'Crypto in America' Live With SEC Commissioner Hester Peirce | Jacquelyn Melinek, Hester Peirce SEC

Welcome back everybody. What an esteemed uh set of guests we have today. We are going to continue Crypto in America Live. This time with SEC Commissioner Hester Pierce. [applause]

And we're back. And we're back like we'd never left.

Esther, welcome back.

It's good to see you.

It's great to be here. I got to give you my disclaimer, though. My views are my own views as a commissioner, not necessarily those of the SEC or my fellow commissioners.

Well, yes, you gave us the same. Yes. [laughter]

Fair enough.

You did give us the same disclaimer when you came on our show almost a year ago now. You were our first guest when we launched Crypto in America back in March of last year. So, it's an honor to have you back nearly a year later, but we'd love to

you back. I'm healthy this time.

Yeah. Oh, yeah. You were you did have a cold. I remember.

But you were a trooper and you came on anyway. So, thank you for that. But we got to ask you, let's kind of recap the year a little bit. I mean, not that anything major has happened at all. Um, but I guess from your vantage point where you're sitting at the SEC, head of the task force, what has really been the biggest change in your eyes this year?

Well, last year I would say, um, it was, you know, a 180. um getting having a chairman who is really committed to

um I hope there'll be big big changes this year too, but having a chairman who's really committed to trying to get the rules written before we enforce them is very helpful. Um he's someone who um believes that we can get to a good place where there's um reasonable a reasonable rule book in place that people can comply with and I think that should lead the industry to a better place as well. I don't think we asked you this question because you were the first guest and we didn't really come up with it yet, but we always like to ask people who come on the show is what does crypto in America mean to you? I think you might have asked me. So you can see if my answer is consistent, but

you know, I think the reason that this is an issue that a lot of us in this country care about is because it it really does go to the fundamental principles that this country was built on. It goes to the to to the idea that people are free to um to make their lives what they want them to be. They're free to associate with people um that they choose to associate with and they're free to speak um and they're free to to um put value in what they choose to put value in. And so I think um aligning the regulatory framework with that makes sense, right? Because it really does go to these these core principles of freedom, liberty, privacy.

On that note, when we last talked, I think the crypto crypto task force had just been announced. you were just putting it together and sort of launching it and it's it's obviously been an incredibly exciting very busy year. Lots of guidance on a lot of different topics. I know tokenization is is taking up a lot of uh sort of bandwidth in the room now. What would you say is maybe the biggest accomplishment or sort of defining kind of achievement that that you would put uh sort of as a feather in the cap just going back through the last year since we first talked?

I mean, I think we assembled a great task force and I think that that's evident in the the amount of work that we've gotten done and the task force is working with people across the commission. So, um the staff at the commission have really stepped up and and and worked with us. Um but yeah, the the the putting together this great group of people who are really smart, who are really interested in getting it right. Um, Mike Celig already left to go be the chairman of the CFTC. So, I feel like that was a a feather in our cap.

And moving on to this year, it's crazy how time flies in crypto, right? I'm like, this year, but no, it's 2025. So, thinking about 2026, what do you think will be the defining moment or the defining accomplishment for the SEC? What do you guys hope to achieve that you'll be remembered for, as it were, in 26? Well, I think during 25 a lot of what we were trying to do is go out and listen to people.

We put out lots of questions. We've gotten lots of written submissions. Welcome um more of those if you all have ideas of what we should be doing. Um we've also had lots of roundts. We've been meeting with a lot of people.

And then we we started by putting out staff guidance that would sort of help people understand how we're thinking about what fits within the securities bucket and what doesn't. Um we went from a world in which um the agency was saying everything that is crypto is a security to I think a much more nuanced approach that says no actually probably most of what is out there now is not is not a security but we expect that there are going to be a lot more crypto assets that are securities as people try to tokenize um stocks and bonds and so um we've we've gotten a lot of guidance out and 26 I think is really the the year that's going to have to be marked by um more uh I'd say durable regulatory positions that are that are in commission documents um commission rulemakings and and then you all were just talking about clarity and and so I think if that um gets gets passed then we'll have a lot of work to do in implementing that um and and I think 26 will also be a year of of really close collaboration with the CFTC to make sure that the rulemakings are coming out harmonious continly and that um you know it is really a whole of government approach to getting this right.

There's there's been a lot of uh enthusiasm from the industry on how approachable you've been and and how visible the the agency has been in this administration. You mentioned sort of talking to builders. We were talking a bit backstage before we came on about the sort of road shows that you guys have done talking to founders and teams all over the country about what they've been building. It's obviously incredibly refreshing approach coming from the previous administration which was maybe a bit of an ivory tower and then we'll send you a wells notice uh kind of kind of conversational environment

when eth was a security

yeah yeah uh different times but um so I I just I'm curious with with the the roundts that you've done and also sort of the road show and sort of the grassroots efforts that you guys have put together what's been the most rewarding part of that for you and and what have been some of the takeaways that you've had from talking to to builders around the I mean, it's always rewarding to hear about what people are excited about building. Um, it's it's rewarding to hear I mean, I'm grateful that people are willing to talk to us because um, you know, there was some really deep suspicion um, built up over the last over the last several years. And I think the willingness of people to say, "Okay, we're going to give you SEC a second chance to get this right." Um, that has been really encouraging. But I think um I'm always excited when I see young people who are who are eager to build in this space and who are um just helpful in in helping me think about what um what regulation looks like from their standpoint and then sort of it's it's always good fodder for me to think about what how can we get these rules right.

So I guess that's been the most rewarding piece of it.

Yeah. Following what Gerald's talking about, I always see when you tweet um like, "I will be in town these days. Email me if you want to have a meeting." And I've always appreciated that. Um with the conversations you're having in Denver specifically, if you could speak to it a bit, like what are people coming to you about?

What are you discussing with them? I mean, the theme to me this time has been people are really interested in thinking about AI agents and how they'll interact with, I guess, everything we do, including how they interact with crypto. I think privacy is another big theme that people want to talk about which is great. Um uh so and then you know people are always asking the same questions like when are we going to get um maximum clarity on all these issues that are still outstanding

at the innovation exemption [laughter]

a lot of things right

yeah yeah tokenization is obviously sort of the buzzword of the year right is trying to get as involved in tokenization as humanly possible what would you say is sort of maybe the timeline for sort of implementing. I mean, I I think the tokenization part of the uh innovation exemption that'll make a lot of that stuff clearer, right? We'll probably give a lot of green light to folks who want to get more involved on that side of the spectrum. But like I always hear people talking about we're going to tokenize this, we're going to tokenize that, we're going to bring markets on chain. Like to you in your position as a regulator, how long do you see that timeline being until we start bringing capital markets on chain?

At least parts of it.

I think the process has begun. where money markets have been tokenized now for a while and you know there's a lot of interest more generally in tokenizing treasury securities. Um and then once once the the you know 25 um really marked a time when when as you say institutions started to think oh hey we might really be interested in tokenizing because there wasn't the fear of regulatory backlash against it and so I think um there's a lot of excitement about tokenizing equities there experiments underway we granted a no action letter to the DTCC which is a very traditional financial um sort of stalward uh uh um infrastructure um and and they're looking at at facilitating tokenization. Um we're encouraging other experiments of people who want to try tokenization. I think one of the difficulties is we really have to get a lot of pieces in place and so you mentioned the innovation exemption um that would enable people to trade tokenized securities um to do that using AMMs um for example and so I think trying to allow people to experiment so that they can see that yeah there will be a place to trade these things and to start to understand how the tokenized securities will interact with the non-tokenized securities.

Um to so really allowing the market to see what works and what doesn't. There are different models of tokenization. We put out a the staff put out a statement um a couple weeks ago on that and so sort of watching how the market coaleses around different models of tokenization. So it it it maybe will take a little bit of time to get it going, but I think allowing these experiments with the idea of working toward a rulebook that will recognize the technology maybe takes the place of some of the um functions of existing intermediaries, but also allows existing intermediaries to engage with the tokenized system. Um it's just going to take some time, but I think it should be a fun project.

Yeah, I I want to go back to something you said about AI. There's obviously been a lot of very interesting conversations about agentic payments, maybe deploying capital through through bot networks and things like that, and it maybe it's a great candidate for the innovation exemption, but it seems like technology is always just a couple years maybe ahead of of where the regulators can see things going. But something that I've been very interested in in talking to teams about use cases or doing things like that is ultimately you deploy a bot, maybe it moves some money, maybe it makes an investment, maybe it buys a security. Where does the culpability sit for for some of these new sort of networks that are being set up? Is that something that you guys are digging into now or how do you view getting your hands around the notion that all these potential sort of intermediaries but sort of self-directed intermediaries are going to be entering the market in the system?

Well, I mean culpability will always lie on some some either individual or corporate entity. And so I think people shouldn't assume that just because they're using a cool new technology they get to avoid regulatory accountability. One approach that we I think can't take and we did try to take this in the last administration was we tried to write a rule that would capture AI technology and how investment advisors and broker dealers might be using AI technology and it ended up being a really hard rule to write. It ended up being very overroad in terms of the technology it covered. It was very clunky in the way it worked and we got really negative feedback.

I mean even negative by you know some of those crypto rulemakings uh or attempts to pull in crypto through through rulemakings got very negative feedback but this one got you know it was it was really almost universally negative feedback and I think it was a cautionary tale for us right you can't um you can't try to um write bespoke rules for every new technology that comes along but at the same time the principles that we enforce are ones that are going to be enforced no matter what technology you decide to use. So I think some of these AI agents um are really interesting but I think people should assume that as you decide to use those you will still be responsible for what they do and so you ought to think about what sort of parameters you're building in to govern their activities.

So I didn't know my bot did that is not an excuse unfortunately. [laughter]

Not going to work.

Yeah. Not now at least. Yeah. um how are the discussions progressing with traditional financial institutions that are kind of arguing that crypto should not receive specialized exemptions? Yeah, I mean I think people have probably seen the the comment letters that have come in from from a lot of folks in the traditional finance space, but my response would be we're not saying that that these um that these experimental um options that we're trying to you know these like the innovation exemption as an example that it's not available to traditional finance.

it is we encourage anyone who wants to experiment with tokenization or with other aspects of um this technology to come in and talk to us and to work to work with us. And so um I think one of the problems with the financial industry has been that the barriers to entry have been so high that um incumbents have been able to keep competition out. And what we're trying to say is look, we want this to be a very competitive playing field, but that doesn't mean that the new the new folks get a leg up. It's just that everyone gets to play on the same according to the same rules.

What percentage of companies or teams coming in would you say are cryptoverse traditional financial institutions when it comes to the tokenization conversations? That is a great question and I think um I'd say it's a mix and I I think there are a lot of um sort of um groups that are bringing together both traditional finance and people who are more cryptonative which I think is very interesting because the traditional financial people have a sense of what the issues have been in the past and how the rules work and the the cryptonative folks often bring a a very um fresh way of looking at things. So I think those those those uh collaborations can be really interesting but yeah it's a mix.

You mentioned financial privacy is also something you're hearing a lot on the ground here. You had the recent roundt on that a couple months back now. That was last year right? Gosh it was

2025

2025. What did you guys take away from that? Maybe what was the biggest thing that the SEC learned because there were some great panelists. Gerald and I were there. um you know some great points made both from the traditional side of finance and also from the crypto side.

What was the biggest takeaway and is there anything that you guys are maybe initiatives underway at the agency that you know I obviously you probably can't tell us anything that's actually underway but maybe what's the biggest thing that you guys took away from that round table? Well, I think it really underscored this idea that privacy should be the norm, not not the um exception in the sense that we shouldn't assume that um that we should assume that people will want to keep their financial transactions private. Um because there are real consequences for people's security if they don't. And so I think looking at it through that lens helps us as regulators um take the the suspicion out of the picture and really work toward practical solutions so that people are able to protect their privacy. The government is able to get the information it needs with proper process to get that information.

Um and and so I think the the one of the things that came out of that round table too is that there are a lot of tools out there that people are developing. There are a lot of new technologies that may enable us to to do that to protect people's privacy and also protect you know legitimate issues like our national security.

Yeah, it is going to be slightly ironic if the highest best use case of ZK and viewer keys is to protect pro protect hedge fund transactions that they don't want out there on a permissionless chain. I don't know if that's what the privacy maxis sort of had in mind back in the day, but it it's um

well, but I mean I think you know we should all care about others being able to keep private the things that none of us have the right to know and then people can make their choices about what to what to uh release publicly. I think one of the mistakes we've made is we've always, you know, private for me but not for thee or um, you know, just not really caring, you know, free speech for for me but not you. Um, I think that's really a mistake. The thing that brings us together as Americans, is that we defend the right of other people, even people with whom we vehemently disagree, to have these core protections. Um and so especially in a climate like this, it is so important for us to come to back to that point.

Um you might not like Tradfi, Tradfi might not like you, but you should both be trying to protect each other's rights.

Yeah. I I wanted to ask you a follow-up question on Jackie's question about this balancing of traditional financial institutions sort of having the resources and and sort of the time and the knowhow to approach the agency and have a lot of those conversations versus a lot of um maybe less developed organizations who may benefit from like the innovation exemption or exemptive relief. um you know that obviously can involve a lot of lawyers and and and be a big process. But how do you whether through rulem or or through how you think through through these issues balance sort of the um maybe it's unfair to call it a compliance burden, but you know some of some of the obligations that you you need to comply with if you're going to get into this space versus the ability of someone to sort of start in their garage and and get things done. I mean it is I think it's a totally fair question because there is a compliance burden that is um you know it's huge when when you enter into a the financial industry where there's so many rules on the books.

It's just it's a very complicated web to to weave your way through and you often will need legal help to do that. But I think what we're trying to do is one say hey come you you are free to come talk to us. We're not going to give you legal advice, but we might be able to um point you to some tools that you can think about. No action letters are available. We're happy to meet with you without a lawyer.

We're happy to meet with you with a lawyer um as you choose. And um and then trying to get some of this guidance out, some of these standard things like an innovation exemption that is available to anyone so that we're we're kind of carving paths for people to be able to to walk down. Um, it is it is always something that I'm thinking about is trying to keep those competitive regulatory barriers as low as possible because that is one of the reasons this industry hasn't been as as as dynamic as it should be because it is so hard to to break in.

Esther, thank you so much.

Thank you all so much. It's an honor to to be here today. Thank you everyone. Happy Friday.

Happy Friday.