Welcome butterscotch queens and kings to your only source for inclusive and comprehensive crypto coverage. This is the Get Down, a podcast diving deep into web 3 and DeFi. I'm your host Ritzy P. Each episode I get down with diverse founders, builders, change makers, and executives in the cryptoverse. The crypto industry is not a monolith. Black, Latino, and indigenous stories matter. Join diverse discussions on policy trends and market research about the blockchain ecosystem. Welcome to the Get Down.
Welcome to the Get Down Beyond Bitcoin podcast. I am Clev Mesador, your host for this special episode with none other than SEC Commissioner Hester Pierce. I am thrilled that she's joining us today. Such a treat. She is, as you know, crypto mom. I called her crypto's architect, but she has been a leading voice in Washington for crypto and we are so glad that she made time for our audience. So without further ado, I'm excited to dive into my conversation with two-term commissioner Hester Pierce. Thank you for joining us, SEC Commissioner Hester Pierce. You are affectionately known as Crypto Mom. I affectionately refer to you as crypto's architect. You joined the SEC in January 28, a pivotal time for the crypto industry. A month earlier, Bitcoin had just hit $20,000 for the first time in a reverse course, but got the attention of Wall Street and Washington. What was your light bulb moment? Was it simply joining the SEC as a commissioner at that pivotal time, or was there something else? Because you seem genuinely passionate about this new aspect of the financial paradigm. Tell us your crypto origin story.
Well, thanks GL. It's great to be with you and I have to tell you first that my views are my own views as a commissioner, not necessarily those of the SEC or my fellow commissioners. I was aware of Bitcoin before I started at the SEC. I had worked with someone, Jerry Breuer, who probably a lot of you know, and he told me about Bitcoin and I was intrigued by it but I didn't realize how big a part of my job at the SEC it would be to think about these kinds of issues and how Bitcoin and other crypto assets would integrate with the financial system. I think what for me sort of intrigued me is this idea that you could eliminate intermediaries because that's an area where historically we as securities regulators have seen issues. There are a lot of wonderful intermediaries, but there have also been situations where you've had intermediaries that have stolen or have been careless with client assets. And you've seen other situations where intermediaries have said, 'Well, we'll provide service to one group of people, but not to another group of people.' And so I think part of what drew me into this technology is the idea that you can interact with code in a way that is predictable to everyone. Everyone's operating with it on the same terms and it operates automatically. So you don't need that centralized intermediary. Now there are many people who are going to want to engage in the financial system with an intermediary and that is completely fine. I think optionality is great and I think we are seeing now that the traditional financial system is looking at this technology to see how it can leverage that technology to benefit its clients, to make its back office operations more efficient, to enable people to have everything on chain, which makes it easier to move collateral. It can really add to efficiency. So I think we are seeing a world in which people will have the option to choose intermediaries using the technology or to use the technology directly themselves without intermediaries.
So it was serendipity that you ended up at the SEC and had been able to really impact the infrastructure. Well, speaking of infrastructure, as a regulator, you know, you've dealt and as a regulator in closing out your second term, you've dealt with a lot of aspects of the industry. One of the areas that's trickier than it should be is this issue of harmonization, right? Especially with the blockchain and cryptocurrency space. We've seen the importance of the SEC and the CFTC and we've seen the conflicts and we know that moving towards harmonization would actually be helpful. Tell us more about how you're tackling that. We've seen guidance coming out of the FDIC, CFTC, OCC and the SEC trying to move towards that. Why is that important and what are some of the next steps?
Yeah, really harmonization across the financial regulators really is important and it is just a function of the fact that we have a very different kind of financial regulatory structure than in some other areas. We have a lot of different regulators both on the banking side and then as you mentioned the CFTC and the SEC as well as state regulators who also play an important role and so given that it's really important that all of us work together and I think we do that through a lot of bilateral contacts right and also through things like the Financial Stability Oversight Council. But I think especially important for us now is the relationship with the CFTC because we both do have existing authorities that allow us to regulate in this space and also under the Clarity Act, which we're hoping will be done soon, that would also give both of us authority and so would require us to work together. We have a harmonization task force basically set up. We've got a very active work stream where we're doing that. I don't love the term workstream, but we're working together quite closely and I think it builds on prior efforts, but I think it's really intended to ingrain in the two agencies a habit of talking to each other before we take steps that could affect the other's jurisdiction. And it's really coming from a place where both Chairman Gensler and Chairman Atkins both are not trying to fight for jurisdiction. It's more we're both serving the American people. How can we get to a good place where it makes sense? And maybe both of us have some regulatory interest in a particular product, but we can figure out how to share information to make sure that we're both getting the information we need, even though maybe there'll be a single lead regulator. When I first started, there was an effort to work on security-based swaps and swaps and that was something that I worked with Brian Quintenz, who's a very well-known figure in crypto as well. And so he and I worked closely on trying to have as much harmonization as we could in that area. And I think the current effort really builds on that and tries to look across all of what we do and harmonize the efforts.
Well, I'm glad you're making inroads. I know previous administrations have talked about this. So, it's wonderful that you know I feel like crypto has led us to a path where we're actually moving towards this and this won't just benefit the digital asset space, right? This is good for fintech and traditional finance. Well, talking about what's good for fintech and traditional finance, tokenization. You know, one of the great evolutions of crypto when you look at stable coins with this opportunity for tokenization, we see the opportunity for, you know, traditional finance incumbents and even big crypto companies. I'm curious about your thoughts for smaller players, right? There are so many obviously for the SEC you look at tokenized securities and the FDIC looks at tokenized deposits and so on and so forth but I do think that there has to be opportunities for smaller players. We're calling this during small business month and would love your thoughts on that.
Yeah, I mean I think that tokenization is really exciting and there are a lot of different efforts out there to try to see how it can help, but I think you're right that it could be particularly useful for small entities. It's a good way for issuers to be able to communicate with the holders of their securities and that is always something that issuers are wanting to do. And so I think that's one area. And then I think there are other places where tokenization could potentially be helpful. It'll be easier to hold and transfer these kinds of securities. It could be helpful there. It could be helpful in terms of proxy voting, those kinds of things. So I'm excited to see the potential.
Well, me too. I think you know we are moving towards an industry that is a $4 trillion market but small businesses, entrepreneurs, startups are still the engine of the United States. I do want to say that you're not just a champion you also hold the industry accountable and you call out when there are gaps. What is your advice to the crypto industry about how to continue to advance crypto rule making going forward as glitches happen as there are problems? What are your thoughts?
Well, I mean my primary piece of advice at this time is build useful things, build things that actually serve a population that meets a problem that's actually out there. This is the moment where you have a really favorable regulatory structure and I think you're asking the question in the right way because it's not that we just want the number to go up. That's not the regulator's prerogative at all. It's really building a framework within which people can identify problems they want to solve and solve those problems and have an understanding of the regulatory structure so that the regulatory structure is not the overhanging thing that's always worrying them, right? We want it to be clear enough so that they understand it. We want it to create incentives for people to really build long-term valuable projects. And so it requires good faith on both the part of us the regulators which again I think we really tried to turn the page there and say we are going to take a more productive approach that recognizes that people want to build stuff that's commercially viable but it also requires on the other side on the side of people in the industry to lean into that and to build things that are useful, to be candid with us about what it is you need to do things that are commercially viable but also to be responsible in how you're thinking about disclosure and how you're thinking about making sure that the people buying your tokens are protected in ways that make sense. A lot of that doesn't require regulatory intervention. You can do that on your own and there have been industry-led efforts to improve disclosure for example. And so I think a lot of those kinds of efforts on the part of the industry will play well into the regulatory approach and I think we can get to a better place that way.
