1 00:00:04,990 --> 00:00:06,200 Welcome back to Count Me In, 2 00:00:06,200 --> 00:00:10,280 IMA's podcast about all things affecting the accounting and finance world. 3 00:00:11,350 --> 00:00:14,760 This is your host Adam Larson, and for episode 156, 4 00:00:14,860 --> 00:00:17,160 we welcome back Dr. Sean Stein Smith. 5 00:00:18,310 --> 00:00:21,110 With the constant evolution and advancements around crypto. 6 00:00:22,190 --> 00:00:25,870 Sean joins count me in again to talk about various reports and newsworthy 7 00:00:25,871 --> 00:00:28,590 information relating to stablecoins and digital assets. 8 00:00:29,460 --> 00:00:33,670 From standards on cryptocurrency to NFTs and decentralized finance. 9 00:00:34,010 --> 00:00:37,510 You'll want to keep listening to learn about what it all means and hear some of 10 00:00:37,511 --> 00:00:41,460 the potential future implications. Let's head over the conversation now. 11 00:00:48,280 --> 00:00:48,821 So Sean, 12 00:00:48,821 --> 00:00:53,460 you've joined us for a few episodes now and in previous conversations 13 00:00:53,461 --> 00:00:56,020 you've discussed blockchain. Lastly, 14 00:00:56,200 --> 00:00:58,300 we talked about accounting standards for cryptocurrencies. 15 00:00:58,520 --> 00:01:03,290 Now there have been more advancements and additional considerations around 16 00:01:03,291 --> 00:01:04,130 crypto assets. 17 00:01:04,131 --> 00:01:08,050 I'd first like to get your thoughts on the report and the recommendations on 18 00:01:08,051 --> 00:01:12,130 stablecoins from the president's working group on financial markets. 19 00:01:12,290 --> 00:01:15,050 I know that came out a few weeks ago now, early November. 20 00:01:15,610 --> 00:01:18,010 I was just wondering if you can kind of summarize what was included in that 21 00:01:18,011 --> 00:01:20,010 report and why it is so important as an update. 22 00:01:21,320 --> 00:01:22,960 Absolutely Mitch. 23 00:01:23,520 --> 00:01:26,160 And I'm always happy to be on here talking with you blockchain, 24 00:01:26,161 --> 00:01:29,760 crypto asset updates, because it really is one: a hot topic and two: 25 00:01:30,750 --> 00:01:34,960 an area that is increasingly of importance for everybody 26 00:01:35,130 --> 00:01:39,520 working in accounting, finance, economic roles, 27 00:01:39,660 --> 00:01:43,590 whether in industry management or elsewhere. So, 28 00:01:43,690 --> 00:01:48,150 so in terms of sort of the highlights and the core points in the president's 29 00:01:48,151 --> 00:01:52,910 working group report there really what I would say is that honestly, 30 00:01:52,911 --> 00:01:57,550 on the one hand, I would say that the involved actors, right, be it, 31 00:01:58,030 --> 00:02:00,310 the OCC, FDIC, 32 00:02:00,311 --> 00:02:05,020 private sector corporations had done a pretty good job at 33 00:02:05,280 --> 00:02:06,140 outlining the, 34 00:02:06,141 --> 00:02:11,020 the base case and the fundamentals for how a stablecoin operates. 35 00:02:11,021 --> 00:02:14,180 Right. But on the other hand, they were, 36 00:02:14,660 --> 00:02:19,660 I believe a bit overt or unbalanced in terms of how they analyzed 37 00:02:19,840 --> 00:02:22,820 the whole stablecoin ecosystem, right. 38 00:02:23,200 --> 00:02:26,530 In terms of the pros and the cons. And 39 00:02:29,500 --> 00:02:32,530 especially in terms of the, risks, right, 40 00:02:32,640 --> 00:02:37,250 that having a actual stablecoin based payment network actually get, 41 00:02:37,251 --> 00:02:42,250 get to that level of being used at a commercial level by 42 00:02:42,510 --> 00:02:47,080 either corporations or by whole nation states. But, overall, 43 00:02:47,081 --> 00:02:50,040 probably the top two or three points there is that one they've, 44 00:02:50,100 --> 00:02:55,040 they've done a good job at researching and trying to pull out sort 45 00:02:55,220 --> 00:02:57,600 of who the, big players are out there. 46 00:02:57,601 --> 00:03:00,600 And there honestly really only are a handful of them and the, 47 00:03:00,760 --> 00:03:05,120 and the bulk of the transactions happening in any stablecoin 48 00:03:05,780 --> 00:03:07,400 outlook now are handled by a, 49 00:03:07,401 --> 00:03:11,560 by a handful of organizations and the bulk of those, 50 00:03:11,580 --> 00:03:16,440 transactions are also happen with coins backed on the one-to-one basis at the US 51 00:03:17,020 --> 00:03:20,550 dollar. And then two, sort of they also did a good job, 52 00:03:20,551 --> 00:03:24,150 I believe at outlining sort of the pros and cons, 53 00:03:24,180 --> 00:03:26,870 obviously more on the cons side, but, 54 00:03:27,090 --> 00:03:31,270 but a pretty good job at outlining the pros and cons of having a stablecoin 55 00:03:31,830 --> 00:03:35,510 based payment network versus the current Fiat based network. 56 00:03:38,431 --> 00:03:39,940 And then three. And, 57 00:03:39,941 --> 00:03:44,100 and here's where I think there's the most promise, 58 00:03:44,400 --> 00:03:48,700 but also the highest risk. On the one hand, they also outlined and by they, 59 00:03:48,701 --> 00:03:53,620 I mean, the members of the working group, outlined really what, 60 00:03:53,621 --> 00:03:54,454 what, 61 00:03:54,800 --> 00:03:58,700 factors and components any organizations trying to use a stablecoin 62 00:03:59,850 --> 00:04:04,570 payment network would have to take into account meaning who the counterparties 63 00:04:04,670 --> 00:04:06,970 are, who has the insurance, 64 00:04:06,971 --> 00:04:11,610 and then how are these platforms and these connections between 65 00:04:12,320 --> 00:04:16,930 these different involved organizations able to be secure. 66 00:04:17,350 --> 00:04:21,560 And then ultimately the end result of all of that of that conversation and I 67 00:04:22,680 --> 00:04:25,480 believe the actual report was about 28 pages. 68 00:04:25,790 --> 00:04:30,560 The end result kind of mirrors the policy paper put 69 00:04:30,710 --> 00:04:33,120 out by Coinbase back on October. And, 70 00:04:33,140 --> 00:04:35,920 and in both of those white papers, 71 00:04:35,921 --> 00:04:39,160 both of which were between 15, and 30 pages long. 72 00:04:39,161 --> 00:04:41,510 So they aren't massive documents, 73 00:04:41,530 --> 00:04:45,390 but the end goal or the end call to action on both documents, 74 00:04:45,391 --> 00:04:50,310 which I find quite interesting is this call for a new 75 00:04:50,930 --> 00:04:53,750 crypto specific, regulator that, that, 76 00:04:53,850 --> 00:04:58,110 that has powers or is imbued with powers by, 77 00:04:58,590 --> 00:05:03,140 by Congress to directly oversee all aspects of the, 78 00:05:03,400 --> 00:05:04,500 crypto asset space. 79 00:05:06,020 --> 00:05:10,220 So overall probably I would give it like a "B Minus" in 80 00:05:11,101 --> 00:05:13,580 terms of the output. Cause on the one hand, 81 00:05:13,810 --> 00:05:17,300 the working group did a good job at outline the issues, 82 00:05:18,180 --> 00:05:21,340 outlining terminology, characteristics, and traits, and, 83 00:05:21,570 --> 00:05:24,130 highlighting some of the core issues out there. But they were, 84 00:05:24,370 --> 00:05:29,130 I believe a bit unbalanced in their outlook in terms of the 85 00:05:29,240 --> 00:05:30,490 pros and the cons. 86 00:05:31,400 --> 00:05:31,931 It's so funny, 87 00:05:31,931 --> 00:05:36,290 you bring that up because I read through the paper and as we got towards the 88 00:05:36,291 --> 00:05:40,130 end, you know, particularly when they summarized everything at the end, 89 00:05:40,131 --> 00:05:41,930 there's a statement that they gave, 90 00:05:42,150 --> 00:05:45,160 it says while the scope of this report is limited to stablecoins, 91 00:05:45,570 --> 00:05:50,360 work on digital assets and other innovations related to cryptographic and 92 00:05:50,500 --> 00:05:54,120 distributed ledger technology is ongoing throughout the administration. 93 00:05:54,121 --> 00:05:59,040 So it sounds like they are aware that they did not cover 94 00:05:59,041 --> 00:06:00,440 everything that they needed to necessarily, 95 00:06:00,441 --> 00:06:03,520 or maybe something else is in the works. You know, 96 00:06:03,940 --> 00:06:05,400 that's kinda where I was going with my next question. 97 00:06:05,401 --> 00:06:07,560 Other innovations in this space, 98 00:06:07,561 --> 00:06:10,040 can you take a guess at what they might be referring to? 99 00:06:11,940 --> 00:06:15,400 I mean, man, if I had access to that data, I mean, I'd be on a beach 100 00:06:19,271 --> 00:06:22,070 somewhere, which, but probably if I had to hazard a guess, 101 00:06:22,231 --> 00:06:25,150 I would say that the top two areas, 102 00:06:26,090 --> 00:06:29,310 and obviously there have been quite, 103 00:06:29,450 --> 00:06:34,110 public comments out of the SEC and the IRS in terms 104 00:06:34,111 --> 00:06:39,100 of their really uptick in compliance efforts, collection efforts, 105 00:06:39,101 --> 00:06:39,381 enforcement efforts. 106 00:06:39,381 --> 00:06:44,300 So I would say that probably one output or outcome that I 107 00:06:44,560 --> 00:06:49,500 am sort of eyeing to happen during 2022 is that there is 108 00:06:49,520 --> 00:06:54,020 going to be out of some agency don't know which one yet. 109 00:06:54,200 --> 00:06:58,090 I would say probably the SEC there is going to be 110 00:06:58,600 --> 00:07:00,450 some sort of, 111 00:07:00,470 --> 00:07:05,370 framework or guideline to help companies get a better handle on which type 112 00:07:05,580 --> 00:07:08,650 of crypto asset falls into which, 113 00:07:08,651 --> 00:07:11,690 financial instrument bucket. And by that, 114 00:07:12,371 --> 00:07:16,370 I actually mean if I'm issuing a token or a coin, 115 00:07:16,931 --> 00:07:20,560 is that gonna be treated as a, equity, security, 116 00:07:21,420 --> 00:07:24,040 commodity or some other form of instrument? 117 00:07:24,801 --> 00:07:28,680 So I say on the one hand, that's probably an area, 118 00:07:28,681 --> 00:07:32,120 that they are trying to work on and by they, 119 00:07:32,720 --> 00:07:36,800 if the White House Congress and the various, 120 00:07:36,900 --> 00:07:38,990 oversight agencies, and then two, 121 00:07:39,350 --> 00:07:43,390 what I would say is that currently I'm hearing quite a bit of, 122 00:07:44,500 --> 00:07:48,950 chatter about NFTs, but I haven't hearing quite a bit about NFTs 123 00:07:50,591 --> 00:07:55,470 because even though now the conversation around NFTs is, you know, 124 00:07:55,471 --> 00:07:59,900 kind of focused on like the Board Ape NFTs and you know, 125 00:08:00,200 --> 00:08:03,260 Beeple in March of this year. 126 00:08:03,400 --> 00:08:07,540 And it's more athlete and artist and artwork 127 00:08:08,420 --> 00:08:13,340 focused the implications for this new type of crypto asset 128 00:08:13,341 --> 00:08:16,900 nonfunctional token, or, NFT are actually quite broad. 129 00:08:17,720 --> 00:08:21,210 So I would not be surprised at all if, you know, 130 00:08:21,211 --> 00:08:25,770 going forward NFTs are an area that the White House 131 00:08:26,430 --> 00:08:30,730 and policy makers and regulators try to really get a handle on, right. 132 00:08:32,851 --> 00:08:36,450 Because they because on the one hand, Bitcoin is the headline news story, 133 00:08:37,150 --> 00:08:39,810 but that's kind of old news, 134 00:08:41,130 --> 00:08:45,040 in terms of hacks and other policy choices, right? 135 00:08:45,041 --> 00:08:49,680 Like it or not, they've sort of outlined how they view Bitcoin. 136 00:08:49,681 --> 00:08:52,200 And now in this president's working group, 137 00:08:52,201 --> 00:08:56,200 they've basically started the ball rolling on trying to regulate, 138 00:08:56,640 --> 00:08:58,360 any stablecoin issuers, whether, 139 00:08:58,361 --> 00:09:01,800 whether it's correct or not is a whole other conversation. But, 140 00:09:01,801 --> 00:09:05,120 and so then I would say NFTs are the next big area. 141 00:09:05,240 --> 00:09:09,600 And then DeFi is also probably the, the next area. 142 00:09:10,710 --> 00:09:14,400 I'd say NFT's more concrete, because to be honest with you, 143 00:09:14,610 --> 00:09:16,270 DeFi is still, 144 00:09:16,271 --> 00:09:20,910 a fast moving and it is so new that I don't think many policy 145 00:09:21,310 --> 00:09:22,470 makers have the, 146 00:09:23,060 --> 00:09:26,950 expertise to have a real conversation around DeFi quite yet. 147 00:09:28,290 --> 00:09:29,550 So let's stay there for a second. 148 00:09:29,750 --> 00:09:33,030 I know you referenced getting to NFTs and I guess, you know, 149 00:09:33,031 --> 00:09:35,820 we can transition there first and we'll jump back to, to where we need to. 150 00:09:37,050 --> 00:09:40,100 NFTs were so hot, again, non fungible tokens, so popular. 151 00:09:40,240 --> 00:09:44,540 It seemed like everybody was talking about it. as early as you know, 152 00:09:44,541 --> 00:09:46,980 it seems like yesterday, but then at the same time, 153 00:09:46,981 --> 00:09:50,740 it seems like it's cooled off pretty quickly compared to something like Bitcoin 154 00:09:51,090 --> 00:09:55,060 or some of the other stablecoins. So what, what happened? 155 00:09:55,220 --> 00:09:58,090 Are we missing something or is it still heating up? You know, 156 00:09:58,091 --> 00:09:59,250 what's the status on NFTs? 157 00:10:00,800 --> 00:10:05,290 NFTs are an extremely interesting area, right? Because as I was saying, just, 158 00:10:05,350 --> 00:10:09,690 earlier that the guess one of the main focus has been on, you know, 159 00:10:09,770 --> 00:10:13,130 artwork and entertainers, Tom Brady's in it now. 160 00:10:14,531 --> 00:10:16,240 John Cena is in it now, you know, 161 00:10:16,400 --> 00:10:20,560 there are all of these athletes and entertainers that have either, you know, 162 00:10:20,990 --> 00:10:25,920 committed their own NFTs or have been endorsed by NFT trading platforms 163 00:10:25,980 --> 00:10:29,360 all the rest. So yes, absolutely. Right now, 164 00:10:29,940 --> 00:10:34,440 there is some fraud out there in the NFT space and actually during the 165 00:10:35,240 --> 00:10:37,030 middle of November, 166 00:10:37,510 --> 00:10:41,870 there actually was a headline that actually quite a few of the more recently 167 00:10:42,410 --> 00:10:47,230 issued as of that time NFTs dropped by 80% in 168 00:10:47,280 --> 00:10:48,270 economic value, 169 00:10:48,630 --> 00:10:52,670 which I think is obviously bad if you are a holder, 170 00:10:52,730 --> 00:10:55,750 of those NFTs during that drop. But, you know, 171 00:10:55,751 --> 00:10:57,700 it's a correction and it's painful, 172 00:10:58,120 --> 00:11:02,020 but it's part of how the asset class is ultimately is ultimately gonna have to 173 00:11:02,021 --> 00:11:06,260 grow, right. Because sure, 174 00:11:06,280 --> 00:11:09,140 NFTs are new and they're hot sort of frothy, 175 00:11:09,141 --> 00:11:13,460 but the underlying economic opportunity in a NFT niche, 176 00:11:13,580 --> 00:11:18,090 it's a traceable transparent immutable 177 00:11:18,550 --> 00:11:21,970 record of ownership in a, virtual world. 178 00:11:23,430 --> 00:11:28,050 And so that idea, that concept is tremendous, 179 00:11:28,300 --> 00:11:29,650 right? So that's really, 180 00:11:30,090 --> 00:11:35,010 and I know saying that that the real story is in 181 00:11:35,011 --> 00:11:38,920 blockchain is an old phrase, right? It's an old hope at this point, 182 00:11:39,090 --> 00:11:40,160 folks joke about it, 183 00:11:40,900 --> 00:11:45,160 but it's the first application that I've seen LIGO mainstream that highlights 184 00:11:45,260 --> 00:11:50,200 the true opportunity of blockchain for the individual, right? 185 00:11:50,320 --> 00:11:54,680 'cause most enterprise applications at these, you know, Fortune 1000 companies, 186 00:11:54,940 --> 00:11:55,241 you know, 187 00:11:55,241 --> 00:12:00,120 aren't really comprehendible to the average person on the 188 00:12:00,121 --> 00:12:00,954 street. Right? 189 00:12:01,260 --> 00:12:05,800 But the idea of a NFT that now I own in the 190 00:12:06,070 --> 00:12:10,640 virtual sense, right? I own a portion. I own a share, 191 00:12:11,200 --> 00:12:16,150 I own some rights to some other asset and it's on the blockchain. 192 00:12:20,511 --> 00:12:20,911 So traceable transparent, 193 00:12:20,911 --> 00:12:25,710 can't be hacked and I can prove it to anybody 194 00:12:25,850 --> 00:12:28,830 at any time, anywhere. That opportunity is 195 00:12:30,890 --> 00:12:32,950 absolutely I think really untapped, 196 00:12:33,020 --> 00:12:36,500 but to go back your actual question. Yeah. 197 00:12:36,501 --> 00:12:41,380 I mean the NFT's life cycle, it, I think peaked in March, well, 198 00:12:41,381 --> 00:12:42,860 first peak was in March, 199 00:12:43,240 --> 00:12:47,260 right when we had the, people auction. And, 200 00:12:48,021 --> 00:12:52,380 you know, I say March and April was red, hot cooled off over the summer, 201 00:12:52,381 --> 00:12:56,330 much like the other crypto assets out there. And then honestly, in the fall. 202 00:12:56,331 --> 00:12:58,530 And I believe it was Tom Brady partnering with, 203 00:12:58,531 --> 00:13:02,730 I believe the company is FTX, his partnership, 204 00:13:02,731 --> 00:13:04,970 I believe it was him, Gronk, 205 00:13:04,971 --> 00:13:09,890 and a whole host of other athletes and entertainers, NBA. 206 00:13:10,130 --> 00:13:12,210 Top Shot's probably the, 207 00:13:12,211 --> 00:13:16,720 the mainstream platform that most the people have heard of in the NFT 208 00:13:17,020 --> 00:13:20,760 space. All of that has kind of given the NFT space, 209 00:13:21,361 --> 00:13:26,120 sort of a new, burst of energy. So it's hot. 210 00:13:26,260 --> 00:13:29,200 It isn't as hot as it had been previously, but it is, 211 00:13:29,201 --> 00:13:32,280 I think starting to ratchet back up to those levels. 212 00:13:34,170 --> 00:13:38,820 Now I am most familiar with NFTs because of, you know, Top Shot, 213 00:13:38,821 --> 00:13:43,020 like you just mentioned, and Brady is coming out with all of his, 214 00:13:43,410 --> 00:13:45,540 NFTs and all the different people who are joining in on his group, 215 00:13:46,520 --> 00:13:50,860 having conversations outside of here and with friends and, you know, offline, 216 00:13:51,340 --> 00:13:55,220 I think the challenge is really identifying how is this so much different than 217 00:13:56,160 --> 00:13:58,130 like a picture online, essentially, you know? 218 00:13:58,290 --> 00:14:00,170 And I had this conversation with a couple people, 219 00:14:00,230 --> 00:14:02,050 and I think what you just said, 220 00:14:02,590 --> 00:14:05,970 as far as the blockchain technology and tracking everything is really the 221 00:14:05,971 --> 00:14:10,890 answer, but at a very simple level, is it the fact that it's exclusive, 222 00:14:11,020 --> 00:14:15,370 right? You know, if you have a tangible basketball card versus an NFT, 223 00:14:16,100 --> 00:14:19,200 the exclusivity of it is what adds value is that correct? 224 00:14:20,780 --> 00:14:23,600 So, so a good, parallel, right. 225 00:14:23,770 --> 00:14:27,800 That I've been trying to use is that if you have a NBA 226 00:14:28,700 --> 00:14:33,440 basketball card and it's autographed by who ever your, 227 00:14:33,441 --> 00:14:37,750 you know, favorite players, Kobe Bryant, Michael Jordan, Shaq, 228 00:14:39,010 --> 00:14:43,430 all the rest. Right? And so I have this, 229 00:14:43,431 --> 00:14:48,110 this basketball, and it's actually signed by that person, 230 00:14:48,110 --> 00:14:51,880 Michael Jordan held the Sharpie and actually signed. Okay. 231 00:14:51,881 --> 00:14:56,640 And then on the other hand, I have that exact same basketball. 232 00:14:56,860 --> 00:15:01,760 Right. But it has the autograph of Michael Jordan, but it was, you know, 233 00:15:01,950 --> 00:15:04,880 burned into the basketball at a factory, 234 00:15:04,900 --> 00:15:09,480 which one has more value? It's the, it's the basketball that is, 235 00:15:09,481 --> 00:15:14,350 that is actually connected to the entertainer, to the artist, 236 00:15:14,351 --> 00:15:17,950 to the creator of that asset. Right. 237 00:15:17,970 --> 00:15:21,550 And so if I have a picture, if I have the, 238 00:15:22,430 --> 00:15:26,830 Mona Lisa famous painting in the world price with that, I'm no art expert so 239 00:15:28,471 --> 00:15:32,580 I don't quite get it personally, but, either way, right. It's a, 240 00:15:33,630 --> 00:15:37,620 you know, internationally famous paint thing, priceless why? Right. 241 00:15:37,820 --> 00:15:41,780 It's priceless. And it's valuable because it is the only one out there. Right. 242 00:15:42,090 --> 00:15:46,980 It's the only real authentic version of it as far as we know, but, 243 00:15:46,981 --> 00:15:51,810 I can go online, I can Google it right now on this podcast with you, 244 00:15:51,811 --> 00:15:56,250 I can go online, pull a picture of it, print it out, frame it, 245 00:15:56,251 --> 00:16:00,250 hang it on the wall that doesn't have any economic 246 00:16:01,390 --> 00:16:05,210 value, but an NFT, right, tracing the, 247 00:16:05,211 --> 00:16:09,770 the Providence and the history of that artwork or real 248 00:16:10,230 --> 00:16:13,960 estate or, athletes merchandise. 249 00:16:13,961 --> 00:16:17,720 That's the true economic value there. 250 00:16:17,780 --> 00:16:20,880 It is not always the asset itself. 251 00:16:21,230 --> 00:16:26,080 It's the connection of the asset to the creator of that 252 00:16:26,081 --> 00:16:29,880 asset. Be it artwork, entertainment, real estate, 253 00:16:30,350 --> 00:16:34,150 it's that bright line, it's that proof of ownership and Providence, 254 00:16:34,170 --> 00:16:38,190 and anybody who's done any work in any supply chain over the last 255 00:16:39,070 --> 00:16:43,990 18 months knows the importance of having control and having traceability 256 00:16:44,450 --> 00:16:48,910 in terms of, you know, Providence ownership of that asset on that path. 257 00:16:49,351 --> 00:16:51,070 So that's the real difference there, Mitch, 258 00:16:51,071 --> 00:16:55,500 is that now I have that direct connection to that basketball hand 259 00:16:56,140 --> 00:17:00,780 sign by Michael Jordan, as opposed to buying 85, 260 00:17:00,781 --> 00:17:03,860 you know, basketballs online that have his autographs, 261 00:17:04,120 --> 00:17:07,020 but it was a copy and paged up at some factor. 262 00:17:08,290 --> 00:17:11,300 Perfect example. You're absolutely right. It definitely makes sense. 263 00:17:11,760 --> 00:17:14,850 So thank you for kind of breaking that down step by step. 264 00:17:14,851 --> 00:17:19,170 I think there is so much that goes on in this space and 265 00:17:19,830 --> 00:17:22,690 everything is changing so rapidly, you know, it, 266 00:17:22,691 --> 00:17:25,890 it's really good to provide updates like this, take a step back, 267 00:17:25,891 --> 00:17:29,610 make sure everybody really understands what everybody is talking about before 268 00:17:29,611 --> 00:17:32,050 something new comes out. Right. And, you know, 269 00:17:32,270 --> 00:17:36,360 I think you are just talking in alignment with NFTs. You mentioned defi, right? 270 00:17:36,510 --> 00:17:41,040 So I think it's only appropriate that we kind of stay in line here. Give us 271 00:17:42,640 --> 00:17:43,800 a breakdown of defi, 272 00:17:43,801 --> 00:17:46,240 why it's so important and what our listeners really need to know. 273 00:17:47,160 --> 00:17:49,200 Mitch, I mean, yeah. 274 00:17:49,220 --> 00:17:53,040 We could be here talking on DeFi for eight hours, 275 00:17:53,041 --> 00:17:56,200 so probably have a fresh battery. 276 00:17:56,201 --> 00:18:00,440 But in terms of like the baseline, right. DeFi, 277 00:18:01,280 --> 00:18:05,960 it's an incredibly complicated topic because it's a umbrella term, right. 278 00:18:06,360 --> 00:18:10,830 DeFi can actually point to anywhere between 12 and 15 279 00:18:11,270 --> 00:18:12,590 different types of applications, 280 00:18:12,591 --> 00:18:16,790 it could be yield farming, 281 00:18:17,410 --> 00:18:21,830 staking block rewards, all of which are trying to maximize the, 282 00:18:22,050 --> 00:18:24,790 yield earned on crypto holdings, 283 00:18:24,791 --> 00:18:29,380 but the overall idea and the goal of any of these applications, right. 284 00:18:29,381 --> 00:18:33,900 And there are any number of them online to go into, you know, 285 00:18:33,950 --> 00:18:36,980 research learn about rest, but the overall goal here DeFi, 286 00:18:38,141 --> 00:18:39,220 decentralized finance, 287 00:18:39,221 --> 00:18:44,140 it's to try to really build out a parallel financial system. Right. 288 00:18:45,000 --> 00:18:48,220 Because, if we sort of pull back for a minute, 289 00:18:49,800 --> 00:18:53,340 the whole goal of blockchain and crypto is to help develop a 290 00:18:55,340 --> 00:18:56,900 parallel financial system, right. 291 00:18:58,581 --> 00:19:02,500 To cut out intermediaries payment processors banks, that, 292 00:19:02,501 --> 00:19:07,260 that hasn't happened as we've seen every major payment processor and 293 00:19:07,540 --> 00:19:11,770 bank and corporation, and actively now embrace blockchain, 294 00:19:11,771 --> 00:19:14,130 crypto payments all the rest. 295 00:19:14,590 --> 00:19:17,410 But the promise of, project DeFi 296 00:19:19,010 --> 00:19:23,210 it's really to allow individuals or institutions who are 297 00:19:24,080 --> 00:19:24,913 trying to, 298 00:19:25,051 --> 00:19:29,810 for lack of a better term exist in a 299 00:19:30,470 --> 00:19:33,200 crypto based world. So Mitch, 300 00:19:33,641 --> 00:19:38,520 if you have $8,000 cash hanging around, 301 00:19:38,521 --> 00:19:41,120 right, you have options could put it into bank, 302 00:19:41,240 --> 00:19:44,120 could put it into Apple stock, 303 00:19:44,220 --> 00:19:48,080 can buy some CPE courses at the IMA, 304 00:19:48,801 --> 00:19:52,830 or can put it into a ETF, right. But you have options. 305 00:19:52,831 --> 00:19:56,150 You can either grow it, use it all the rest. 306 00:19:56,450 --> 00:20:01,190 But if I have that same $8,000 value in tether, 307 00:20:02,010 --> 00:20:06,590 right. the USDT token issued by tether a stablecoin 308 00:20:06,871 --> 00:20:11,630 issuer that's supposedly on a one-to-one basis at the US dollar. 309 00:20:13,600 --> 00:20:16,940 And I could go on a hold, offshoot on that, but, 310 00:20:16,941 --> 00:20:18,660 but it's backed by the US dollar. 311 00:20:19,600 --> 00:20:24,420 And so how can I make the best use of that money? Well, 312 00:20:24,421 --> 00:20:29,260 the bulk of these DeFi applications out there are built 313 00:20:29,720 --> 00:20:34,610 to allow holders and individuals and entrepreneurs for like me who have 314 00:20:34,611 --> 00:20:37,530 their business or have holdings in crypto. 315 00:20:37,540 --> 00:20:42,490 I can't deposit those at the bank. If I can't use those to go buy Apple stock, 316 00:20:42,491 --> 00:20:46,810 I can't put them into a ETF or an IRA directly. 317 00:20:46,811 --> 00:20:51,800 So then how do I earn a rate of return on 318 00:20:51,860 --> 00:20:52,600 my assets? 319 00:20:52,600 --> 00:20:56,960 And that's the question that most of these DeFi applications are trying to 320 00:20:56,961 --> 00:20:57,121 answer. 321 00:20:57,121 --> 00:21:02,120 And so the best way to understand DeFi is to basically kind of picture 322 00:21:02,140 --> 00:21:06,120 it as trying to offer all of the products and services, 323 00:21:06,121 --> 00:21:11,070 convenience of a bank or a traditional, brokerage, 324 00:21:11,071 --> 00:21:15,870 except not involving a bank or a traditional brokerage. 325 00:21:15,871 --> 00:21:20,670 And so that's the best way to try to think about it in terms of enterprise 326 00:21:20,800 --> 00:21:25,510 applications, there are not all that many yet for the very reason that 327 00:21:25,960 --> 00:21:30,860 the regulation on these companies is kind of still murky and it's primarily 328 00:21:31,160 --> 00:21:34,660 been, regulation by lawsuit up until now. 329 00:21:35,080 --> 00:21:39,020 So we've talked about a lot of different trends going on here, and, you know, 330 00:21:39,340 --> 00:21:42,820 a lot of our conversation has been US based and things that are happening within 331 00:21:42,840 --> 00:21:45,700 the United States. Just curious, before we wrap up, 332 00:21:45,780 --> 00:21:46,900 I have one more follow up question, 333 00:21:47,080 --> 00:21:50,650 but as far as the things that are happening in the US, you know, 334 00:21:50,830 --> 00:21:52,930 the president's working group, I know there was, 335 00:21:52,950 --> 00:21:57,490 the infrastructure bill that's going to include some tax reporting provisions 336 00:21:57,491 --> 00:22:00,490 for digital assets, in your opinion, 337 00:22:00,560 --> 00:22:05,410 what kind of implications will these decisions have on the 338 00:22:05,411 --> 00:22:08,880 global environment, as it pertains to digital assets, you know, 339 00:22:08,881 --> 00:22:13,000 clearly digital assets is not just the US based assets. So, 340 00:22:13,190 --> 00:22:17,520 what else can the global business environment expect down the road from things 341 00:22:17,521 --> 00:22:18,354 happening. 342 00:22:19,060 --> 00:22:21,760 And you 343 00:22:24,400 --> 00:22:26,120 highlight a excellent point there, Mitch, 344 00:22:26,170 --> 00:22:30,310 that this asset class is not based out of any market. 345 00:22:30,470 --> 00:22:34,270 This isn't based out of the US, based out of mainland China, or Europe, 346 00:22:34,800 --> 00:22:36,710 or Africa, Latin America, 347 00:22:36,711 --> 00:22:41,710 anywhere it's a truly global asset class and global 348 00:22:41,711 --> 00:22:43,470 ecosystem. And so on the one hand, 349 00:22:44,430 --> 00:22:49,340 I am encouraged that there are policy moves being at least put forward 350 00:22:49,341 --> 00:22:51,660 here in the US. On the other hand, 351 00:22:51,770 --> 00:22:56,220 I do fear that we are taking a bit of a heavy 352 00:22:57,220 --> 00:23:01,900 handed approach to trying to understand, and we're trying to force, 353 00:23:01,901 --> 00:23:06,020 crypto assets to fit into the current roles that 354 00:23:07,381 --> 00:23:12,010 current financial instrument hold and it could work on the surface, 355 00:23:12,150 --> 00:23:15,530 but it is not gonna work going forward. But on the other hand, 356 00:23:16,080 --> 00:23:19,170 even though crypto is a truly global industry, 357 00:23:19,310 --> 00:23:22,570 it is still worth mentioning that the US is, 358 00:23:22,850 --> 00:23:27,370 I believe gonna have a important voice in how these rules and frameworks are 359 00:23:27,371 --> 00:23:28,250 ultimately crafted. 360 00:23:31,161 --> 00:23:35,920 Now there are countries El Salvador 361 00:23:35,970 --> 00:23:40,400 Malta, other areas of the world, Estonia, Brazil, you know, 362 00:23:40,820 --> 00:23:45,280 there are any number of other countries that have been more active in being 363 00:23:46,020 --> 00:23:49,480 pro crypto out there. So it's important for us to 364 00:23:51,040 --> 00:23:54,360 balance our attempts to protect, 365 00:23:54,540 --> 00:23:58,680 investors and all the rest with the eye towards future opportunities. 366 00:23:59,580 --> 00:24:04,400 But my sort of wrap up point here in terms of the global impacts is that the 367 00:24:05,110 --> 00:24:09,990 only other global counterweight at the US level is mainland 368 00:24:10,490 --> 00:24:10,860 China. 369 00:24:10,860 --> 00:24:15,510 And whether you are a fan of this choice or not their 370 00:24:16,130 --> 00:24:20,630 choice on a policy, angle to ban crypto, 371 00:24:20,631 --> 00:24:23,510 basically over and over again, to ban trading, 372 00:24:23,690 --> 00:24:27,060 to ban mining to ban holding of it. I mean, 373 00:24:27,090 --> 00:24:29,460 that does basically open up the door 374 00:24:30,960 --> 00:24:35,940 for the US to basically still have a initially dominant voice in 375 00:24:35,941 --> 00:24:36,774 this conversation. 376 00:24:37,760 --> 00:24:40,700 So to wrap things up, kind of in that vein, you, 377 00:24:40,720 --> 00:24:45,140 you have obviously done a ton of research on this. This is, you know, 378 00:24:45,530 --> 00:24:49,930 your passion and, and highly knowledgeable. I'm curious, you know, 379 00:24:49,931 --> 00:24:52,770 talking about the report that came out and some of the, 380 00:24:52,990 --> 00:24:56,770 movement that has been made recently, you have an opinion, 381 00:24:56,771 --> 00:25:01,450 and I'd just like to kind of wrap things up by asking you where you believe the 382 00:25:01,870 --> 00:25:05,610 focus really should be when it comes to digital assets. You know, 383 00:25:05,611 --> 00:25:10,560 as far as the progressing this whole industry really forward 384 00:25:10,561 --> 00:25:14,200 with all the different trends and all the different outcomes from these 385 00:25:14,201 --> 00:25:18,040 different innovations, opportunities, possibilities, what should be, 386 00:25:18,100 --> 00:25:20,920 as far as the focus of everybody's efforts, 387 00:25:20,921 --> 00:25:25,680 what would make the most sense to bring things to light for everybody who's 388 00:25:25,681 --> 00:25:26,514 involved in this industry. 389 00:25:27,470 --> 00:25:32,390 I think that the top two areas that should be top of mind 390 00:25:32,570 --> 00:25:35,670 for any policy maker, regulator, 391 00:25:35,850 --> 00:25:40,190 or entrepreneur out there in this space on the one, 392 00:25:41,090 --> 00:25:45,470 it should try to be the foster innovation and creativity, 393 00:25:45,760 --> 00:25:46,593 right? 394 00:25:47,060 --> 00:25:50,980 Crypto assets are a $3 trillion asset class, 395 00:25:51,760 --> 00:25:55,340 and 10 years ago they hardly existed. 396 00:25:56,280 --> 00:25:58,420 So it's grown incredibly fast and, 397 00:25:58,840 --> 00:26:03,700 and no asset class grows that quickly on a international basis 398 00:26:04,080 --> 00:26:08,370 if there is not some underlying economic value too. Right? 399 00:26:08,950 --> 00:26:13,930 So, it's important to foster innovation to try to attract as much capital and 400 00:26:13,931 --> 00:26:18,290 people, right. You know, intellectual capital, human capital, financial capital, 401 00:26:18,630 --> 00:26:22,370 as we possibly can to these projects because Mitch, you know, 402 00:26:23,200 --> 00:26:28,010 it's awfully tempting to, to point to, you know, incidents, right. 403 00:26:28,460 --> 00:26:32,640 It could be a hack, it can be the NFT bubble, you know, 404 00:26:32,641 --> 00:26:33,800 kind of popping here and there, 405 00:26:34,380 --> 00:26:39,280 but overall with blockchain and crypto one don't exist in a bubble, 406 00:26:39,450 --> 00:26:40,283 right? 407 00:26:40,360 --> 00:26:45,360 They are evolving with and being improved by automation and 408 00:26:45,420 --> 00:26:50,040 RPA, AI, and IOT analytics. All of these tools are developing hand in hand. 409 00:26:50,360 --> 00:26:52,200 And so I think that overall, 410 00:26:52,201 --> 00:26:57,080 everybody should be focused on trying to create a environment and a framework to 411 00:26:57,140 --> 00:27:01,720 foster innovation, and to try to allow people the, you know, 412 00:27:01,750 --> 00:27:06,390 freedom to develop the experiment and yes, 413 00:27:06,391 --> 00:27:10,070 fail sometimes. But it's important to have that creative process happen, 414 00:27:10,071 --> 00:27:14,270 to be able to get to the products and services and companies that are gonna 415 00:27:14,370 --> 00:27:17,670 benefit the most people going forward. And then two, 416 00:27:17,671 --> 00:27:20,590 it's also important that as we are doing this right, 417 00:27:20,670 --> 00:27:25,460 so a good parallel that I can do all the right now that's all phase highlight 418 00:27:25,461 --> 00:27:29,100 is that as we all know the issues around, 419 00:27:29,340 --> 00:27:33,380 our climate and climate change are a big issue right now, 420 00:27:33,620 --> 00:27:37,900 I won't get into the individual politics of it, but it's an issue, right? 421 00:27:39,280 --> 00:27:44,010 And so there has been a move towards 422 00:27:44,240 --> 00:27:49,210 more ESG, towards more investment, towards wind, water, 423 00:27:49,430 --> 00:27:54,010 hydro power, all the rest, but all of that can't happen overnight, right? 424 00:27:54,030 --> 00:27:58,690 There has to be a transition period off of the 425 00:27:58,800 --> 00:28:03,210 coal fossil fuel model and into a more hybrid model, right? 426 00:28:03,600 --> 00:28:07,840 Some fossil fuel, nuclear, wind, the water, 427 00:28:08,260 --> 00:28:12,360 solar all the rest. And so that has to also happen here, right? 428 00:28:12,660 --> 00:28:14,440 Because at a fundamental level, 429 00:28:14,441 --> 00:28:18,760 blockchain and crypto assets operate differently in terms of the transactions 430 00:28:19,260 --> 00:28:23,040 themselves and the risks and opportunities that all involve counterparties have 431 00:28:23,041 --> 00:28:27,710 to keep in mind as they try to move into this space. 432 00:28:27,711 --> 00:28:32,590 So there has to be some sort of plan, again, building on 0.1, 433 00:28:32,610 --> 00:28:36,590 there has to be a environment and a framework to 434 00:28:36,960 --> 00:28:41,870 balance innovation and creativity with this, mindset that, 435 00:28:41,900 --> 00:28:46,500 yeah, mean virtual payments, digital they're already here, 436 00:28:46,920 --> 00:28:48,060 all that we're doing now, 437 00:28:48,110 --> 00:28:52,300 blockchain and crypto is trying to sort of improve them. 438 00:28:52,821 --> 00:28:57,020 But there has to be a process to transition, you know, 439 00:28:57,100 --> 00:28:59,340 countries, institutions, 440 00:28:59,760 --> 00:29:04,700 individuals out of basically the analog world that all of us live in 441 00:29:04,701 --> 00:29:08,490 web 2.0 all the rest to a blockchain based 442 00:29:09,320 --> 00:29:11,570 crypto, augmented future. 443 00:29:11,770 --> 00:29:15,650 And I know that having that can kind of sound high in the sky, 444 00:29:15,651 --> 00:29:19,050 but it's already happening right now. Right. 445 00:29:19,310 --> 00:29:22,770 And there are trillions at, you know, being put to work here. 446 00:29:23,180 --> 00:29:25,930 Every major corporation and country 447 00:29:27,440 --> 00:29:30,240 in the world is actively doing this as we speak. 448 00:29:30,260 --> 00:29:34,240 So it really isn't so farfetched, I would just hope to see right. 449 00:29:34,241 --> 00:29:38,520 That going forward, that there's a more over focus paid to this. 450 00:29:40,950 --> 00:29:43,360 This has been Count Me In, IMA's podcast, 451 00:29:43,710 --> 00:29:47,000 providing you with the latest perspectives of thought leaders from the 452 00:29:47,001 --> 00:29:49,040 accounting and finance profession. If you like, 453 00:29:49,041 --> 00:29:52,480 what you heard and you'd like to be counted in for more relevant accounting and 454 00:29:52,481 --> 00:29:56,360 finance education, visit IMA's website at www.imanet.org.