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The TechSurge: Deep Tech VC Podcast explores the frontiers of emerging tech, geopolitics, and business, with conversations tailored for entrepreneurs, technologists, and investment professionals. Presented by Celesta Capital, and hosted by Founding Partners Nic Brathwaite, Michael Marks, and Sriram Viswanathan. Send feedback and show ideas to techsurge@celesta.vc.
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TS008_Hester Peirce_Full Video_v2
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[00:00:00]
Hester: I think our baseline in this country needs to be permissionless innovation, right? You shouldn't have to ask permission to, to identify a problem and go solve it. Crypto itself. I think one of the things that makes it interesting is it's a way to, to transfer value across the internet the way used to only be able to transfer data, and so that's a very powerful concept.
The best way you can protect investors is to make sure there's a dynamic marketplace in which new people with better ideas about how to do things can come in. Move the old products and services.
Sriram: Hi everyone. This is the Tech Surge Deep Tech podcast presented by Celesta Capital. Each episode, we spotlight issues and voices at the intersection of emerging technologies, company building and venture investment.
I am. Viswanathan founding Managing partner at Celesta Capital. If you enjoy tech Search, now is a perfect time to hit the like and subscribe button. And while you're at it, you [00:01:00] can leave us a review on your favorite podcast platform if you're just discovering us. Visit tech Search podcast.com to sign up for our newsletter and check out the archive of some very interesting past episodes.
Hester: Crypto policy in Washington has spent years stuck in a gray area, shaped less by clear rules.
Sriram: Stand by the threat of enforcement that is starting to change. Commissioner Hester per has spent years inside the SEC arguing that policy ambiguity is not a form of protection, that it does not keep bad actors out, but actually it keeps good ones from building.
In 2025, she was designated to lead the SEC's first crypto task force. In this conversation with Commissioner per I dig into this major shift in US crypto policy, where policy stands today, what it means for startups and institutions working with crypto and what it takes to build a [00:02:00] stable regulatory framework that lasts beyond any one election cycle.
Before we start, it's helpful to define a few key ideas or concepts. Crypto has become a catchall term, but it actually covers a variety of things. There are fairly well-known cryptocurrencies, including Bitcoin, Solana, or Ethereum. There are stable coins, which are a type of cryptocurrency designed to hold a steady value, usually pegged one-to-one against a Federal Reserve asset like a US dollar.
Then there are the blockchain networks underneath it all shared decentralized digital ledgers that record transactions in a digital chain, a way participants can verify without a middleman. And now there is tokenization, which simply means taking a traditional asset like a bond or a fund share, and translating it [00:03:00] into a digital token on a blockchain ledger.
With that. Let's dive in.
Commissioner Persh, thank you so much for joining. Adam, it's a delight to be able to talk to you.
Hester: Well, thanks for having me on Tech Surge. It's, it's an honor to be here. I, of course, have to start with my disclaimer, which is that my views are my own views as a commissioner, not necessarily those of the SEC or my fellow commissioners.
Sriram: Why don't we start at the point where. We can discuss, uh, how you think about crypto policy itself and what are some of the, you know, high level priorities that, that you think that we should be addressing?
Hester: I think about crypto policy not really any differently than I think about other types of innovation policy.
When new things come into our markets, we need to take a sensible approach to regulating them, and that means understanding that we probably don't understand. What the technology is going to develop into. So we're trying to provide a flexible enough regime [00:04:00] that the market can kind of figure out what it wants to do with the technology, but we're also trying to provide enough clarity so that people feel comfortable stepping into that space and innovating in that space.
And really, if we do that, then. The market kind of takes care of the rest,
Sriram: right? As a regulator, what is the starting point? Is it investor protection, it's market structure, the efficiency of the market? Is it innovation policy or financial inclusion, competitiveness? There are a whole bunch of things, so give me a sense for how you prioritize these, these sometimes conflicting objectives.
Hester: The SEC has three objectives, investor protection, facilitating capital formation, and fostering fair, orderly and efficient markets. So we're always thinking about those three objectives as we look at anything. Investor protection obviously is, is central, but I don't think it's in conflict with those other two objectives.
Um, you're really trying to figure out a way to get investors the information they need to make decisions for themselves, but [00:05:00] not. Withholding from them opportunities to participate in markets by stepping in in a paternalistic way. So that's really what we're trying to achieve is, is, is the balanced approach to investor protection that recognizes opportunity is important, but also recognizes that people should be able to get the information they need to be able to reliably invest.
Sriram: You did not mention national competitiveness or, or national security as one of the objectives. Is that because it's just lowering the priority or is that not even a consideration? It's,
Hester: I mean, national security is not the SEC's mandate. Right? So there are other agencies that deal with that. You know, we're taking our guide from Congress if Congress tells us that we need to pay attention to something we certainly do.
Um, and we work with other agencies. That have that mandate to make sure that we're not doing anything that's inconsistent with what they're trying to do in terms of competitiveness. We do have, competition is one of the things that we are supposed to think about. Efficiency competition, we're supposed to think about those kinds of things.
But in my [00:06:00] view, the way to develop competition is to have clear rules so that when people. Go into a market, they know what the playing field they're operating in looks like, and then if someone engages in a transaction and there's fraud, they know that there's someone there to police that fraud. That's really the best thing we can do for competition.
Keep barriers to entry low so that new dynamic competitors can come in. Not try to micromanage competition. Now, I think the financial industry and the, the, the markets that we regulate in particular, we've not always done a good job there because sometimes we have built up regulatory barriers to entry that have meant that.
Incumbents don't get challenged by people from outside because it's just too hard to get in. Hmm. And so this is a good moment. Crypto offers us a good moment to kind of reflect on that and make sure that we're not putting up barriers to entry that are keeping Wouldbe competitors out. It's not to say that our markets aren't dynamic.
They [00:07:00] are. But I think if you could have. Even lower barriers to entry that would be more dynamic.
Sriram: I obviously don't live in this world from a regulatory policy standpoint. I'm an investor in companies that create innovative solutions in this area as much as other areas, I sort of think about what you do in, in, in, in the commission does in this area is really providing guardrails while at the same time ensuring that there is, there's a mechanism to not come up with artificial friction or breaks that slow innovation.
Can you talk to that? Can you talk about how do you balance these two objectives? You have to protect, but at the same time, you cannot be an impediment for innovation. So how, how do you think about that?
Hester: What we should be trying to do is set out objectives and say, if you can meet this objective, we don't care how you do it.
We just want you to meet this, this regulatory objective. And something that we've done in the past has been more taking a prescriptive approach to say, we want you to do it this way. And, and that sort of. Cuts down on [00:08:00] the imagination of the people in the industry because if they just have to do what the SEC says, they're not thinking of creative ways to get to the same place more efficiently.
Sriram: So we'll get into the specifics of some of those, you know, policy objectives, but let's just ground ourselves. What do you include in crypto? I mean, you know, obviously, you know, currencies and stable coins and tokens and, and a whole variety of things, but just give us a, a framing of what is included, what is not included.
Hester: Yeah, I mean, crypto is a broad term that has been used to, to mean a lot of things. You have the sort of commodities like Bitcoin that fit within a particular category. Then you have, you know, you have digital tools. You have. Things that people are treating as currencies, you have. Assets that are real world assets, they could be securities and you take them and you tokenize them, it can mean a lot of different things.
Crypto can also refer to the technology under underlying it, uh, the, the blockchain chains underlying it. [00:09:00] Um, so I. You do have to be a little more specific when you're talking about it. We often just lump everything into one category, and that really isn't the right way to think about it.
Sriram: Yeah, I think it's largely because, you know, Bitcoin as an asset has become so prominent in the market as one of the, you know, leading sort of, you know, uh, commodities, you know, as it were.
Uh, it sort of drowns out some of the other important, uh, aspects of the overall technology itself. But if you were to give a sort of a, you know, honest assessment of. We're US policy. And by that I just don't mean you know, your tenure, but in general from the time that we started thinking about this, where do you think US crypto policy stands today?
I mean, if you were to give it a grade on, on, you know, we have so much more to achieve.
Hester: Yeah,
Sriram: we are halfway through. How would you think about that?
Hester: I mean, we have a lot more to achieve and I think the goal is not to say we're done with crypto policy because. Things will change too, and so we will have to keep working on crypto policy, [00:10:00] but I think we are in a better place than we were a year ago.
We've made more progress at getting toward regulatory clarity. There's work being done on the hill on the CLARITY Act, which is the market structure legislation for crypto. Getting that in place will be helpful in providing. A durable framework, but the, the SEC and CFTC and the banking regulators are all taking, we're taking our own pieces and we're working on that.
We have the Genius Act in place, which covers stable coins. So I think we're making progress, but there's still, there's still a lot ahead to be done.
Sriram: Yeah. So if I were to frame this as, you've got the crypto commodities, if you will, all the, all the currencies, and then you have, you know, tokenization as a big.
Basket, which is above and beyond, you know, just the crypto related assets, but it could be other securities as well. And then you have, you know, CBDC or, or some of the, you know, stable coin related things, whether they are tied to fiat currencies or not. So if you were to [00:11:00] think about it, where would you say there is a greater degree of uncertainty in still?
As perceived by the market where you still have work to do what? What would you say those
Hester: areas are? I mean, we have a lot of work to do, but one thing we did do is we put out an interpretation to say, here's how we're thinking about crypto assets and whether or not they fit within the securities laws.
And I think that was a helpful. Piece of, of guidance for people to sort of think about this. There's been a lot of conversation around the how we test and around, so the, how we test deals with something. We have a broad definition of securities in the us. One of the categories is investment contract. It means you give someone money with the expectation of profits based on the efforts of that other person.
So you just have to provide the money. Then you sit back, they do something and create value for you. This is the area that has caused a lot of people consternation. [00:12:00] When is something that is actually not itself a security packaged with promises that turn it into. Security and every, when that, when that thing moves, it's a securities transaction.
And so we tried to provide some guidance around that in this interpretive document. I think that was helpful. But there's still a lot of questions around how do you do capital raising, involving crypto assets. They're questions around what are tokenized securities? Are they the same thing as the underlying security or is it something separate?
How do you tokenize something and does that affect what it is? So we're, we're. Working on also providing clarity there. We've put out some guidance on a, on a, um, sort of how to think about tokenized securities, but we have a lot more work to do there.
Sriram: If you are a, uh, startup or a, uh, you know, blockchain crypto related company, what is it that you would say is genuinely better for the startup today?
From a regulatory policy [00:13:00] standpoint, you know, relative to how it was two or three years ago, what is it that has changed?
Hester: Well, I mean, I think there are a lot of things that have changed, but one is that if you're trying to do something in the United States, we want you to come in and talk with us. We wanna figure out a way for you to do something that's commercially viable.
But also aligns with our regulatory and objectives, right? So that is a conversation that we wanna have with the people actually trying to do the things. And before, what it was is there wasn't any help in thinking through how the regulations applied in this area. The only help you got was. By looking at enforcement actions.
Sriram: Well, you, you also have the prospect of a potential negative react negative action. Exactly. Which you just didn't know whether it was gonna happen or not. So there's a lot of, it's like a hammers. Yes, it's a hammer. You just don't know
Hester: exactly
Sriram: when that might come down. And that, in your view, that uncertainty has changed.
Hester: It's changed. And it, it's not to say there's, there's no [00:14:00] possibility of enforcement if you do bad things. If we have the authority, we are gonna come after you. If we don't have the authority, we're gonna try to find someone who does have the authority. So it's not a, a permission to do anything phase, but it's saying if you are trying to do something valuable for, you know, if you're trying to solve a problem, you're trying to make a product or service that people want, we wanna help you figure out how to do that in a way that's consistent with our law.
Sriram: You know, this current administration. Has obviously become far more friendlier to crypto and ensuring crypto becomes a very key strategic part of the overall, uh, asset base of the country and all of that. In a way we can sort of make the argument that whether it's semiconductors or manufacturing or.
Critical minerals or any of these things, these are national security and you know, supply chain resilience related technologies. Would you think of crypto as potentially providing a strategic national [00:15:00] advantage relative to where the markets can be globally and how the US wants to maintain its advantage and, and potentially, you know, market leadership globally?
I mean. How? How does that fit into your rulemaking?
Hester: Yeah, I mean, I want the US to be the place where everyone wants to come and build stuff, whether it's in crypto or something else. I want this to be a place that people say, you know what? We can find capital there. We can find clear rules there. We can find.
Sensible law enforcement there. And so we at the SEC have a role to play in that crypto itself. I think one of the things that makes it interesting is it's a way to, to transfer value across the internet the way you used to only be able to transfer data. And so that's a very powerful concept. It can be used for a lot of things.
I think it's also, we're seeing more and more people all across the world use the US dollar in, in the form of stable coins. That's also interesting for us. But I mean, really my job is. Not to decide whether or not. People prefer one technology or [00:16:00] the other. It's to say, if you wanna build something, we want this to be the environment in which you wanna build it.
Sriram: Tokenization can sound abstract, but that basic idea is quite simple. You take a traditional financial asset and represent it digitally on a blockchain based infrastructure. When people say an asset is on the chain, they usually mean the ownership record on the transfer process, or happening on a digital ledger.
As of early 2026, the total value of tokenized real world assets had reportedly surpassed $25 billion. A small fraction of the $1.9 trillion in daily trading in traditional US equity markets. According to the SEC, the appeal of this new approach to financial transactions is very practical. It offers the possibility of faster settlement, more programmable [00:17:00] transactions, and markets that operate in more 24 by seven continuous
Hester: way than the ones.
We are all used to today.
Sriram: It's, it's interesting because as a regulator, uh, you have this unique. Job and responsibility to ensure that there is these guardrails while at the same time there's enough opportunity for innovative new technologies that could be disruptive, you know, and provide global competitive leadership and all of that for the us and you have that.
You have to thread that needle it sounds like, from your writings and speeches. It seems like you've pushed back on the idea that every hard problem in crypto should be solved by simply blocking activity. What does a good policy support actually look like in practice? I'm sure you're bombarded with so many policy directions and how do you distinguish, you know, it's not a blocking activity, but it's something supportive of, uh, the objectives of.
The participants in the, in the ecosystem?
Hester: Well, I mean, I think our baseline in this country needs to be [00:18:00] permissionless innovation, right? You shouldn't have to ask permission to identify a problem and go solve it. We do need guardrails in the sense of, you know, there, there are basic rules that people comply with.
I think one of the reasons that our capital markets have been successful in the US is because, you know, when you go and, and pick up a disclosure document that you can rely on that disclosure document because there's a backstop of. People are held to an anti-fraud regime. Um, and people know that if they send their, give their money to a broker to buy stocks, they're, they're going to get that stock, or there's gonna be a government enforcement backstop there.
So, so we have those basic rules, but then within that, we, we really should be striving to be in a place where. People can just innovate and solve problems as they see them. Um, I think we have to be very careful in the United States now because there's a, we're, we're a prosperous place and people [00:19:00] are very excited about how, I mean, they're, they're, they're doing well, right?
And so, so they start. Being a little less comfortable taking risk and security starts to be the thing that they get most animated about and most wanna have. And I think in order to have a vibrant, dynamic society and a vibrant, dynamic economy, you need to have people who are willing to take risks. And so, you know, I was talking to someone the other day on a plane and he had started a business and it was just really interesting to talk to him 'cause he had been.
He had been in a field for a while. It was not, it was healthcare. He had been in that field for a while and he, he, he identified a problem and he said, you know what? I can solve that problem. I have a solution. And he just goes off and creates a company to solve that problem. I want our place, our, our markets to be a place where someone like that, who has a good idea and the experience and expertise.
To, to solve a problem can [00:20:00] go and get the funding to do it. And I want to make sure that if that problem that someone has identified is in the financial markets, that person can be an innovator in the financial markets. I don't want all the innovation to just be happening in the tech world and not to be happening in our world.
Yeah. So I, I think the best investor protection mechanism is competition, new entrance, dynamism. We have to have guardrails, but. We've gotta make sure that we're, we're creating that healthy, dynamic environment.
Sriram: Right. Interestingly, uh, we at Celesta, we're involved with a company that actually has been a, uh, maker of technologies for Bitcoin mining, uh, as the first and most, uh, powerful company for.
The mining infrastructure, and as I'm sure you know, you know, there are Chinese companies that pretty much control 95% of, of the supply of the technology that goes into miners. As you think about [00:21:00] policies specifically related to Bitcoin, if you will, how do you think about. Um, you know, us uh, domestic players, uh, having at least a level playing field, if not a strategic advantage relative to China.
What are some of the policies that you can actually put in place, you know, as part of, you know, your overall rule making in inputs that you seek? What would you, what would you say would need to happen or what, or you're working on?
Hester: Well, I mean, it ties into the sort of the core of the SEC's agenda, which is, as I mentioned, one, one prong is capital formation.
Having our markets be the place where people can come and, and get money and build things, that's the best way to give the US a strategic advantage, at least as far as we, the SEC control. Right.
Sriram: But in the case of semiconductors, for instance, you know, there, there is obviously, you know, executive orders or, or edicts that can actually require.
Certain [00:22:00] percentage of consumption to happen from domestically manufactured, uh, capabilities in the semiconductor area, potentially. And is that something that could happen? Uh,
Hester: well, I mean, I, you know, I, I stay in my lane that Congress set me in. Yeah. And, and what, what Congress said to me was not directly to me.
Yes, of course. But I take of course, this as a directive to me, Hester, is to say, Hester. Work on creating capital markets that are very good at funneling capital to the highest and best use. And that is what I see as my mission. And I think by doing that, getting out of the way where we need to get out of the way and setting the guardrails where we need to set them, we are doing the best thing that we can do for domestic industry, which is to say, let this be an environment in which it's not the people you know.
It's, it's, it's the ideas you have that get you funded. It's, I mean, obviously connections always [00:23:00] play into it, but I don't want, I don't want this to be a place where it's government connections that matter, or it's who your father was. That matters, right? I want this to be a place where someone says, that person is really talented and I wanna find out a way to invest in that person's.
Projects.
Sriram: Right, right, right. So this, this is a good place to segue into, uh, first of all, it's refreshing to hear you speak about the need for, you know, greater clarity and certainty around, you know, some of these policy frameworks. But it sounds like. This has not been always the case, at least in the area of crypto over the last several years, but 2025 seems to have been a turning point.
So my question is, first of all, do you agree with that? And if you
Hester: Absolutely.
Sriram: And, and if you do, uh, so, so what changed?
Hester: Well, there was an election.
Sriram: Yeah.
Hester: And I mean, you know, part of what happened was there was a decision that we are not going to do what we did before, which was clearly not working. Which was, as we talked about before, trying to [00:24:00] use enforcement as this hammer that arbitrary falls on people.
That is not a good way to solve these problems. And so the new administration came in and the goal was to say, let's figure out how we can answer some of these regulatory questions that people have been asking us now for a very long time. Let's get the answers out there. That will not only be helpful to people trying to build stuff in this place, but it will be helpful to the regulators because it's really hard to know who the actual bad actors are when you're just painting everyone with the same brush and you're saying anyone building in this space is bad.
Yeah. So we need to be able, yeah,
go
Sriram: ahead. If I, if I can just, you know, uh, uh, pause you on that. So what are the mechanisms by which the regulator is able to make that distinction? Between who's likely a potential bad actor in this space versus legitimate, you know, innovative companies that are really focused on speed and efficiency and, and, and transparency and all of that?
Hester: Well, I mean, part of it is [00:25:00] if you have rules in place and you've got people who are, who are choosing not to abide by the rules, sometimes that's a good indicator that those people are bad actors. Bad actors, right. If, if you, um. Are able, obviously, to identify people who are just running away with other people's money.
That's, that's a pretty good indicator that someone's a bad actor. So there are those kinds of things that we can, that we can focus on. Um, but I mean, that's what we do as a regulator, right? We're looking through, we're seeing someone has promised investors X and is actually doing Y with the money well.
You know, that's, that's a pretty bad sign. Or someone promises to take care of its client, its client's money, and, and they lose it. Well, that's a problem. Yeah. Now it could be carelessness, but it also could be. Someone who's set out to do something bad.
Sriram: Yeah. But some of the things that you just talk about are related to sort of old securities framework.
So for instance, if the biggest issue, as I see it, that seems to have changed in [00:26:00] 2025, is the lack of clear classifications that existed before. Seems to have reduced, not have been fully completed, but it seems to have reduced the lack of, you know, fit. Fit for purpose rules, you know, has gotten much greater clarity.
The mismatch between, you know, the old security framework that as you're referring to, and new technologies, the. You know, that also is, is a, you know, applying some of the old frameworks to the new technologies that also is, you know, as it's relevant, you know, can be very useful. I mean, do you see like that as to what has changed in the, in the policy frameworks in 2025 that didn't exist before?
Hester: Yeah. I mean, what we did is we came in and we said, first thing we need to do is we need to listen to people. Yeah. So we did a lot of listening to people. That was through round tables, also through written submissions
Sriram: and also you have the CRI crypto task force.
Hester: We've got the task force which has been running this, this, and so, and we've been meeting with lots and lots of people and we also said, and let's, let's start by telling people early on where [00:27:00] some things that are in the crypto sphere are not the SEC's issues, they just don't fit within our issue area.
So that everybody can know that they, people who are buying those assets can know they're not getting SEC protection. Um, that's really important. So we've done some of that and now we, as I mentioned, we came out with an interpretation that laid out a, a, a taxonomy That's helpful. We're working with people who are trying to tokenize securities.
That's helpful. And so little by little we're working on a rule that will allow people to do capital raising. With crypto assets that will provide some needed clarity. So it's just tackling each one of these issues on its own. Um, and it's, it's a long, laborious process
Sriram: I can imagine. Yeah.
Hester: But I mean, that's, that's where the difference is from what was being done several years ago.
Sriram: So what are the strongest signs that you are polling at this transition or this evolution in, in [00:28:00] policymaking is actually real rather than just, you know. Election years. Cyclical optimism.
Hester: Yeah. I mean we're, we're trying to build durable things and part of that is what Congress is working on. We're working on rulemakings.
Those will be durable. You know, the way I see that we've been successful so far is that we have gotten a lot of really wonderful. Input from people who are trying to build things, and we've seen a lot of hard work on their part in engaging with us. And to me that suggests success because before the notion of coming in and talking to the SEC was something people didn't wanna do.
Sriram: This is, this is an important, important point as we talk about market integrity, right? I mean, you, you really are, you know, there's a, there's a central tension between crypto policy, you know, between supporting innovation. And also, you know, ensuring that it doesn't weaken consumer protection. Right. So these are [00:29:00] two, two separate things that you have to deal with.
How do you strike that balance?
Hester: I mean, I tend to think they're actually really complimentary because the best way you can protect investors is to make sure there's a dynamic marketplace in which. New people with better ideas about how to do things can come in and move the old products and services aside and bring in their new products and services.
We do always have to think about where are the risks? Are we creating, uh, new opportunities for people to do bad things? We need to be thinking about that. There are a lot of things that are done in the name of crypto that involve very centralized entities that look
Sriram: anonymously.
Hester: Sometimes anonymously.
Yeah, sometimes not anonymously. Mm-hmm. Um. But we, we wanna make sure that the rules aren't different just because you put a crypto label on the door of your business.
Sriram: Right.
Hester: Right. And figuring out how, how you provide appropriate exemptive relief to say you don't have to [00:30:00] comply with this rule. But also not saying you get a pass just 'cause you're crypto.
'cause obviously that's not what we wanna do.
Sriram: Right, right. But, but more specifically, what is strong consumer protection mean? A strong or stronger consumer protection mean in this digital world, specifically with crypto? What? What does that mean?
Hester: Well, I mean, one thing is that when you don't have intermediaries, you do take care of some of those risks that that regulation has typically protected against.
So
Sriram: you are taking the risk automatically. And so as a consequence, if you lose money siv, is that what
you're
Hester: saying? Well, I mean partly, but I guess when you, if you can tr do something that is a truly disintermediated transaction. You don't have to worry about the centralized intermediary who's either careless or ill.
Intent has not intent. Ill intention. Intent. Right, right. To, to run away with your money, you might have to worry about other things. Right. But in, in, in a world of intermediaries, when you enter into a transaction, you don't [00:31:00] know exactly maybe what that, what the rules of the road are. If you're entering into a.
Decentralized finance transaction, you know, 'cause you can see the code and you know what's gonna happen. And actually the terms are the same for you as they would be for anyone else. So you don't have to worry about sort of discrimination type things that you might have worried about.
Sriram: At this point, it helps to separate two ideas that often get conflated.
A stable coin is a privately issued digital token. Designed to hold a steady value, usually against a fiat currency like the dollar. CBDC or Central Bank digital currency would be something different. Digital money issued directly by a central bank of a sovereign government. One is a private sector instrument.
The other would be public money. That is why the policy debate around each one tends to be very different, and this is no longer a niche [00:32:00] conversation. Stable coins now sit at roughly a $300 billion market size, and the tokenized US treasuries alone are about $10 billion. So this
Hester: discussion is about real financial activity already happening at a meaningful scale.
Sriram: There's a slight difference, right? Uh, uh correct me if I'm wrong in, in the case of a centralized. Intermediary, you know, you have mechanisms to ensure that there's greater disclosures and segregation of assets. Yeah. And you know, custody rules, anti-fraud, that's what we do, enforcement, all of that. But once that intermediary is gone.
That person that is actually enjoying that service with the product is practically naked. And so, uh, my question really is about, you know, consumer protection. What
Hester: I mean, it's so it's glass half full or glass half empty, right? Yeah. So when I see that, I say, yeah, our rules that we've written have been all around.
Trying to make sure that centralized intermediaries are dealing in a, in an appropriate way [00:33:00] with their customers. When you go into a peer-to-peer world, you don't have to worry about those centralized intermediaries anymore. You might have a different set of worries, such as there's no one to go to if something goes wrong.
There's no way to reverse a transaction once it's done. Those are real concerns, but they're very different concerns. So then, so then the question is. Can we create a world in which people who want to engage in peer-to-peer transactions or peer to protocol transactions, probably more accurately can do that.
People who feel more comfortable with the centralized intermediary can use that centralized intermediary who may then be looking to those decentralized protocols to. Provide a better product or service to that customer. So on the backend, it's using those decentralized protocols, but it's providing a much more traditional relationships, intermediary relationship to [00:34:00] someone We should be able to live in a world in which people can choose what they want.
If decentralization, if, if, if disintermediation is more important to them, that's what they can choose. If the ability to go to someone when something goes wrong is more important, they can choose to work with an intermediary.
Sriram: So this draws a parallel to some of the telecom rulemaking that happened, you know, a couple of decades ago.
And I'd love to hear your thoughts on how you think about market integrity. In this particular sector where trading, custody, issuance and infrastructure, you know, is getting more vertically integrated, uh, in this area. Now, I, I draw the parallel to telecom because the, the Old Telecom Reform Act, which really resulted in this explosion of communication infrastructure in the US is largely because of the unbundling.
Of the last mile. And in a way, vertical [00:35:00] integration was really, you know, not supported as you might, you know, expect. And it was actually the fragmenting of that integration that led to innovation. Here there is natural forces in the market that are driving integration, vertical integration. So do you see a contrast between these two and do you know what, what lessons would we draw from what has worked in telecom and is that applicable
Hester: here?
Well, I mean, I'm certainly no telecom experts, so let me, let me say that. But what I think is important to realize is that I just gave you the whole spiel about how disintermediation can be very valuable.
Sriram: Sure.
Hester: When you are creating one centralized intermediary that offers a whole stack of services that's not disintermediation.
So then we have to go back to the old days of figuring out how to regulate those intermediaries. And part of the regulation may be, again, it may be [00:36:00] to say you can't. Provide those two services, or if you do, you have to be very clear about what those conflicts of interest are in providing the whole stack as opposed to just one service.
We have rules for those things. We have disclosure, which is our, our key rule, but sometimes we have other kinds of rules that say how things have to be done. Then we have to just think in our more traditional regulatory terms. But if it's, if it's. A world of disintermediation, then there isn't vertical integration.
Sriram: Mm-hmm.
Hester: Right. Then you as an individual are choosing, I wanna get this service here and this service here, and you're, you're, you're putting it together for yourself.
Sriram: Yeah. Yeah. So where would you say I. The biggest policy gaps exist today. If you were to sort of take these five things in a market structure, you know, custody disclosures, uh, possibly oversight, you know, where would you say there are policy gaps still?
Hester: Well, I mean, there's still a lot of work to be done, so
Sriram: yeah. [00:37:00]
Hester: Tokenizing of securities and figuring out how those, how tokenized securities live within the rest of the, the, the. System. Right? How do they exist side by side with non tokenized securities? What does it look like to trade those securities? How, how do you trade those securities on an automated market maker, for example?
Thinking of those kinds of things, custody rules for broker dealers and investment advisors, we still have worked to do there. Um,
Sriram: as it relates to crypto,
Hester: as it relates to crypto, uh, you could argue as it relates to other things too. Sure. But certainly as it relates to crypto.
Sriram: But this is a place where. We still don't know whether you have a carrot or a, or a stick.
Hester: Yeah. Well, I think one of the issues with custodying of crypto assets is that the old ways of custodying don't quite match up. Mm. But you, you wanna protect a. People from the same concerns that you were, from the same things you were protecting [00:38:00] them for with other assets, right? Right. If you entrust your assets to someone else that, that someone else might run away with those assets or might just be careless with them.
So we need to make sure that the custody rules. Protect against those risks, but also recognize that someone who's managing a crypto asset for you might need to be doing something with that crypto asset. Maybe putting it into a defi protocol, maybe, um, you know. Voting it, if it's a security, whatever it is.
But they might need to have the ability to do something with that asset, or the traditional custodians may not have the technical expertise to, to custody those assets. So, trying to think about those issues, we, it's important because custody is an area where people can get hurt. Mm-hmm. So we, we really wanna be careful there.
Yeah. As an example. Right. So there are just a lot of areas where. What does it look like to be a transfer agent when you're dealing with blockchain? What does it mean to be a [00:39:00] clearing agency? What does settlement look like? How, how do we make sure that that there's data that gets out there so that people who wanna arbitrage the tokenized world with the non tokenized world are able to do that?
So there are a lot of different. Interactions between this new world and the traditional world. Um, and we wanna make sure that, well, as the world transitions, that that's as smooth a transition as possible.
Sriram: Mm.
Hester: Um, it's not unique to crypto. I mean, I think crypto has brought up some issues that we would've had to deal with eventually, but they've sort of brought them to the fore.
Mm. So thinking about 24 7 trading. You know, our markets had not been 24 7. Right. And now they're moving in that direction and crypto is pushing that move to make it happen faster.
Sriram: Right.
Hester: So there are questions we have to answer there. Yeah. There are a lot of things that we, operational things we have to think about and that the industry has to think about.
I mean, it's not as if we're gonna solve these problems, but we wanna make sure that people are thinking about
Sriram: that. [00:40:00] Yeah. I think that's, uh. That, that leads me to the, uh, the, uh, the most interesting part of, uh, the whole crypto story, at least as, as the markets perceive it is Bitcoin. So I'd love to sort of delve into it a little bit.
Why do you think Bitcoin occupies such a distinct place in the conversation around crypto? Is is it because people see that as a. As a easy hedge to some of the other, you know, transactions done through fiat currency. Is it the, you know, what, what is what, why is it this important?
Hester: Well, I mean, again, I'm a regulator, so you can take what I say with a grain of salt.
But I think what people found interesting about Bitcoin is that for a long time people had been thinking about how to solve the double spend problem. Yep. You know, I can send you, I can send you $10, uh, you know, in an email and say, I'm sending you $10 and then I can send it to someone else. So. There's a way to solve that now, Bitcoin, you know, explain how, how that could done traceability and all that.
Sriram: Right.
Hester: Well, and just, and the fact that you've got this, this le shared [00:41:00] ledger Sure. Everyone can see it. And so if I send you the $10, I can't send it to someone else. Yeah. Because it's, it's there on the ledger. Sure. And so, sure. So that is a very powerful concept, and I think that's why people were, were really enthusiastic.
And then I think other people were really drawn to the idea of having a non sovereign form of value, uh, ability to hold and transfer value. That's, that's not tied to, to any government. Um, but you know, people think a lot of different things about Bitcoin and it's not really my role to say. This is how you should think about Bitcoin or you should have exposure to Bitcoin or not have exposure that's up to the market.
Yeah. What I wanna make sure is that we treat this commodity the same way we treat other commodities. Hmm. And so that's really what part of the struggle of my, of my tenure at the SEC has been to say, Hey, you know, just 'cause it's. Digital doesn't mean that we need to treat it differently,
Sriram: so, but as [00:42:00] the policy matures, the crypto policy matures, do you expect Bitcoin to remain, uh, a category of one or does it become part of a broader, coherent digital asset framework?
Hester: I mean, again, there are other, there are other, uh, crypto assets that
Sriram: Yeah. Ethereum
Hester: and others or treating similar, right. I mean, I, I don't view it as it's, you know, people can think of, of it. Any way they want. We just have to treat it. And same way as everything else. Yes. Right. Okay.
Sriram: I get it. At this point, it helps to separate two ideas that often get conflated.
A stable coin is a privately issued digital token designed to hold a steady value, usually against a fiat currency like the dollar. CBDC or Central Bank digital currency would be something different. Digital money issued directly by a central bank of a sovereign government. One is a private sector instrument.[00:43:00]
The other would be public money. That is why the policy debate around each one tends to be very different, and this is no longer a niche conversation. Stable coins now sit at roughly a $300 billion market size, and the tokenized US treasuries alone are about $10 billion. So this discussion is about real financial activity
Hester: already happening at a meaningful scale.
Sriram: Okay, so, so now let's talk about stable coins. That seems to be one of the cleanest areas where policy can move this from an abstract. Conversation or a concept to more concrete set of rulemaking. So why do you think stable coins have gotten so much of a focal attention as they have?
Hester: I mean, I think the ability to, to transfer dollars is, is a very powerful
Sriram: Yeah.
Hester: Uh, a very powerful proposition. And, and frankly, the, the ability to hold [00:44:00] dollars. If you're not in the US you're, you're living somewhere where. The currency is more volatile. You might very well wanna hold us dollars. And so I think that's the power and people are realizing the ability, again, it kind of goes back to what I was saying about, about Bitcoin.
Um, the ability to transfer value on chain is, is quite powerful. And so I think that's why there's been the, the real interest in stable coins and with the passage of the Genius Act and the creation of a federal framework around it. People got more comfortable Yeah. In thinking about how might we integrate this into our business?
Sriram: So your, your, your, um, pieces is that, um, that, you know, the Genius Act is an important milestone. Um, and that it brought, it brought the attention and clarity for the payment through stable coins. And as a consequence, you don't see it as a security and you see it more sort of under the realm of the banking regulator.
Hester: [00:45:00] So payment stable coins, which are the stable coins regulated under the Genius Act. Um, the, that's what the framework was created for. Those are outside of the S sec Cs? Correct? That's,
that's
Sriram: outside of your
Hester: remit. So that's, that's in the Yep. The banking regulators have that.
Sriram: Yeah. Is that a bright line or is that a
Hester: place of stable coins?
I think, I think when we think about, um, what fits within our remit, you know, we, there are a lot of things that fit within the bucket of security. But if you are creating something that has, you know, has, has returns, then you have to think about how that fits within the securities laws.
Sriram: Yeah. So the entire payment, stable coin, uh, is regulated under the banking.
Hester: Well, I mean, there's nothing that's entire right? It's always there. Always relative because we have so many regulators in Washington. And so if you have a reg, an SEC regulated broker dealer that's trying to serve its clients using stable coins. Then we have something to say about that.
Sriram: I see. So [00:46:00] you are, it's almost like collaborative, so, so in your mind, could a stable.
Uh, a, a very clear, stable coin policy become one of the fastest ways for the US to demonstrate credible sort of crypto leadership, or do you see this as a tip of the spear?
Hester: I mean, I think it's part of it. I think stable coins, getting a framework around that gave people, um, more comfort around interacting with stable coins.
Uh, help us think about it from a, from our regulatory perspective too, because now we know there's a regulatory framework that. Them, right? Yeah. The market structure piece that deals with the broader world of crypto, I think is, is the second piece of that. Um, but you know, I think people will always look to what the US is doing, and so I think.
That, yes, that, that was a step that helped establish us as, as, as a place that people could look for. How are they, how are they dealing with?
Sriram: So now let's talk about CBDC, the, the, the central bank, you know, digital coin. There's obviously a [00:47:00] distinction between, you know, stablecoin and, and, uh, c BDCs. So cbdc raise a very different set of policy questions.
I would, I would, I would assume. And when you think about CBDC, you know, what are the questions that that come up to your mind as, uh, as, as opportunities for greater clarity from a regulatory standpoint?
Hester: I mean, CBDC are really outside of the remit of the, of the SEC and there's been a lot of attention on Capitol Hill, on cbdc, and, um, much of the, the concern in that area is driven by.
I think really legitimate concerns, which, which touch more than just on cbdc about financial surveillance in the United States and how we're using our financial system to, um, to, to watch what people are doing in their everyday lives. I think this is a good moment for us to take a look at that more broadly and say, how can we achieve the important objectives?[00:48:00]
Of this financial surveillance system without compromising people's ability to live lives that are private lives, that are not being watched by, by government regulators unless there's reason to suspect someone has done something wrong.
Sriram: So if, if the US wants to demonstrate and signal sort of global crypto leadership, what, what do you think that leadership would actually look like?
Hester: I mean, I think it's to, to write clear rules and to enforce them, um, with, in a way that is not arbitrary in a way that's applies no matter who you are, applies the same way. That's the best thing that we can do, I think. Um, and really step back then and allow the markets to identify where is crypto useful?
What is it useful for, and stand ready to work with. People who are trying to build real things to figure out a way they can build those consistent with the, with the [00:49:00] regulation and where necessary, we can make adjustments to those regulation. But again, we have to do that in a way that's consistent with a level playing field.
Sriram: But what aspect of the crypto leadership in your mind, would you say. Uh, has to balance sort of the preservation of the, of the dollar influence also, I mean, is that, you
Hester: know, I mean, again, I'm gonna use the same line that's really, that's, that's not my issue. Yeah. It's, it's the issue for treasury. I think stable coins have, have shown there's wide.
Uh, there's interest across, across the whole world. In, in, in dollars.
Sriram: Yeah.
Hester: Um, but again, that's a little outside my territory.
Sriram: Okay. So let's, let's keep back, come back to your territory in SEC. If you are a market player and I, I'm gonna, you know, request, you play a role playing for me. If you're a market player, looking at the regulator, what do you think they would say?
Where you are doing overreach on regulation, where the market has to decide?
Hester: I mean, I think [00:50:00] that part of what people worry about is they like the fact that they can come in and talk to us, but they don't wanna have to come in and talk to us when they have looked at the law. They have figured out a way to do what they're doing consistent with the law, and they just wanna move forward.
Sriram: Right.
Hester: And so that's an area that I'm quite sensitive to and I wanna make sure that people can feel free to innovate where they have thought about the legal consequences and, and, and they've thought about the stat, they've thought about the statute. The statute and the rules.
Sriram: Yeah.
Hester: And they have, have, with good legal advice, figured out how they can do what they wanna do in a way that is.
Legal.
Sriram: Yeah.
Hester: Um, they should be able to move forward and, and so I would say within such a complicated regulatory climate, um, that can sometimes be difficult and it's something that we strive to, to, to do better. Um, we do wanna be informed of what's going [00:51:00] on in there in the world because that helps us to be a better regulator.
But, um. We shouldn't live in a world where people always have to come to us for permission. Yeah.
Sriram: So you made the point that 2025, uh, marked a turning point. And I, I, and I agree. As an industry participant, I would say that the policies that the current administrations have, has, has put forward and, and thanks to SEC has really made the market far more, you know, reliable and, and all of that.
Uh. But you know, this is an election year. Uh, and, uh, you know what, what would make some of this progress durable rather than temporary? I mean, do you worry about any aspect of. Uh, of, uh, of the regulation that might come up for debate further, you know, changes to rulemaking and all of that. I mean, if so, what are those areas?
Sure. Yeah,
Hester: of course. I mean, one thing is, you know, getting legislation in place is always a helpful basis, so I'm looking forward to [00:52:00] that. But the second piece is that we really need to, um, make sure that. People can focus on building things that solve people's problems, right? The the best, the best way to have a durable regulatory framework is to have people building things within that framework that other people want and need and use, because then if someone new comes in.
They look at it and they say, well, we don't wanna take away things that people want and need and use. And so that leads to, to real durability.
Mm-hmm.
Hester: Um, we have had such a bad approach to crypto policy in the past that it actually had the perverse effect of. Rewarding people almost who were building things that were ephemeral.
Hmm. And punishing people who were trying to solve actual problems and build durable things that would [00:53:00] last. Right. Because those were the people, it was easy to peg and say, haul 'em in. And bring in enforcement action. Yeah. And so we really need to get to a place where people can just. Focus on building useful things.
Yes.
Sriram: That's a great place to, uh, to end this, but I do have a set of rapid fire questions for you. Short answers. Um, what is the most misunderstood issue in US crypto policy from, from that,
Hester: regulators can solve every problem.
Sriram: And the regulators are not prepared to change, perhaps?
Hester: Yes.
Sriram: One policy area where clarity could unlock more progress?
Hester: Um, I mean, I think we talked about a lot of them. I would say tokenization of securities.
Sriram: Yeah. What worries you the most in the next phase of this evolution of this technology and, and, and regulation? You know, if handled, you know, not so [00:54:00] properly?
Hester: I think the thing that worries me the most is that people will be so focused on the regulators that they won't be thinking about what their customers want.
Sriram: Yeah. Yeah. And one stablecoin rule you think policymakers have to get right.
Hester: I think we need to be thinking about both the benefits and the, the risks when we integrate stable coins into the rest of the financial system. I think that there are, um, real benefits, but we need to be eyes wide open.
Sriram: And one last thing regulators should remember when they talk about protecting investors.
Hester: Part of protecting investors is protecting their opportunity to, to invest as they choose.
Sriram: Yeah. You don't want to. The goose, as it were. Yeah. Well, commissioner, per uh, thank you so much. I mean, you've, you've just been enlightening, uh, talking about all these various issues that we don't get a chance to really [00:55:00] understand as industry participants and, and we have really, uh, delved into so many topics.
We're gonna try to link. Uh, the SEC profile in, in the episode description with some of the major, uh, you know, policy, uh, activities that you've been leading. So thank you so much for joining.
Hester: Great. Well, thank you for having me. This has been a wonderful conversation. Yeah,
Sriram: thank you. Thank you. What commissioner Per Keeps coming back to is a simple idea.
Regulators should not start from the assumption that every new technology is a threat. Their job is to set clear rules and force them fairly and leave room for people to test new ideas or innovation in the market. What often makes that difficult is not the technology, but the politics frameworks built in.
One administration can be dismantled in the next. The only real protection against that in her view is use. People building real products, solving real problems inside [00:56:00] clear rules. And once those products become widely used and woven into the fabric of the real economy, creating real value, they will be difficult to displace regardless of which administration is at the top.
Hester: Thank you for tuning in to
Sriram: the Tech Search Podcast from Celesta Capital. If you enjoy this episode, feel free to share it, subscribe or leave us a review on your favorite podcast platform. We'll be back every two weeks with more insights and discussions of all things deep tech. Bye for now.