, you know,
430
00:23:24.069 --> 00:23:26.650
even the good guidance that the SEC has put out,
431
00:23:27.339 --> 00:23:29.519
that has to be codified in a rule. So red
432
00:23:29.559 --> 00:23:32.480
crypto is a rule. Like, right, we're talking about the APA,
433
00:23:32.500 --> 00:23:33.980
the Administrative Procedures Act.
434
00:23:34.559 --> 00:23:35.319
And once you have a.
435
00:23:35.359 --> 00:23:39.339
Rule, you can only essentially undo that rule by proposing
436
00:23:39.380 --> 00:23:40.920
a new rule. So you have to go through this
437
00:23:40.960 --> 00:23:44.079
whole process, which you can sort of, you know, fight
438
00:23:44.140 --> 00:23:48.019
in court if it's not fair or correct. Guidance, on
439
00:23:48.039 --> 00:23:51.380
the other hand, right, then the next administration can sort
440
00:23:51.420 --> 00:23:53.700
of just take that away. So take all the great
441
00:23:53.740 --> 00:23:57.980
guidance we had in March 2026 that talked about All
442
00:23:58.000 --> 00:24:02.539
of the different assets that weren't securities, crypto assets, NFTs,
443
00:24:03.299 --> 00:24:07.609
digital collectibles, digital identity tools, like the next administration can
444
00:24:07.670 --> 00:24:13.109
come in and undo that commission level guidance. So the
445
00:24:13.190 --> 00:24:15.670
only way to really have it more durable is to
446
00:24:15.769 --> 00:24:19.279
actually have rules. And so I expect that we're going
447
00:24:19.299 --> 00:24:22.480
to see a lot more rulemaking taking place, both at
448
00:24:22.519 --> 00:24:26.099
the SEC and CFTC to codify all the guidance that
449
00:24:26.119 --> 00:24:26.980
they've already put out.
450
00:24:27.880 --> 00:24:31.190
That makes sense. So to recap, the SEC, they got
451
00:24:31.890 --> 00:24:35.470
bright crypto in place on token issuance. They're tackling custody.
452
00:24:36.390 --> 00:24:40.329
We expect to get more details on tokenization and the
453
00:24:40.349 --> 00:24:44.339
innovation exemption. What would be the next major thing they
454
00:24:44.380 --> 00:24:45.859
have to tackle, in your opinion?
455
00:24:47.220 --> 00:24:48.019
I think it's just.
456
00:24:49.359 --> 00:24:54.380
So we talked about broker-dealer custody as well. Another big
457
00:24:54.440 --> 00:24:59.970
thing is reg ATS or definition of exchange. That came
458
00:25:00.069 --> 00:25:03.390
out under the prior administration. They looked at having a
459
00:25:03.650 --> 00:25:06.930
broader definition. And so I think that sort of dovetails
460
00:25:06.970 --> 00:25:09.539
with the innovation exemption. The question is when it comes
461
00:25:09.579 --> 00:25:13.259
to on-chain markets, what qualifies as an exchange? So I
462
00:25:13.279 --> 00:25:14.759
think that's the next big thing I've seen on the
463
00:25:14.799 --> 00:25:15.660
reg flex agenda.
464
00:25:17.130 --> 00:25:19.329
That makes sense. And that's going to be a big one, Tiffany,
465
00:25:19.349 --> 00:25:23.210
because there's a lot of, to your point, there was
466
00:25:23.250 --> 00:25:27.059
a lot of debate over broker-dealers and still a lot
467
00:25:27.079 --> 00:25:29.099
of debate going on there on the DeFi side and
468
00:25:29.140 --> 00:25:33.779
much more. But that would make sense. Because there's also,
469
00:25:33.880 --> 00:25:36.359
I guess, in parallel, the crypto mixers and all these
470
00:25:36.400 --> 00:25:40.279
things that there's lawsuits and all type of litigation going
471
00:25:40.339 --> 00:25:41.289
on on that front as well.
472
00:25:41.940 --> 00:25:42.680
Yep, exactly.
473
00:25:42.700 --> 00:25:47.549
Yeah. Well, Tiffany, I always appreciate your insights and your perspective.
474
00:25:47.589 --> 00:25:50.470
Thank you so much. And I'm sure we're probably going
475
00:25:50.509 --> 00:25:51.829
to have to do another one of these in the
476
00:25:51.869 --> 00:25:54.390
coming months as things heat up with the SEC and
477
00:25:54.410 --> 00:25:56.440
they provide more guidance. But thank you so much for
478
00:25:56.539 --> 00:25:56.900
joining me.
479
00:25:57.720 --> 00:26:00.049
Absolutely. Thanks. Always a pleasure, Tony. Thank you for having me.
