Luke: [00:00:00] From privacy concerns to limitless potential, AI is rapidly impacting our evolving society. In this new season of the Brave Technologist Podcast, we’re demystifying artificial intelligence, challenging the status quo, and empowering everyday people to embrace the digital revolution. I’m your host, Luke Moltz, VP of business operations at Brave Software, makers of the privacy respecting brave browser and search engine.

Luke: Now powering AI with the Brave search. API. You’re listening to a new episode of The Brave Technologist, and this one features a guest we previously had on the podcast Hester m Pert, who is the commissioner at the US Securities and Exchange Commission appointed by Donald Trump and sworn in in January 11th, 2018.

Luke: Earlier this year, commissioner Pert has been designated as the leader of the S SEC’s Krista Task Force. In this episode, we discussed her new role in leading a charge on the crypto task force at the SEC. Their top priorities and how it show measure success of the task force, what a healthy and regulated crypto market in the [00:01:00] US could look like, and what this could mean for the industry, and how the SEC is providing input for lawmakers on regulations and taking feedback from players in the industry.

Luke: Now for this week’s episode of the Brave Technologists

Luke: Commissioner, welcome back to the Brave Technologist. How are you doing today?

Hester: I’m doing great, Luke. Thanks for having me back. And as you know, I’m gonna 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.

Luke: Yeah, I really appreciate you kind of taking the time to come back to the podcast. I feel like so much has changed since the last time we were on it. Just completely new day. As far as things go, it certainly impacted us in a positive way. What surprised you most in how the crypto landscaper’s perception in DC has evolved over the past year?

Hester: Well, I think I like a lot of people who have been. [00:02:00] Following crypto policy for a long time. I’m just pleasantly surprised that there’s been a real willingness to take a new approach. While I expected that to happen because that was something that President Trump had said was an agenda item for him, it’s just really nice to see it actually playing out.

Hester: Having Chairman Atkins at the SEC, I think a lot of people saw his, his recent speech, you know, it really does just. Confirm the amount of work that has to be done, but also the amount of, of energy that there is behind getting that that work done. So that’s just been a, a very pleasant surprise.

Luke: Yeah, it’s been really interesting to see just how, how huge of a course change there’s been.

Luke: I feel like in our last discussion, I was even a little guarded in what I would ask, but now it feels like a whole new season and a whole new environment for us to start experimenting and finding market fit again, which is great. How does your approach shift now that [00:03:00] you’re leading a charge with this commission at the, we can dive into that too.

Luke: How have you shifted things in your approach in, in your, your leadership style with these new, new areas that you’re in?

Hester: Well, before I answer that question, I just wanna pause on something you said, which is giving us a chance to experiment and find market fit, because that really is the thing that hasn’t been allowed to happen in the way that it normally organically would.

Hester: And so I think that’s really important for us to emphasize is that that is the goal of what we’re trying to do here. We’re not trying to, as regulators decide where the market will go, what the market. We’ll decide is the right way to do things, whether we’ll have a completely decentralized future or w whether there’ll be, uh, centralized entities, but decentralization alongside.

Hester: So this is really the moment where I want people to be able to figure out in a way that is consistent with both the securities laws, but also with their [00:04:00] commercial. Their need to, to reach commercial viability, that they can really experiment and try things. And so that really does, I think, set the tone really well for, for how I’m thinking about things in terms of leadership style.

Hester: I’m happy to be here on, on the commission still at a time when we can make some positive changes. I’ve had a lot of ideas over the years about things that we could be doing, and we’ve been able to do some of those. Whether it’s providing some guidance around certain things that maybe don’t fit within the securities laws, but also working with people to try to figure out what kind of exemptive relief, what kind of, no of no action letters, what kind of longer term rulemaking would be useful for them.

Hester: Certainly because this is a commission, chairman Atkins sets the agenda and so working with him has been really delightful as well. Um, he’s been very open to trying to figure out concrete solutions for problems and so it’s still a collaborative leadership style. [00:05:00] Although I am leading the, the crypto task force, I’m working closely with him and my, and my fellow commissioners as well.

Luke: Yeah, maybe we can dive into that a little bit that, uh, uh, specifically around the task force for folks that may not have been following specifically. Like what, what are the goals of the task force? What are you, you trying to do with the task force and how do you plan to measure success with that?

Hester: Yeah.

Hester: The task force was stood up by then acting chairman. UDA really is one of his first acts as chairman. And the goal was to try to do a 180 in terms of how we think about things. So we used to think about things very much through an enforcement lens. What enforcement actions can we bring? So we bring this industry to heal was sort of the approach.

Hester: And now the approach is really to say, look, we need to, there have been consistent questions about how the law. Interacts with the crypto landscape, so let’s provide some answers to those questions and let’s not [00:06:00] lead with enforcement. Now, I think it’s really important to emphasize too, that part of the goal here is to get to a place where the rules are clear and there will be enforcement of those clear rules.

Hester: This is not like a season where anyone can do anything, even in the interim, as we work on these rules, people do need to be careful. We urge people to come in and talk to us because. It’s not an anything goes time. The task force is made up mostly of people who are already on the SEC staff. We brought in a couple people from the outside, but it really is mostly SEC staff and we’re working with staff across the building and it’s been really a, a delightful.

Hester: I mean, you asked about surprises. I think one of the really wonderful things, and I knew we had a wonderful staff, but one of the really nice things has been to see how hard they’re willing to work and how creatively they’ve been thinking about trying to get us to a better place. There was a lot of pent up creativity I think that now has been unleashed at the SEC, so.

Hester: We’re working with staff across the [00:07:00] agency, and the goal is to get some early guidance. We’ve been able to get some of that out the door, and then we’re working longer term toward rulemaking, and so I think how we measure success is if we can get some of those rules finalized so we can get a framework that people can really hang their hat on and know that it’s a stable framework that they can rely on.

Hester: I always think one measure of success is that. People like you won’t wanna have me on their podcasts anymore because we won’t all be talking about regulation all the time. Yeah. The regulation will be clear. You’ll operate within that regulatory framework, but you’ll have people on your podcast to talk about building and trusting stuff.

Luke: First off, it is always great talking to you on the podcast. One of the things that was really exciting about seeing the track of progress that’s happened over this past year is I, I just remember reading the dissent positions that you had in the past, and it was almost like there was a lot of roadmap framework potentially in those positions in like how we could be [00:08:00] doing things.

Luke: And so seeing how the environment’s changed, it’s hard not to get cynical around DC and, and the political scene and regulation and, and all of that. But like, this is actually one case where it’s been really positive. And I know for us, we’ve been able to dust off things that we had put a lot of time into, but had to show for various reasons.

Luke: And I think that your point about it not just being like an open season or, or freewheeling or whatever, in the past environment, it was like, I think most projects. Want people to be protected and want to do the right thing. And it felt like in the past we couldn’t even approach about the wrong things that were happening.

Luke: Right? So I think it’s really cool to see. Now there’s like, you can actually have a discourse and, and focus on some of the things that need enforcement. I think that’s another thing that’s really difficult in this industry from perception is that the scams sometimes get all the attention. And what we’re seeing now with adoption is just, [00:09:00] it’s much more a tech upgrade.

Hester: Yeah, and I mean, the problem is in the past I think it’s been easier to be an in and out scammer, right? You come, you dump a bunch of tokens and you run away. Because there’s a, a smaller window within which you felt that you were potentially gonna be a target of an SEC or some other agency action. And I mean, that’s ridiculous, right?

Hester: We want people who wanna come and be there and build things. A clear regulatory environment actually makes it, the talent is more likely to flow to the valuable things and the talent and the money are less likely to flow to the scams, I hope. Now obviously there are a lot of people out there trying to do bad things.

Hester: I guess that’s a. Condition of humanity, right? So that’s something that we’re always gonna have to have an enforcement division here at the SEC. But also I think it’s important to note that as we provide some clarity around where the lines lie, there will be some things that are not within the securities in exchange commissions ambit, and that [00:10:00] means that.

Hester: We may be referring things to other agencies, or you all may be referring things elsewhere. Not to the SEC. We are not the enforcer of all things. It also just underscores the importance of the industry, watching out what’s going on and identifying, and I think that’s one of the really nice things about this industry.

Hester: You know, it’s got a very active presence on all sorts of social media channels and I think. Calling things out in those kind of formats can be helpful too, because it really does remind people that you still have to be skeptical of everything. You still have to think before you put your money in something, and I think a lot of that can be grassroots and doesn’t have to be government.

Hester: Government has a role to play, but so does the industry.

Luke: Yeah, totally. Speaking about like clear regulatory lines, you know, we’re seeing things like the Genius Act passing and things like the Clarity Act coming or, or I guess it’s in the middle of process now, like, which does seem to kind of address the different types of assets and [00:11:00] maybe which agencies are handling which types.

Luke: Right. Is that fair? It’s is the SEC is your commission or task force, like helping to inform Congress in, in that policy making process?

Hester: We do get asked by Congress for feedback on, on drafts of legislation. And so we have been, uh, helpful there. We’ve got a lot of expertise that we can sort of help them think through what the legislation might look like in practice if they adopted it.

Hester: Obviously, at the end of the day it’s, it’s Congress’s decision, what that looks like, but it has been a really interesting time. I mean, seeing the Genius Act pass so that stable coins have a regulatory framework, as you said, much of that is gonna be. At the bank Regulators not here at the SEC, although we do, I think, have a role to play as well in working with the entities we regulate and thinking about how, as they undoubtedly will want to, how they integrate stable coins into their products and service offerings.

Hester: So we’ll be doing some of that. But yes, we [00:12:00] absolutely work with Congress.

Luke: I’ve seen some of this on social, but I’d be really curious to hear direct to you like. Have you all seen a big uptick in projects coming and engaging with the SEC in this new administration or this new year or whatever compared to the past?

Hester: Absolutely. People have been willing to come in who weren’t willing to come in before the level of problems that was caused by the approach we took before. That does take some time to heal that. Right? And to build trust again. So I think one of the things that we tried to do early on is communicate that we really do wanna talk to people.

Hester: We held series of public round tables. We just announced that we will be doing some on the road round tables. I travel in relation to my job. And so in conjunction with those trips, I’ll be. Meeting with, and what we’ve called for is small early stage crypto projects, so I’ll be meeting with [00:13:00] representatives from those projects, the kinds of people who are less likely to be able to come to DC to meet with us.

Hester: We are obviously always willing to do virtual meetings, so that’s an option too, but I think some face-to-face. Conversations and usually getting a group of people together from different projects is a really nice way for me to hear what the cons, the consistent themes are across those projects of what they need from us.

Hester: Of course, there may be. Specific, no action letters or exemptive relief that some projects need, but sometimes it’s just something basic that they need that, that all projects need. So I’m hoping we’ll get some of that feedback as well. And I’m hoping that that will also, again, send the message that we really do wanna talk to people and that it is a new opportunity.

Hester: To have that kind of conversation. I think that the Chairman’s speech also sent that message that he really does wanna see projects and companies in the crypto industry coming here to the US and doing things in the us [00:14:00] knowing that the regulator, while we’re still gonna regulate, we are going to do it in a way that hears from the industry.

Luke: Oh, that’s, that’s fantastic. I think we talked about this a little bit in the last discussion where, you know, ultimately the government’s working for the people too, and so like including Tiva working at the projects and we all wanna win at the end of the day and, and have good business and, and all of that.

Luke: So that’s excellent. And I’m really curious too, I, one of the interesting takeaways from our last discussion is I had. Several people reaching out to me after the fact that were almost as surprised as I was when they heard that one of the difficulties in regulating this space was the inability to actually touch the software, use the things where, you know, that barrier.

Luke: Is there. Has any of that changed in the time between our last discussion and now? Or are there plans to give more access to the regulators to experiment with these things directly?

Hester: Yeah, I mean, sadly that is one thing that has not [00:15:00] changed, and I hope that it will. And I think that as crypto touches more pieces of our lives, it will become harder to maintain a position that you really can’t have any, any interaction with it.

Hester: But yeah, it hasn’t changed. It really does make it harder for me to do my job. Obviously, I wouldn’t wanna hold a lot of any crypto asset that would create conflicts for me, so that’s not something that I would do, but I would love to just be able to get a sense of how it feels to experiment with some of this stuff.

Luke: Of course, I mean, I think everybody’s dealt with a lot of the other instruments out there and, and, and other parts of the market too, so it, it, it would make sense. Has your vision changed for how the US can take more of a lead in, in these markets with the change in administration or without falling behind and and stifling innovation?

Luke: Or has any of that changed? Or are you like kind of more of like, now we have some room, let’s let’s run the playbook?

Hester: I mean, I think the thing that has changed is that because people [00:16:00] around the world are seeing, oh, you know, the US is actually looking to come up with a practical, pragmatic framework.

Hester: People are waiting to see what that looks like. I mean, I think we’ll have a chance to lead in the sense that if we come up with sensible regulation, I think others might follow suit, and that will address some of the concerns that people have had about. What do we do? This is a very international industry, and so how is it gonna work to cross borders?

Hester: That’s not to say everything is gonna be smooth sailing, but I think certainly there’s much more of a, of a willingness for people outside the US to say, Hey, let’s, let’s see what, what’s happening over there and, and maybe we’ll follow.

Luke: Awesome. Yeah, I mean, it, it certainly seems like, you know, the banking industry and finance, all, all that’s done a complete change of tune and, and are actually starting to adopt these things too.

Luke: So, I mean, this whole new emergence, I did a whole, whole podcast about like [00:17:00] tokenized finance and, and how people are getting exposure to a lot of these investment vehicles without directly holding the assets themselves. It just seems like every time, it’s almost like a, you know, every time you kind of open a new layer.

Luke: Uh, and layer upon layer of complexity or or technology with these things, is your team kind of keeping up to date or falling along or even engaging with any of these tokenized finance efforts, or is it too early or,

Hester: I mean, I think one of the things that we really heard very early on was that there was real interest in tokenizing all kinds of things.

Hester: Tokenizing real world assets, including traditional securities, and so. That’s something that we’re, it’s one of the pieces that we’re working on to try to figure out what that looks like. You know, you can take a security and tokenize it. There are different ways to do that. And so it’s still gonna be a security.

Hester: It might have different properties depending on how you tokenize it, and that really does matter for regulations. So people need to. [00:18:00] To really think about this and we urge people to come talk to us about it. We are trying to facilitate experimentation in this area. We’re open to different kind of models, but it really does help if people come talk to us first because there are investor protection considerations that people have to take into account Disclosure issues, obviously technical and operational issues as well.

Hester: And so these are all things we’re paying attention to. I mean, I think it will be interesting to see how the market embraces tokenization. Certainly early signs are that they are, but we’ll have to see whether that actually takes off, whether it gets commercial viability. There are advantages that can come from having everything on chain.

Hester: It makes certain things easier. It’s easier to move assets, it’s easier to use assets as collateral if they’re on chain. And of course, programming them is really a powerful concept. So these are things that we’re watching, but again, there are some difficult. Legal issues to work through, which we are doing.

Luke: I can [00:19:00] imagine, I mean, because each one of these pieces of technology is kind of like unlocking more global access to something that’s in a certain market jurisdiction, right? Like I, I know just from the scam side, we see this where it’s like, even if you want to enforce things, sometimes just the jurisdictional barriers are very hard to actually get an outcome from that that’s meaningful or.

Luke: Has any kind of accountability. So I would imagine yeah, there’s, there’s a lot of wait and seeing watch and figuring out how to maybe work with partners in other jurisdictions too, I would imagine on on the enforcement side.

Hester: Yeah, and that’s something that we do. We’ve done that and, and traditional securities as well.

Hester: We work with our counterparts. I do think that there’s some possibility to also work with them on. Facilitating some cross-border experiments. It’s something I’ve talked about, a cross-border sandbox type approach that would allow someone who wants to launch in, into jurisdictions to do that at the same time.

Hester: So if people have ideas, there we’re, we’re open to those [00:20:00] conversations as well.

Luke: How much is AI in your focus or in your, uh, visibility these days? Is it still too early? Are you all looking into that area too, outside of crypto and, and are you seeing crossover between the two?

Hester: Certainly not too early. I think in some sense, you know, we all should have been working on this a long time ago, right?

Hester: Because it, it has the potential to make us a more effective regulator, and it also has the potential for the entities that we regulate to serve their customers better, their risks, as with any new technology. I mean, AI is not new, but the formulations that we’re seeing now, the way it’s being used and it’s power, those are new things.

Hester: So there are always gonna be risks that go along with that too. But I think it’s very important for us to work with the industry to figure out how they can use it for good and then for us to use it as well. I think there, there are lots of interactions between crypto and ai, and those are, I think that’s a piece of the world that I need to understand better.

Hester: I have to. [00:21:00] Invest some time and learning about how AI agents and, and defi interact with one another, for example. So I’m, I’m gonna be working on that.

Luke: It’s still pretty early too. On, on that part. At least. I, I think we’re still trying to kind of like get a grips of all that. There’s so much hype versus actual functionality at this point and, and lots of interesting things there.

Luke: There’s like a lot of overlap between these worlds. ‘cause, and I’ve talked to like AI safety experts and, and all sorts of other folks. There is something that’s. Kind of disarming about this form factor with these prompts where people feel much more comfortable or put their guard down a bit. Protections are gonna be like super important, but, but it’s still too early to kind of like know exactly how to approach that.

Luke: But I, it is just, it’s a fascinating time right now.

Hester: The other thing that we obviously are concerned about at the SEC is that people have been using AI to very bad effect to scam people. So scammers, one thing I’ve noticed over my time here at the commission is that the [00:22:00] amount of time and energy people put into scamming other people if they just put it into legitimate activity, would be amazing what they could produce.

Hester: But now AI makes it so easy, and so I just really do caution people to be so careful because they’re just. There’s a lot of bad activity there, and it can look much more realistic now that people are using AI to produce their scam documents.

Luke: Oh, definitely, definitely. Great point. And even looking out into the future too, five years, if we were to fast forward, what is a healthy kind of well-regulated crypto market in the US look like to you?

Hester: Well, I think it is a, a market in which people understand which regulatory jurisdiction or jurisdictions they fall into. And they understand, okay, if I’m doing a securities offering that involves crypto, this is the kind of disclosure I need to make. You know, I think it’s, it’s a world in which trading platforms are functioning in a way that that is not conducive to manipulation.

Hester: And that brings [00:23:00] the, the consumer protections that are necessary and the disclosures that are necessary around, um, any conflicts that exist. So I guess it’s, it’s kind of what you would expect from regulation that it’s, it’s a marketplace in which people can step into the marketplace and have confidence that there is protection for them, but they’re also.

Hester: Continuing. I mean, my idea of a good regulatory scheme is that people are still exercising their own skepticism and judgment and making independent decisions. So not that people are relying entirely on regulation to solve every problem out there.

Luke: Yeah. No, that’s, that’s fantastic. And, and I think you, you, your point earlier in, in the conversation too of just like in an ideal world, crypto founders aren’t having to necessarily, um, be prodding the regulators so much or, or you know, that we’ve got a lot of these things sorted out

Hester: and that they can still come in and talk to us when they have a bespoke problem that they need to solve and that it can be a good discussion, but that it’s just not something that they have to, you know, the thing that has made me.

Hester: [00:24:00] Very sad over the years is that I’ve had a lot of people say to me, we structured our project this way because we wanted to avoid the securities laws, even though it would’ve been better if we could have done it this other way. So I hope that will change too, that if people wanna do something that involves the securities component, great.

Hester: There’ll be a way for them to do that.

Luke: It has been difficult in the space. And, and I think though that even what we’re seeing now is just like such a, a positive signal for people building and that, you know, I just encourage, uh, you all to keep it up. And, and again, too, like, I, I can’t say it enough how much I appreciate, you know, your leadership in this space and being that.

Luke: Descending voice during the really tough times. And, and it’s exciting seeing what’s happening now and being able to have an environment where we can actually try to get market fit with what we’re doing and, and really grateful for you making the time to come back here too and, and talk to us. Is there anything we didn’t cover that you might want people to know about?

Hester: Well, I mean, I’ll give a [00:25:00] little plug for crypto@sec.gov. You can email us. There’s a webpage on sec.gov that is Crypto Task Force. There’s a lot of great written input there. People can provide written input if they have suggestions for us. I mean, Luke, you said it. Well, regulators are supposed to work for the American public, so we really do wanna work for the public in a way that gets regulation right in this space that makes this world a place where good actors find it easy to build things and bad actors find it really hard to build things.

Luke: Fantastic. I can’t think of a better way to end this one. Um, thank you so much Hazard for, for making the time again to come on and, and, and share all this great insight and progress with the audience. Love to have you back on too in the future to kind of chip back in.

Hester: Thanks, Luke. It was great to be here.

Luke: All right. Take care. Thanks for listening to the Brave Technologist Podcast. To never miss an episode, make sure you hit follow in your podcast app. If you haven’t already made the switch to the Brave Browser, you can download it for [00:26:00] free today@brave.com and start using Brave Search, which enables you to search the web privately.

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