Listen to the full podcast here.

Read the excerpt article here.

Joel Interview

Nathan: Today we have with us Joel Telpner, and I wanted to give him an extra long bio since Joel and I go back a couple years. Joel is the chair of Sullivan's FinTech and blockchain practice. He's a highly regarded trailblazer in the FinTech, blockchain and cryptocurrency space. Joel's clients size and nature vary from governments, top cryptocurrencies, and large enterprises to small startups who describe him as a quote, very sharp and very experienced partner.

Who was super pragmatic and "can sort through the chaff and get to the nub of things. Impressively quickly." His representative client work includes advising the Marshall Islands and creating digital sovereign currencies, which we'll dive into, helping to launch ndau a buoyant stable coin virtual currency, structuring for Gita Holding/GreatX, a structured principle protected tokenized investment product, allowing investors to obtain upside exposure to hotel room blocks and various hotel properties, as well as providing regulatory advice to prominent blockchain projects, including Aeternity, Iota, NEM, and Celsius.

Being recognized worldwide as an authority on blockchain and digital asset issues, Joel currently sits on several of the industry's leading research groups and has spoken extensively worldwide.

He works on global regulatory policy initiatives for the chamber of digital commerce, the blockchain research Institute, the global blockchain business council, Wharton RegTech, and the Wall Street Blockchain Alliance's legal working group.

He co-founded the Stable Coin Foundation, which is a global trade association for stablecoins in October, 2018. And after knowing Joel for about four years, three years, I'd say that after knowing his experience and seeing his work, Joel has an excellent expertise in understanding power  in the crypto space. Joel, we appreciate your time. Thanks for coming onto our show.

Joel: How much do I owe you for saying all of that?

Nathan: It's like your bar mitzvah.

When we're recording this, November 5th, Thursday after elections. So things are still in the air. as a lawyer, would you just give some of us who are not, as experienced some sort of, understanding as to how you're thinking about all of this?

Joel: I first, I haven't left the country yet, but it's still an option. But no, what I would tell people be patient, the lawsuits that we're seeing, actually are always filed to be frank, it's just nobody typically pays attention to them, except for this year.

I don't think the lawsuits are gonna make any difference. I think, given the uniqueness of the year, it's surprising that we even have as much of the vote counted now as we already do. But, it's stressful, but like everybody else I expect in the next day or two we'll finally have some clarity.

Nathan: I certainly hope so.

As we are in lockdown, there's been some really crazy items that have been going on, in crypto world. One of which I wanted to go over with you is, this no action letter granted to Two Ocean Trusts, a Wyoming charter trust company that provides wealth management services.

The regulatory clearance enables the company to provide custody services for both digital and traditional assets under Wyoming law. And serves as "a qualified custodian under the investment advisors act of 1940." So it's been really unclear in the crypto regulation space for some time, especially in the realm of registered investment advisors.

Can you unpack what this law allows us to do in Wyoming now?

Joel: Sure. So we're talking about right now, a subset of the crypto universe, that are either tokenized equity or otherwise fall within the definition of security because our investment contract. In the security laws in the United States say that to act as a custodian with respect to securities, you have to be a qualified custodian.

And the challenge we've had in this space is that to date it was unclear if there were any entities that could actually meet the definition of qualified custodian for purposes of acting as a custodian for that portion of the crypto, that might be a security. And so we've got, right now we've got other players out there like Prime Trust and Kingdom Trust that, act as custodians for crypto, but they tend to focus on that portion of the market that either is outside of the law of securities, in the case of Bitcoin and Ether or where the market, at least hopefully believes that the crypto would not be as security.

So what Wyoming is doing is recognizing that there's a big part of the market that goes well beyond the Bitcoins and Ethers of the world, where if you're going to custody those assets, that might be a security, you've got to be a qualified custodian. And so now we know, at least in the case of Wyoming, that Wyoming regulators have treated this entity in their view, as a qualified custodian for purposes of the investment advisors act.

It doesn't guarantee by the way, that the SEC and FINRA would agree with that analysis. I understand that there were conversations with the regulators. and so I have no reason to believe that they would disagree, but simply because a state deems a custodian to be a qualified custodian doesn't necessarily bind the SEC at the federal level, presuming that the SEC doesn't disagree with that, it does clear the path for at least recognizing that there is an entity out there that meets the definition. Now separately, by the way, within the last I'd say 60 days, Nathan, the Office of the Controller of the Currency  (OCC) , issued a statement, clarifying that national banks have the ability to custody and hold crypto assets.

And I think the real game changer is not as much as what Wyoming has done, but the fact that we now have clarity going forward, that national banks, to the extent that they want to act as a custodian with respect to crypto assets can do so consistent with federal banking laws. So to me, that's at the end of the day, the bigger game changer.

And one of the things that the OCC said was that banks of course have to have appropriate policies and procedures in place to satisfy the regulatory requirements. And so we still don't know exactly the things that banks have to do in order to satisfy requirements with respect to crypto, but we know that, banks now can play that role.

Nathan: Is this OCC statement similar? Are, is there, are there saying that since banks are already considered qualified custodians, that therefore they could custody crypto?

Joel: Yeah, so banks were always qualified custodians, it's just that there was ambiguity as to whether or not withstanding the fact that banks are qualified custodians. They actually could lawfully, act as a custodian with respect to crypto assets. And so now this clarifies that they can. And so that to me really opens the playing field to the extent that banks want to step into the space.

And, some banks, I think we'll see, some smaller, more innovative banks that will definitely pursue this, larger money center banks may sit on the sidelines for now because it may be too marginal of a business where they still perceive the risk to be too high for them to bother to get into it.

Nathan: How does this relate to, your work with let's say general Central Bank Digital Currencies, CBDC's, I see you're advising the Marshall Islands. How does this current landscape relate to what you're seeing over there?

Joel: So one of the aspects of a Central Bank Digital Currency, and there are different ways that a government or a central bank can create a digital currency, and so there's no one size fits all right now. And there's a lot of experimentation going on a global basis, but the most important thing to keep in mind is that presumably, and again, it depends on how it's structured at the end of the day, a Central Bank Digital Currency constitutes legal tender under the laws of the issuing country.

And unlike crypto, including stable coins, that may be, a form of payment that's central bank, digital currency not only is a form of payment, but it constitutes legal tender, which means that it should be accepted globally, as part of the international monetary system and economic system, the same way as other Fiat currencies are.

And so if you've got clarity, as to the way banks could interact in the digital space, it makes it easier to create, an ecosystem or people can go back and forth between Fiat and digital Fiat, between reg traditional, Fiat and central bank, just for currencies, but also potentially between central bank, digital currencies and other categories of crypto assets, like stable coins, especially to the extent that banks can start to facilitate the holding of these different categories of digital assets.

Nathan: Do you have any indication as to what the banks, w what platforms they're looking at building on?

Joel: No, and I think that's probably a great question, because a lot of people in the blockchain space don't even like the fact that we're having a conversation about banks it's because, they look at the FinTech and what's going on in blockchain as a way to create a new universe of players into bypass existing banks.

But, here we are talking about how banks may be integrated into the blockchain environment and play a role. So that said, no apologies to those people that think that, you know how dare us even talk about this. But that said, I think that as we start to see an integration between traditional financial service players and new players in the blockchain world, looking at those types of platforms can bridge that gap is going to be an important consideration where there's going to be a lot of activity in the next couple of years.

If I can maybe drill down a little bit behind your question and maybe this is going in a different direction than you are, but I think part of it is going to, focus in on the debate as to what types of attributes we expect to see in the crypto space. In other words, platforms that allow coins like Monero may not ultimately cut it.

To the extent that where we're going is some type of hybrid approach that maybe allows us to go back and forth between true crypto, like stable coins and central bank digital currencies, with an expectation that while there is privacy, the privacy doesn't go to the level of allowing people to avoid dealing with things like KYC and AML requirements.

And so those platforms that are the winners at the end of the day may be platforms, and it may be technology that balances, the benefits of blockchain and the benefits of privacy with the realization that there are going to be regulatory requirements that have to be satisfied. if regulators are going to let all of this go forward.

Nathan: I think at this point we run out of crypto-anarchists. anyone who really believes that Monero or that type of privacy preserving technology is the future of trade I think is on the crack pipe. There's no way that any regulator was going to ever accept that, and the only people who are interested in it are those people who are already hodling it.

Joel: I actually agree with you also from the standpoint that, for those of us that are in this space, we can easily be all consumed by it. But if you back up and take a higher level view, what's happening in the blockchain world economically is still pretty tiny. And ultimately what needs to happen is more mainstream acceptance by institutional players, and by enterprises and corporates and all of those players are only going to get involved if they feel there's enough safety and soundness behind what's happening and enough regulatory oversight to make them comfortable taking on the exposure.

To the extent in the early generations of blockchain technology we had people saying, "we don't need to worry about regulations, regulations don't apply anymore, we can bypass regulations," I think they were naive from the standpoint that they were talking about a relatively small universe of users at the end of the day.

Nathan: Also, as we can see from, John McAfee's arrest, the long arm of the law goes pretty long.

Joel: Yeah, it does. And in over time, if regulators get sufficiently concerned that there are enough bad players and enough bad actors and things happening that don't like, they will figure out a way, to intervene and stop it. And so people that think that the technology that we've created makes it impossible for regulators to regulate anymore, they're the wrong. And maybe make it harder for regulators at the time, but the regulators will figure out a way to step in if they see enough bad actors.

Nathan: Do you see any of, there are like technologies, Hyperledger, Corda, Avalanche, Tezos, Hashgraph there are a lot of people, courting corporations and governments. Who is being evaluated, what tech stack, and do you have any idea as to why?

Joel: Yeah, so I think if you look at it from the corporate or enterprise standpoint, and I'd love to also hear your views on this, but I think you can break it into two camps. Really large players, that are pursuing their own initiative, like the Walmarts of the world, where they're out there, probably thinking, " if we're going down this road, we're creating our own blockchain. It's going to be a permission, blockchain. We're going to open up to our vendors, our suppliers, and we're going to oversee and manage it. We're using it to improve supply chain logistics. so we have different objectives in mind." But then you've got a lot of businesses that are much smaller than Walmart that are now starting to look at blockchain technology and we're slowly but surely getting to the point where they're saying, "wait a minute, maybe there are some efficiencies that blockchain technology provides, maybe there's some better ways for us to do business." And for them, they're not going to go out and build their own blockchain.

They're looking at blockchains out there that can start to offer enterprise solutions, and the advantage, potentially, is that unlike traditional software providers, SAP type of providers, that require a lot of money be spent on integrating their solutions into an enterprise, for smaller or medium enterprises blockchain technology may be a way to get on the bandwagon of new technologies without having to spend thousands and thousands of dollars of man hours to do various types of integration that sometimes works and sometimes it doesn't work.

Nathan: What about from a government side, you'd see a government would fit into the large player bucket of a Walmart permissioned chain?

Joel: I think we're starting to see more experimentation on the government side. I think they are slowly but surely instead of being fearful of this, if you look at a lot of tech cycles, you start out with governments and regulators being fearful, and then eventually they start to see the advantages, and sometimes they end up becoming big boosters and supporters. But I think here again, one of the biggest issues for governments are the extent to which they feel that they need to maintain control of data and information and the corollary is the extent to which they feel that they would lose control if they are simply participating alongside others in some type of public permissionless blockchain. So I think that governments are going to be cautious in doing too much along the lines of true open permissionless blockchains, at least for now. And we'll end up seeing much more, governments trying to create their own type of universe that's maybe somewhere in between permissioned and permissionless and open and closed.

Nathan: I, at this point I would actually just, I wrote a little sort of diatribe about the history of the inherent political nature of Bitcoin.

We just interviewed Vinay Gupta who, was working on a project called Mattereum, he also helped launch the Ethereum ICO, who reminded us that Bitcoin was not invented to make the rich richer, but created as a response to the corruption of the bank bailouts,

Joel: Right.

Nathan: Yeah, he said, "the goal of the revolution is not is to fix the damn planet, not to shuffle money around."

And, just as a, like a history lesson in the genesis block of Bitcoin, there's a variable on line 1616 that contains a hexadecimal string, after you convert it to alpha numeric text, it reads literally backwards, it says the times headline from "January 3rd, 2009, the chancellor on the brink of second bailout for banks." To me, this is, the writing on the wall that Bitcoin is an inherently political technology.

And as we're having this conversation about the control, and permissioned/permissionless, Buzzfeed published this huge piece, on the FinCEN files investigation, which shows just how much money is allowed to go through the traditional bank networks to fund illegal and unethical transactions.

Joel: Sure.

Nathan: So it's like the government's talking on both sides of its mouth, right? The Buzzfeed article says, "a huge trove of secret government documents revealed for the first time, how the giants of Western banking moved trillions of dollars in suspicious transactions, enriching themselves and their shareholders while facilitating the work of terrorists kleptocrats and drug kingpins."

So to quote, Mumia Abu Jamal whose death sentence was overturned in 2001, there, "it seems at the very least, two worlds in America, one of the well to do, and one of the struggling."

Joel: So let's look at it from a few different angles. One, early on regulators or governments, when they were looking at Bitcoin, rightly or wrongly and, maybe with ignorance said, "Oh, this is just going to be a new way for people to engage in illegal activity, money laundering. That's totally beyond our reach." In other words, if you start with the presumption, whether or not it's flawed that at least in our existing regulatory environment, if regulators are doing their job properly and if the finance institutions are doing their job properly, we have an infrastructure in which financial institutions are regulated and are supposed to be doing things to address for example, money laundering. And so we've got an infrastructure in which, regulators and governments, have created laws with respect to money laundering.

There are compliance requirements imposed upon the regulated financial institutions that are subject to these requirements. There is some type of oversight function going on, and so if it all works the way it's supposed to, in theory, you catch not all, but a lot of the bad actors and a lot of the bad activities through this regulatory regime. And the governments and regulators rely on, in effect, deputized or centralized financial institutions to perform these obligations on behalf of the government regulators. And so when they look at Bitcoin, especially early on, they saw, "Oh my gosh, now we've got this world out there where you don't need regulated financial entities to be engaged in financial transactions. And in fact, who is the entity? There is no entity, it just simply exists." And so the regulator said, "how could we possibly regulate this? there is nobody to regulate. There are no financial institutions we can impose oversight on.

Now the fallacy of that is just, as you pointed out, we know that, our existing system a lot of bad things still happen because it's a fairly flawed and inefficient regulatory system we have in place, a lot of parts of the world, governments and regulators look the other way, and even when they're trying to do their job, it's often so complicated that a lot of bad things still happen anyway.

We are starting to face the reality that our existing system of trying to regulate financial institutions is pretty damn flawed in many respects. So now regulators are starting to look at Bitcoin and other crypto again, with a more interesting light because they're starting to realize, wait a minute, maybe we were thinking about this all wrong and maybe we were being overly worried because to a certain extent the technology itself provides a potential regulatory solution.

At the end of the day, as between doing a transaction involving Bitcoin or trying to do something with a suitcase full of cash, it's a lot easier to find the bad actor by tracing Bitcoin transactions, because they're not there they're only pseudo-anonymous, not completely anonymous, and so it's easier to catch bad actors doing Bitcoin transactions than it would ever be the catch somebody doing something bad using a suitcase full of cash.

Nathan: Of course.

Joel: So regulators are finally starting to wake up to the notion that wait, maybe blockchain technology, or distributed ledger technology actually can help us do a better job of dealing with the regulatory and compliance oversight than our traditional structures have that have been pretty inefficient at times, in finding and bringing the bad guys to justice.

Nathan: Even John McAfee said years ago, if you buy enough crack with Bitcoin, they'll get you.

Joel: Yeah. Yeah.

Nathan: it would make more sense that it's actually, if you wanted to track the bad guys, just put Bitcoin everywhere. And none of the bad guys really understand that, anyway, they'll just start spending the money.

Joel: And so you had regulators that I think were very fearful of the notion of Bitcoin and crypto. And now that they are understanding of more, I think it started to realize that it actually can become a solution as opposed to a problem.

There are other reasons that regulators are skeptical and concerned about crypto, like Bitcoin, because it also, whether you agree or disagree, there's concern that if you allowing large amounts of financial transactions to take place outside of breaking low regulated financial services entities that maybe we start to allow a systemic risk to creep into the global economy.

So there's a whole different set of concerns that, some regulators have with when they start to look at Bitcoin and and certainly when the Libra project was first proposed by Facebook and others, I think one of the regulatory, negative reactions was a result that, "Oh my gosh, if this became huge with billions of users around the world, this would really start to have an impact on monetary policy and the ability of governments to regulate monetary policy.

Nathan: And that was actually the central concern. In fact, that Facebook would have more financial data that on users than banks would.

Joel: Yeah. Yeah. The data part, you just hit on something really important, which is that once we start talking about crypto, as opposed to two old fashioned fiat, the amount of data that we can create and capture is phenomenal. And again, so that creates both a threat to regulators, but an opportunity for regulators, especially if it's used the wrong way.

A lot of people are talking about the initiative in China for their central bank digital currency, and I've read articles about how it could allow China to replace the U S dollar as the world's reserve currency, and my reaction to what has been no way in hell, because money is dumb.

Dollar bills in your pocket are dumb. All they are is pieces of paper. You can spend them, but if, when you start to create a digital currency, That's all of a sudden, very smart, because you can embed all kinds of things into the software that underlies the currency, including the ability to we need to capture all kinds of data to track how much somebody holds, to to track how they're spending it when they're spending it, where they're spending it, how they're receiving it, where it's coming in, where it's going out, and you can start to capture all kinds of data, and use it if you want as a government in a fairly nefarious way to oversee what your citizens are doing.

And so I think my own personal view is that in the case of China, that even if they are very successful in playing a leading role in proving that you can create a central bank digital currency, the world is going to be very skeptical of using it outside of China because of the, data capturing aspects that will likely be embedded into it. For so for the same reason that we're concerned about good old China maybe playing in 5g technology around the world, I don't think players are going to be particularly comfortable all of a sudden using a Chinese digital currency that gives the Chinese government access to what you're doing.

Nathan: Also, they would by necessity, they'd be able to turn your wallet off if you were like a political dissident because they're managing the private key.

Joel: Yeah, exactly and so governments now, instead of being fearful of this are for better or worse, starting to also realize how much you can combine data with the ability to create a unit of, a value and that has some scary aspects to it.

So now let's go back to it, because I know you asked, and we got off track that you asked what happened with Libra. So full disclosure, I'm not involved in the project, so I can, my views are my own views and I have no idea to whether this is right or wrong, but I think a couple of things. One, I think for whatever reason, they were a little bit naive in how they initially launched it, or cavalier, from the standpoint, and I have some views about that too, but the cavalier, as far as the potential regulatory pushback. And so either they intentionally or inadvertently failed to understand some of the regular morass they were potentially getting into, by creating the type of structure that they had proposed.

Second, I think that there was a lot of pushback, not just in the United States, but a lot of different places, because there was concern, I think not necessarily warranted, but concerned by many governments that, "Oh my gosh, this, th this can become so big that we're going to create a true non-government currency that has more liquidity globally than our own domestic currency does.

Then thirdly, I think the third factor that, that may have dampened the future a little bit, for Libra was that I think it accelerated the already, initiatives that were going on over the world by different governments to create central bank digital currencies.

And so there's an interesting debate as to whether or not, if governments really do move forward aggressively with central bank, digital currencies, whether there is a role or there needs to be the stable coin, of which Libra was supposed to be a category, or do central bank digital currencies make, the existence of stable coins, unnecessary and irrelevant?

Now you, I think that there's plenty of room for both, but I think Libra caused the focus to shift a little bit to what various governments were doing and in some cases, maybe in direct response to Libra, but in any event, Libra may have helped accelerate some of the experimentation going on by governments all over the world. And we'll have to see how that plays out vis-a-vis the private sectors, ongoing experimentation with stable coins.

Nathan: And what kind of innovations are you seeing in stable coins? From my view, it's looking like MakerDao's trying to issue as many or collateralized as many real-world assets as it can.

Joel: Yeah, and so the real question for something like that is to what end? I think that first, I do believe that blockchain technology does create very interesting and useful abilities to monetize and create access to all kinds of categories of assets that historically were difficult to hold or very illiquid. So by tokenizing and fractionalizing ownership and various kinds of assets, I think that is nothing but a good thing as we increased the universe of assets that we can invest in and hold and share and trade. And  as part of that, the role of a coin, like MakerDao, potentially makes it easier for us to create in effect a common denominator in which to value and trade assets globally.

One of the problems with trying to create true global markets are that, we're constantly or are buying and selling assets with our own respective currencies, and we have to deal with FX risk and exchange barriers and a lot of inefficiencies. So if you want to tokenize assets and create truly global markets for those assets, a common denominator in which you can potentially value and trade and price those assets, using a structure like MakerDao or what other players are trying to do helps to create a level of efficiency we don't have right now in trading on a global basis.

Nathan: With respect to Mattereum, Vinay was saying that the most stable asset pool, would actually be  a tokenized pool of real estate on both sides of the ocean,  in England and the U S.

Joel: But we can argue what we even mean by stability. It's a relative concept and stable relative or compared to what, part of I think what we think about when we talk about stability is the extent to which we can minimize, unexpected shocks and disruptions.

So for example, the stable coin backed and link directly to a dollar is only as stable as the dollar itself, but the benefit of backing a stable coin to a dollar is that historically, and unless the United States goes completely off the deep end, the dollars, may appreciate or depreciate over time, but we don't see drastic fluctuations in the value of the dollar. So relative to other currencies it maintain stability. And so the key is to identify other asset classes that also perform in a comparable way that have similar characteristics and then, potentially combine that with traditional concepts of portfolio management theory that, as you diversify the underlying assets and hopefully create an uncorrelated pool underlying those assets, you're hopefully eliminating a greater amount of risk and creating more stability.

So whether linking that to a real estate portfolio on both sides of the Atlantic does that or not, I don't know.

Nathan: Which do you think has a higher chance of surviving regulatory intervention in a long run? Like a CBDC or private stable coins or algorithmic stable?

Joel: So again, there are all different ways to create a CBDC. So let's make an assumption that the government entity, the central bank or the government entity creating it intends to have it treated as legal tender within the issuing countries jurisdiction. The expectation would be that other countries around the world wouldn't challenge the issuing countries' determination to treat their digital currency as legal tender.

So assuming that the digital currency is legal tender, then it should have all the rights of legal tender that, all countries' currencies have around the world. And so you may not be interested in accepting the currencies of the emerging market country, because you may think, "why it's too risky," but at least, it's going to be recognized globally and respected by countries around the world as legal tender.

Once we move away from central bank, digital currencies, and we move into the world of stable coins, now we get into a really messy scenario as to what are they, how are they regulated, and  recognizing the fact that regulation of that stable coin may different be different in different countries.

And so if you create a stable coin, for example, that is for whatever reason, treated as a security in the U S but potentially treated as a commodity in another country or treated as the equivalent of a fiat currency in the third country, it will be difficult for that stable coin to start to create and be used on a global basis and build a global market for itself if it can't be seamlessly utilized in different jurisdictions because the regulatory treatment is not the same. And right now what global regulators are looking at, and there's been a lot of activity this year, in this space is how do, how should they think about stable coins? How should stable coins be regulated? And to what extent is it even feasible to try to somehow on a global basis coordinate to some extent, a, an, a universal approach to stable coins?

And so then you start to get into the fact that as you mentioned, there are different types of stable coins. They can be backed one-to-one by an underlying asset, whether that's fiat, commodity, or something else, or they can be managed through some type of algorithmic process where we're using monetary policy, some of it, which is codified into the smart contracts too, to create the stability through monetary policy, or you can have a stable coin that's a blend of underlying assets and algorithmic oversight. And so all of these different types of stable coins, because they have different attributes as to how they're created, and how they're managed, who potentially are the targeted users and how they're being used, creates a lot of complex challenging questions from a regulatory standpoint, for which there is no global consensus. And I think that is going to limit the extent to which stable coins can be uniformly adopted, and that's where central bank digital currencies potentially have an advantage.

Nathan: Are you seeing any stable coins in general figuring this out or is every everything out there in the market in this weird purgatory?

Joel: I think most things are in this weird purgatory, but what I would tell you is that we don't have clarity, but relatively speaking, it might be easier to figure out how various governments would regulate, for example,  let's say we have a stable coin that's back to one-to-one by a dollar. So every time a stable coin is created, the dollar goes into a vault. Every time that stable coin is burned, a dollar comes out of the vault. There's no active management of it. It just automatically happens . That potentially could be treated in various jurisdictions as nothing more than a custodial receipt to the underlying currency itself, and so regulators could very much say, we should really, for the most part regulate that the same way we regulate the underlying currency, because all it is a representation of the underlying currency, so why would we want to regulate it differently?

Now on the other hand, if you look at a stable coin that was structured, at least like the original Libra proposal, which was to create stability by having it linked to a basket of assets where the basket of assets could be changed over time and in effect where you would actively manage the underlying basket of assets, that starts to look much more like what we might call in the United States, an Exchange Traded Fund, where the Libra represented nothing more than in effect individual, interests in a collective investment vehicle, like an ETF where the ETF held a basket of underlying assets.

And The U S said the U S regulators express concern initially that while that looks nothing more than, like an investment vehicle that will be regulated as such in the United States. And I think other governments probably, other regulators took a similar view. And so how we create the stable coin can have a huge impact on how we potentially think about it from a regulatory standpoint.

Nathan: Why didn't Facebook hire you?

Joel: I have other cynical views as to why Facebook was doing what it was doing, but maybe for another time.

Nathan: Clearly Facebook can do whatever it wants. The FEC find them $5 billion, they paid the money and their stock went up. So there's some sort of invincibility spectrum here.

Joel: I think really that the driver for Facebook, was that they're really looking at, again at China and looking at applications like WeChat and they want to be able to turn WhatsApp and Messenger into a much more robust platforms that can be used,  as payment, platforms in a way for example WeChat is, and expand, the role that WhatsApp and Messenger plays.

And so for Facebook looking at that, if they had their own stablecoin that could power the payment functions of WeChat Messenger, that would be fabulous. But they don't need that. They can certainly go forward with competing with we-chat and turning WhatsApp and Messenger into payment platforms, whether or not they have a stablecoin. So I think that the Libra part was for them an interesting play. But I think what they're really trying to do is compete with China in particular, in the case of Messenger and WhatsApp, and they'll do that whether or not they have a stable coin component. The stable coin component as you mentioned though that the benefit there is, it allows in a much more efficient way for them to collect and use data with respect to the users, which is what Facebook does best.

Nathan: So all these stable coins are in a weird regulatory purgatory.

Joel: Some types of purgatory, but look, there's another aspect. Some of the early stable coins out there, and there's nothing wrong with this, I think we're created to play a role within the crypto universe. In other words, if we look at the volatility of crypto assets and in Bitcoin itself , one of the things that's limited Bitcoin from perhaps, living up to the full potential that people expected is its volatility.

It's hard to use Bitcoin as a means of payment and going to buy a cup of coffee if the price of Bitcoin can drop 20% before you finished your cup of coffee, you know, stores aren't going to accept Bitcoin if they don't see stability. And I think early some of the early potential uses for stable coins was to create within the crypto world a more stable and more liquid hedge, or instrument that you could park your crypto investments into, without having to exit the crypto universe together. In other words, if you're holding Bitcoin or Ether, and you're worried about volatility without stable coins, your only option would be to liquidate and go back into fiat. So one of the things that stable coins were, and are intended to do is to give you an alternative investment within the crypto universe so that you don't have to exit and go back into fiat because it's still challenged and the on and off ramps between Fiat and crypto, they're getting better, but it's still not easy.

But if you want stable coins to play a broader role than only within the crypto universe, that means that you've got to start to be able to create a world in which people are going to use stable coins as a means for buying and selling things. So again, if you want to be able to use crypto to buy a cup of coffee at Starbucks, then the assumption is that if Bitcoin is too volatile, Then you need a stable coin.

And so if we create a stable coin, that truly is stable enough that a player like Starbucks would say, okay, yeah, we'll take this ABC stable coin, as a way for you to buy a latte, that's great, but then the next thing that has to happen is you can't have a stable coin universe where the average guy in the street has to understand things like private keys and digital wallets and all of the things that early crypto adopters need to understand in order to get access to crypto. You've got to create something that is as brain dead as turning on the internet, on your laptop, opening up your phone. In other words, you've got to be able to access a stable coin using a smart card or using your smartphone without having to understand anything about technology, without having to worry about digital wallets and private keys. And so until we can create the interfaces that really allow the average person to get access to something like a stable coin, we're never going to start to see it truly become an alternative, source of payment to credit cards and to other types of electronic payment systems. China has a very robust electronic payment system that bypasses credit cards, but it doesn't use blockchain technology or crypto,  it's e-money. And so stable coins have to be able to prove that they are more efficient, more easily accessible and cost less than other types of existing e-money solutions that are out there.

Nathan: PayPal is starting to issue a Bitcoin, Ether, and LiteCoin through its platform.

Joel: Yep. And that's very interesting. And we'll see how that goes. But the interesting thing about that, and again, I'm let me caution by saying I'm still reading about it and understanding exactly how it's going to work, but, I think that the difference there is it's not the ultimate vendor that's taking the crypto.

PayPal is stepping in as an intermediary. but that's very different than you being able to walk into Starbucks and have Starbucks directly accept from you your stable coin is a form of payment.

Nathan: Right, payPal would have to custody it somehow.

Joel: Yeah. I assume based upon what I've read so far.

Nathan: As a separate aside, what's your general opinion on the BitLicense as it relates to New York?

Joel: So New York has worked very hard to try to make the process getting a bit licensed, less painful than it initially was, and they have made a lot of progress. At the end of the day, a lot of people have bitched about the bit license, a lot of people avoided doing business in New York, simply because of that, and I think that the reality is, as we talked about earlier in this conversation, just because you're in crypto doesn't mean you get to avoid concepts like KYC and AML, to the extent that you're using crypto as a means of payment.

If you're engaging in financial transactions, whether you're using dollars or Bitcoin, the KYC/AML, regulatory concerns are legitimate and are the same. So New York was trying to address that issue by creating this separate regime, this bit license regime that was intended to replicate in a way how financial institutions are regulated with respect to KYC and AML when they're engaged fiat or dollar transactions. And so the New York approach was let's create a completely separate regime for crypto, with the goal of trying to create a parallel concept of regulatory oversight. Over time, I think the interesting question really is," is that a better way to go?" Do you really need a separate different regulatory regime or should it just be the same as we apply to other financial service activities, which is that if you're going to engage in financial transactions above a certain dollar amount, then there's certain oversights, with respect to things like bank secrecy, KYC, and AML period. And whether it's denominated in fiat, in crypto, or something else doesn't make a difference. So we are stuck with the BitLicense for a while. I would tell people not to stay away from New York simply because of it, because it's gotten a lot easier to get a BitLicense. And at the end of the day, there are KYC/AML, considerations that you really should be compliant with regardless. So I would tell people, bite the bullet and get it, but eventually over time we may very well see in New York, we think, the need to have a separate regulatory regime along these lines.

Nathan: Yeah. I see a coinDesk article published over the summer, which is stating New York Department of Financial Services is considering issuing conditional licenses for the BitLicense.

Joel: They have, allowed some conditional licenses that allows a player to piggyback on somebody else's license, on an interim basis. So they already are trying to create some more flexibility along those lines with the assumption that somebody that's piggybacking on somebody else's license ultimately would get their own.

Nathan: So it's like renting a seat on an exchange or something.

Joel: Yeah. New York is working hard to try to make the process more efficient, better.

Nathan: what do you see around, VCs I think are starting to make demands that their companies issue tokens and at the same time and identify themselves in the contract. Have you seen this?

Joel: If, what you're talking about are indemnifications to the extent that a VC takes a token where the regulatory status of the token is unclear, there's nothing really new there. Part of the dynamic is that, a startup that wants to create some type of token and wants to compensate potential investors or capital contributors in tokens, are getting push back because the investors saying, unless you have gone to a regulator, and for example gotten a no-action treatment, we don't know for sure what the treatment of this token is going to be. So we're not going to give you capital unless we get some type of assurance that, we're going to be compensated for the increased level of risk we're taking.

Nathan: Got it.

Joel: But it's not unreasonable. And so if somebody is actually creating a token and they're going to sell it either as an equity or they're going to comply with it and treat it as an investment contract and then issue it on a private placement basis, in what we would call for example, being in the United States, that's a different scenario because, there the risk is much less in that you're saying we're in effect compliant with security laws, regulations, and in that case, the only risk the VC really has is more one of liquidity and that the market ultimately doesn't adopt that token, and so the value of their investment, goes into the hole, but that's a different type of exposure than one where somebody is creating a token and says we're not going to try to comply with security law regulations because we don't think it's a security under any circumstance. And now the risk goes way up.

Nathan: I have one more question about, mortgage tokenization, because you structured and negotiated, according to your profile, an $8 billion origination, and a $6.5 billion commercial mortgage securitization business. Can you explain anything about mortgage tokenization?

Joel: So the way I would talk about this is, how blockchain technology is being looked at in the world of structured finance. And so if we look at asset securitization when there's mortgages or something else, there are a lot of inefficiencies in the securitization process.

You've got to underwrite, all the assets, pool them together, traunch the exposure of the different assets, once they're in the pool and then sell these tranched notes to investors, and you've got to actively manage all of the assets in the pool, continually monitor the cash flows. Make sure the cash flows are coming in and then getting sent back out to the different traunched note holders. You've got to have the ability to monitor defaults in the underline asset pool, and depending on the type of structure, potentially remove defaulted assets and replace them by other assets. And so this is securitization business, even though it's been highly successful has also been highly inefficient, very paper- intensive, very hands-on intensive. And so the first thing when we started to talk about blockchain technology and securitization, is that if we could simply, improve some of the processes of managing the assets and servicing the assets, and better monitoring and managing the cash flows and automatically deploy the cash flows to the note classes, where they're supposed to go, we immediately create efficiencies that potentially reduce the cost of securitization and improve the returns. And on top of that, it perhaps allows us to expand the universe of assets that we can securitize in the first place. Because again, if we can more easily fractionalize ownership of asset classes, maybe now we have additional assets that a lot that we can pool in the first place. And so blockchain technology and structured finance is a beautiful marriage in that it not only potentially creates efficiencies where we've seen huge amounts of inefficiencies, but it also opens up the universe of different types of assets that can be securitized, and that even allows us to create different types of ownership interests, or different types of note or equity classes that can be sold to investors. Once we start to digitize and tokenize all of it. So I think we're going to continue to see over the next X number of years, a lot of effort and energy going into marrying the world of structured finance and blockchain.

Nathan: Have you seen any companies that you are following that are doing a good job of this?

Joel: It's still early. And so I think where we've seen right now, some progress or some players that have, instead of trying to completely revolutionize every aspect of securitization, they've said, "where should we start?"

And they're trying to focus on pieces of the servicing part of the asset pool, where they think that's the most low hanging fruit, as far as using blockchain technology to create efficiencies for servicing. And then I think slowly that will be combined with the tokenization of the interests that are sold and securitization pools in the first place.  And then on top of that, then we will see the third element being more assets and start to become eligible for securitization to go into the pools.

Nathan: Got it. So this is actually, I should have asked this earlier, cause this seems the point that you're most interested in. How should startups, who are interested in working with you, how should they reach out to you?

Joel: How they can reach out to me is they can certainly contact me, jtelpner[at], but, we're always happy to talk to folks that are thinking about this space because we talk to a lot of people that are really tech savvy, but don't necessarily have the big picture and understand just how disruptive their tech can be, and therefore they don't always see the opportunities. And they also, the flip side is don't always see all of the potential regulatory hurdles that are going to push back on them. And, potentially cause them to not be successful, as a result. And so what we like to do with folks is help people, especially that have technological deep understanding, see how it's going to disrupt the existing world and what the regulatory pushbacks are going to be that, they may have to deal with as a result of that.

Nathan: We'll share, your email again in the show notes, and make sure everyone can reach out to you. Thank you so much for your time, Joel, and anything else you'd like to cover?

Joel: No, it was a pleasure. And, look, the one thing that I'll say in, this as well as I do is that probably everything we've talked about will be completely out of date, in six months, maybe even three months given how fast this world changes, but then we'll just have to do it again.

Nathan: Awesome. thank you for your time.

Joel: You're very welcome. All the best.