Solana’s Policy Push: Crypto’s New Regulatory Era | Kristin Smith

I think having clarity and stability are the most important.

What we don't want is for the rules to swing wildly from one point of view to another depending on who's in power. What we want is a predictable regulatory environment that allows different parts of the ecosystem to be competitive here in the United States.

Just getting the rules on the books, that's one piece of it. But then you want those rules to stay there.

Hey guys, Blockwork Works Digital Asset Summit is going to be back in New York City March 24th through the 26th. We're going to have top speakers from leading asset managers, financial institutions, DeFi protocols, crypto companies, policy makers, you name it. Everybody all under one roof.

Think Black Rock, the SEC, Tether, Robin Hood, Solana, and much, much more. Follow the link in today's show notes to get your tickets, and you can use code lightseed 200 for $200 off at checkout.

Nothing said on light speeded is a recommendation to buy or sell any investments or products. This podcast is for informational purposes only and the views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the views of Block Works. Our hosts, guests, and the Block Works team may hold positions in the companies, funds or projects discussed.

Hey guys, welcome back to another episode of the Lightseed Podcast. Today I am joined by a special guest Kristen Smith, president of the Solana Policy Institute. Kristen, great to have you on.

I know leading into we've got DAS coming up next month. Blockworks is very excited about this event. You'll be speaking there about some exciting topics. So we were really excited to have you on the pod today to maybe talk about some of those things.

Maybe it'll be an intro to what you speak about there, but also maybe we can go a little more broad in the discussion today as well. So glad to have you on and great to chat and meet with you personally as well.

Great to be here Danny and I'm super excited about DAS in New York. It's one of the best events of the year and I'm going to be doing a couple different things but most notably a fireside chat with the CFTC chair Mike Seague which should be pretty fantastic because he is super bullish on blockchain and crypto and excited to hear what he's got to say.

Yeah, that should be really exciting. I know Mike just put out a statement actually today or yesterday as well specifically about prediction markets. So certainly I see the enthusiasm from them.

Yeah, I know. He's taken on the states. So it should be a good battle.

Awesome. Well, for the listeners out there, if you're not going to DAS or want to Lightseed 200, you get $200 off tickets. That's March 24th through the 26th. Come out. You can see Kristen and of course all the other amazing folks in institutions, funds, builders, founders, etc. they're going to be there.

It'll be a really stacked event, so we'd love to see you there. Come and chat and listen to what some of our amazing speakers like Kristen will have to say.

I wanted to talk a little bit maybe about your background. You previously led the blockchain association for several years and you know then more recently have come over as president of Solana Policy Institute.

I guess my maybe question there is how did you decide or what made you choose to make that switch like going from sort of blockchain association? I guess in my head my head it gives me this view of kind of a a more broad organization in in fighting for policy for blockchain related technologies versus Solana specifically.

No, that's a great question. And yeah, so I was the very first employee of the blockchain association and ended up building that to the membership and kind of size of team and structure that it has today.

I was there for almost seven years and it was certainly the thing I'm most proud of in my whole life. It was amazing to actually build something and create something.

But yeah, it's a lot of work. It's a very diverse industry and I think for me personally I was ready for a little bit more focus and the change of pace and so when the opportunity with Solana came up I thought it was a really unique situation because I I think that you know for a decentralized ecosystem it is a real challenge to figure out how do you represent so many distinct people and individuals and businesses that are all working on the same thing in Washington.

And I think that the way Solana Policy Institute came together allows us to be very very nimble and advocate on behalf of the ecosystem.

And so Miller White House who is our CEO came to me and courted me into this role and I had actually hired him many years ago and had always enjoyed working with him and so I thought it would be a nice change of pace because you know there's so much happening on Solana.

It is, you know, the fastest most used blockchain in the world. I think it has so much potential, especially as we're heading into this era of, you know, sort of tradi, institutional interest, and it to me, I wanted to be a part of something that was, you know, sort of real that had been battle tested and Solana just fit the bill.

So, it's been a fantastic transition. I'm still involved with the blockchain association. SPI is members of the blockchain association and so has a very special place in my heart. But this has been fun to be able to focus on on you know the sort of quality blockchain in the in the crypto ecosystem.

And maybe to follow on to that more specifically, how does that how does that transition sort of change your focus or approach maybe in regards to like the policy or the conversations around it? Obviously, it's a very different sort of advocate for like blockchain versus a a particular business. Like I'd almost equate it to like, you know, supporting farmers versus like choosing a particular farmer to to support.

Yeah. Well, I would say I think the kind of key area of difference is that at SPI we're able to focus very deeply on the issues that are important to the Solana ecosystem.

And so to be clear, that does not mean like getting special treatment for Solana into a law or something like that, you know, versus Ethereum or something like that. Like we're still advocating for, you know, decentralized blockchains.

But the difference is for example we've spent a lot of time writing letters and doing meetings with the SEC on what an innovation exemption could look like that would allow for the tokenization of securities.

I think if you look at Solana with its focus on internet capital markets and you know IBRL and all of the you know things that make this network the best and what we want to do with that network. we need, you know, guidance out of the SEC in order to make that, a reality.

So, so it's those types of things where we're able to go much deeper. I think when you're looking at the broader industry, you know, the role of the blockchain association changed from its very early days when it was, you know, just a a startup trade association to where it's at today because the advocacy effort in Washington has gotten much more sophisticated.

There are a lot of different lobbyists, lawyers, communications professionals, everyone across the board in the policy world that are representing different interests within crypto. And so the role of the trade association has emerged into one of trying to find consensus among the industry.

Finding consensus is very different than, you know, kind of advocating for a specific policy. And so for me, this is like the piece that I think I'm enjoy more and I'm better at. and so it's been a lot of fun to be able to focus on on the stuff that I love the most.

Okay. I love I love that answer. I think maybe maybe just to follow that up as well before maybe diving into some different ideas. I'd love to get your viewpoint then on um you know I know there's been some progress. You mentioned you know communications with like Paul Atkins for example about an innovation exemption. We he has put out some kind of memos and notices about ideas along those lines.

I guess I'm curious from your POV like over the past year year and a half of this current admin which has been more favorable and probably easier to talk to what have been some of the like big milestones and then as you look forward or like currently what are the things the policies and the particular things that you're focused on now that we need to get right.

Yeah. Well, listen, I think in the last administration with Gary Gendler, I mean, he had over a hundred lawsuits with different crypto industries across the board trying to go after them for violating securities laws even though there was sort of no workable pathway to engage with the SEC.

We also had the banking agencies that were debanking individuals, businesses, anyone touching crypto. You know, banks were prohibited from engaging. We had prohibitions on 401ks from investing in crypto. I mean, it was about as overtly hostile as one can get as a government can get towards an industry.

And we are, you know, it is not just a better environment today. It is the exact opposite. The enthusiasm across the entire Trump administration is maybe too good sometimes because I think it's bled down into his family and they're all in the business.

But I you know the the if you look at folks like chair Celig at the CFTC or chair Atkins at the SEC or you know Jonathan Gould who's at the office of the controller of the currency. I mean these these are individuals who are incredibly knowledgeable about the industry and are trying to do everything within their power.

You add that to the Congress you know who is in a bipartisan way like fairly interested in crypto and it's been incredibly productive.

So I think you know the first step was to sort of undo all the harmful policies and litigation from before and we saw very quickly that the SEC you know pulled back its litigation against most of the crypto companies.

And you saw things like the repeal of SAB 121 and some of these sort of guidance measures that the prior admin had put forth. Those were all sucked back. Then you had the president's executive order which really sort of set the tone for you know the federal government and how they were going to approach crypto and really sent I think a strong signal that you know the US wanted to be competitive in this.

But I think the biggest moment for me was actually getting the Genius Act signed into law last summer. I went to the White House for that signing ceremony and to actually have the president of the United States like sign a crypto bill with all of the industry and you know members of the cabinet and whatnot in the room was really really remarkable.

So there's been more progress than I could have in my wildest dreams have thought of a couple years ago maybe even one year ago. But there's still a lot of work to do. I think that Congress is working on market structure legislation and we can go deep into that. That's an important piece.

We do also need to update our commodities regulatory laws and our securities laws in order to provide the sort of certainty and pathways that allow more projects to launch here in the US that allow more investors to come in and to pave the way for tokenization.

And so, you know, there is a lot of work to do both on the legislative and the regulatory front. But the good news is I think everyone's really focused on it and and they're I'm very hopeful they'll be able to build on the success of 2025 here at 2026.

Awesome. A lot of positivity there. Maybe highlighting the Genius Act and that getting signed into law, I guess. Do you have a view or you know from conversations or interacting with folks in the space? Are are we already at the point where we're seeing sort of the the positive kind of effects of that going into law or is is there still more time sort of for that to really kind of make its way through from, you know, being signed into law to like actually implementing and and businesses seeing the kind of realized value of it?

Yeah. No, I think I think companies aren't waiting, right? I mean, I think we've seen deals across the board of different new stable coin issuers that are entering the marketplace.

We've seen I think you know just last week you know PayPal is talking about Solana being its you know sort of blockchain of choice for stable coins where we're seeing a lot of business deals get announced as a as a part of this.

Now uh you know when a when a bill is signed into law like the Genius Act there are many you know rulemakings that are often embedded within that bill. So a rulemaking is when an agency like goes through a big process to write the details in order to enact the bill that is still underway.

The Treasury Department for the most part is taking the lead on those regulations. So, we don't have those specifics, but we have enough in place that we're seeing, you know, sort of large issuers announce that they're going to be here in the United States.

I mean, you know, I think of Tether who was like overseas for so long. You know, they have USAT now. I mean, you know, you have these types of of of announcements and projects and and business activity that is happening as a result.

And so I think, you know, this is sort of what what we talk about when, you know, we have this sort of certainty that there's there's going to be a law, it really does open up a lot of new commercial activity and opportunity.

And so, you know, I think we're going to continue to see the specifics of the rules evolve, but but yeah, there's been a tremendous amount of of interest in the stable coin space in the business community.

I think what's also interesting too is you know when I'm traveling overseas or when some of my colleagues on our team, you know, you can go all around the world and other countries are now talking about the genius act.

You know, I I have one of my colleagues was in a meeting in Korea and there were all these translators and speaking Korean and whatnot back and forth and but you know, every few sentences you would hear the genius act, you know, because they they're very focused on on trying to figure out how to make sure that their laws are compatible with those in the United States.

Gotcha. I think that makes a ton of sense. It seems we're at least at a a point in time where there's enough sort of information and clarity on the table from the legislation for you know companies to start making moves.

But until the kind of ironclad details are are fully put together then you'll see some of that maybe finalization of of rollouts of you know new products and things along those lines. Which makes sense.

Maybe jumping along to I think somewhat a related issue was there was the Clarity Act recently and there was some I guess some I saw some back and forth I guess personally with some certain crypto businesses kind of in favor of what the bill had put forth and others opposed to it on the merits of you know this isn't entirely what we would like to see in a bill so we kind of want to you know we're against this policy unless some critical issues are fixed.

I'm curious if if you and you know SPI have a particular view on clarity and how that is you know sort of mulling its way through Congress today.

Yeah. Well, so clarity is is still a work in progress as you pointed out. The House very quickly passed its version of the Clarity Act last year. Made it through committee quickly. It had a overwhelmingly bipartisan vote on the House floor. And then that bill moved on to the Senate.

I was a staffer in the Senate for six years. I was also a staffer in the House, I think for about four years. And so I can tell you, the Senate thinks, and moves very differently than the House.

There are less senators than there are House members. You know, there's only a hundred. They are, you know, sit on more committees as individual senators than they do in the House. And so they're they have a little bit less focus.

But they also consider themselves you know that analogy has been that the the Senate is sort of the saucer that cools the the hot of the cup. You know the House is very quick to move. The the Senate sort of takes its time and wants to put its own own fingerprints on on legislation.

And so but there has been a tremendous amount of progress in the Senate. We've got legislation that has been introduced. The there you have to remember this bill is particularly complicated because it has to go through two different committees, the Senate Banking Committee and the Senate Agriculture Committee.

The Agriculture Committee has jurisdiction over the Commodity Futures Trading Commission, the CFTC. And so any regulation of like the spot markets goes through that committee whereas the banking committee touches anything related to the securities laws. And so it's it's extra complicated.

You know, there the legislative process is a is is a a long and ugly one, right? There and and you know, that's by design. Like we want to make sure that whatever laws go on the books are workable because they're going to be there for a 100 plus years, right? It's it's not like something like SAB 121 where our new administration can come in and make a change.

Like once you have that framework on the books, it's it's there. You can't get rid of it unless you you pass another law. And I think there are a couple open issues that are being actively worked on. I think some of those are important to Solana. Some of those are less important to Solana.

One issue that is outstanding is there are some members of the Senate that are concerned about President Trump's activity or at least his family's activity in the crypto space. You know, that doesn't have really anything to do with like the regulation of the crypto technology or the crypto industry, but but that is an issue that is continuing to be worked on.

The maybe most public open debate right now is around rewards and the you know the so-called yield issue whether you know a platform like Coinbase for example can pass along rewards to its user base as an incentive to sort of switch over and hold stable coins on their platform.

You know that is there there are a lot of discussions going on right now. the White House is personally involved and there have been several meetings at the White House to try to comprom you know are sort of claiming they're worried about deposit flight and you know they they seem to be pushing back on this but but that is an issue that is underway but I would say that you know the White House is very involved and this is a very sort of key piece to getting the bill through the committee and so I do think that there's probably a deal that can be struck there.

And then there's some other issues sort of around, you know, DeFi and making sure that that is treated appropriately. You know, every time you see a new draft, all the lawyers come in and they look through and they find, you know, some issues here or there.

But I would say the committees are very receptive to having conversations on those issues. And so, you know, I think from a a Solana perspective, I think that, you know, the bill is definitely in the right track. And I think that you know I if if we get the details done right which I which I do think we get that we can get them right that this will be a huge boon for for really the whole industry and and the Solana ecosystem specifically because it'll have that framework that will allow decision you know institutions and traditional finance to enter the space which I think is you know kind of one of the keys to having more mainstream adoption.

So, so, um, but yes, there are some companies that have been very public. There's others companies that are working privately, to try to make these changes. But, you know, I'll say if you look at the Genius Act, I was very concerned about a lot of the provisions in the Genius Act until I wasn't because they, you know, people work through them.

There's a conversations that are happening every day with with the authors of the bill and they're open to making changes in order to make sure that it gets done right. And I I think that clarity can be be you know along on that same path.

It it's great to have your perspective at least on the process I would imagine for most maybe for the viewers out there for you know retail folks within the space. It's you see the headline of oh genius act passes or oh you know clarity bill gets pushed to next house and from house to senate. And it kind of skips over all the other important details like, oh, okay, maybe it might actually, you know, they need to debate this for a bit longer. It'll take one or two years before we see, you know, some real implementation of actual things.

And I think most people are really just exposed to the headlines. So, I think it's great to understand a bit more of the the nitty nitty-gritty and the process there. I'd love to maybe then zoom back out to kind of market structure generally and how you and and Solana Policy Institute are thinking about like what's important to Solana here like from a market structure standpoint and like what are we what would we really love to see get implemented or you know what clarity would we love to see come from clarity?

Yeah. Well, I you know, first of all, I think we want to have clarity that, you know, tokens like the salon, the soul token, those are commodities, right? Like we have ETFs today that have, you know, more or less in a back door way sort of declared those to be commodities. So, I don't think we would want anything to change to that. We think that's that is an important issue.

But what's perhaps most important is we want people to be able to do things on the Solana blockchain, right? We want DeFi to be able to thrive on the Solana blockchain. And so there are some provisions that we would like to see around software developer protections that we want to have included that don't hold developers liable for, you know, any wrongdoing somebody might do with their code, unbeknownst to them, right?

I think that is a really important piece and I think we've been really lucky that the house and the senate have acknowledged that and have and have you know included those provisions in the legislation. So I think that's very important.

Similarly we want to make sure that a software developer does not have the same obligations as a centralized intermediary who has sort of control and custody of somebody else's assets like that is not you know fit that is not regulation that fits sort of the role that they have and so you know we do want to make sure that sort of the regulation designed for intermediaries are limited to just intermediaries and so you know I I think, you know, our goal is, you know, we want to see the the Solana ecosystem, you know, thrive across the board and have anybody who wants to build on it be able to do so in a way where they can do it in the US and that that that they feel like they have the certainty to proceed without having to have a bunch of up upfront cost of hiring a bunch of lawyers and and you know figuring out all the complex details that have kind of prevented projects particularly in the us from from launching in the past.

So so yeah, I think that this is the type of thing that can give protection to those developers. But we also want to have the sort of regulatory protections and certainties that give institutions comfort for issuing new assets on Solana or you know using Solana rails you know to to you know operate their businesses in the background.

So I think that there's you know again I think the legislation is in a pretty good spot. I think we're working on some some tinkering around the edges but you know feeling very confident that that you know if if and when this moves forward which I do think it will move forward that it will be something that is positive for the ecosystem.

How important is the messaging I guess when it comes to certain specifics here in terms of you know how things get kind of passed into law like I know for example I feel like recently we've seen some good wins here for decentralized protocols or like infrastructure networks deepin I think is a good case there where I'm fairly posit I don't know the exact wording excuse me but I know that there's been some notices and statements put out in relation to like Dpin networks for as an example of like a if it's sufficiently decentralized or you know effectively these the tokens associated with those networks are not securities.

I'm curious how much like that viewpoint has been evolved just due to conversations or messaging around the technology.

No, I think you know deepen is actually one of the easiest use cases to explain to policy makers on Capitol Hill because they understand you know some of what those networks look like in a sort of centralized context. And so it's a really good it's you know when they can picture and touch and think about the infrastructure it seems to be a easier way to get across the potential of decentralized networks.

And so you know the blockchain association has held many many flyins in the deepen space. The SEC has also been very responsive to Deepen. I think you know D0ero had a a no action letter from the SEC which allowed them to move forward with their token launch without the fear of you know the SEC coming after them.

And so you know I think Congress recognizes the importance of them. At different points there have been some dependent specific language. I think you know some of that changed because they added this sort of network token concept to the legislation which should capture deepen.

But yeah th those are these are the types of things where as the SEC is able to provide guidance and no action letters on some of these sort of subcategories. We want to make sure that the legislation that's moving forward captures that same spirit so there's consistency between the two.

But yeah, I think DeepPin has been a fantastic educational tool when it comes to teaching members of Congress, particularly those that are sort of new to the idea of crypto. You know, what the potential is. And it's it's been hugely successful.

Yeah, that seems like a key point there. Sort of the translation of, you know, a no action letter is great, but not necessarily the ideal out the end the ideal end state, right? You'd want to see specific language that then gets kind of drafted into law that you know you don't need every future project to then sort of receive a no action letter.

Right. Exactly. Yeah. No, the hierarchy like the most certain the what what is hardest to change are laws, right? Because a law has to go all the way through Congress in order to be signed in to law. And it's you know most bills take years like seven to 10 years on average for a large piece of legislation to get done.

So, you know, once you sort of get that locked into law, it's very hard to undo it unless you pass another law. Sort of the second best to having a law is having a rulemaking. This is when the agency says, "Hey, I've got this authority under the statute. I'm going to issue a proposed rule. I'm going to seek public comment on that rule. We're going to comment on the comments and then we'll do, you know, there's a whole process that they engage in to refine the specifics.

And you know, you can, an agency can undertake a rulemaking without a new law as long as it works with some of the existing authority they have. So, we could have the SEC or the CFTC engage in rulemaking and that's going to be very hard to undo because again, you have to do that same process that it takes to get it in place to get it out of place.

And so, it is not easy to pivot on those things. But, you know, short of that, these no action letters or innovation exemptions or other types of guidance documents can definitely work sort of in the short term while some of these longer processes are underway. So, you know, they all have their pros and cons. But, you know, the the highest standard is to have you know, something written into law that achieves your public policy objective.

Yeah, that makes complete sense. It's I think it it adds merit to the idea that you want to get something as right as possible before drafted into law to the point that then it becomes hard to change and or take back out later.

Yeah, and sometimes it's easy for Congress to kind of codify what the agencies have done. And so it's useful for the agencies to take action even if you know Congress hasn't you know confirmed it as long as it's within the authority they have because if they try to go outside of their authority that's when you know there's administrative procedure act violations and lawsuits and and you know when I was at the blockchain association we challenged the SEC tried to do a dealer rule making that would have been very bad for crypto and DeFi and we sued in the courts and that that is rulemaking, you know, stops in its track at that point because we won our court case.

So, you know, we we we want the agencies to use the power they have, but we don't want them to overstep because, you know, that puts into jeopardy any of the decisions and work that they've done.

That makes total sense. Maybe jumping back over, you mentioned the importance of sort of protecting builders or developers is the way I would think about it. I feel like some of the big cases there in the past have been largely related to privacy protocols.

I think there's been concerns around, you know, like tornado cash and some of these others are, they raise concerns around, you know, non-KY seed individuals maybe moving illicitly obtained funds, for example. That seems to be the common maybe push back from lawmakers against those things. But, the brunt of um, you know, the lawsuits or, you know, battles related to those have fallen on you know, the developers of the protocol who maybe are not doing anything illicit themselves.

Why is this so important generally like for kind of like DeFi builders on Solana or or anywhere else?

Well, I mean, I think if you're a software developer, you don't want to be at the whim of what, you know, maybe like a presidential administration four years from now is is going to want to do. And I think if you look at something like you know sort of the 1960 issue so so DOJ the department of justice uses a definition of money transmitting that is different than what the Treasury Department uses.

The Treasury Department issued guidance years ago that says you know you actually have to take custody of someone's asset in order to be a money transmitter. But the DOJ is interpreting their definition differently. And so that has part of the reason that we see you know Roman Storm with the the in the situation he is in today.

And we've been supportive of of um you trying to help him fight back on this. But you know I think you know if you look at a real world analogy if I'm a car maker and somebody takes the car that I designed and goes and drives to a bank and robs a bank like I you know that wasn't my fault and like you know we need to focus the the crime on the actual criminal and you know allow people to build tools that you know may have mixed use but also have very good uses.

Like I think it's very important for people to have privacy in their financial transactions. I think it's certainly important for businesses to have privacy. I mean, you don't want to let your, you know, competitors know that you're engaging in some project because they're able to see where the funds have gone.

Like you you you privacy is just so important for so many different you know, personal and and business related reasons that we want to encourage the development of technologies that that do that. And so, you know, I think that that's, you know, one of the reasons why we want to see these protections for software developers is that, um, you know, we want people to have the freedom to innovate, and not have to, uh, you know, worry about what somebody may do with the technology that they build.

Again, it seems like at least in the way you've described this money transmitter issue specifically like actually taking custody of user funds. I mean there is sort of a core tenant to kind of like you know decentralized and the crypto ethos around self-custody there. Is that just a conversation that's still ongoing like trying to delineate you know centralized and decentralized platforms and the differences between self-custodied versus not?

Yeah, I think it's an ongoing conversation. I think that there are some members of Congress and particularly in the Senate who are very passionate about the ability to hold one's own property and you know we want to make sure that you know nobody can take that away from an individual. I think that is an a very American principle.

And so we we don't want to compromise that. And you know, getting that concept across to some members of Congress, is a little bit more challenging, but I think most people intuitively understand the right and desire to hold your own property.

I think DeFi is an ongoing educational issue. There are a couple of senators that really sort of grasp it and its potential, but there are others that that are that are less so. But you know there is a very sort of active subset of the crypto advocacy community that is very very focused on DeFi issues.

The DeFi education fund for example Amanda Tumelli over there and her team they do a fantastic job. They have done more briefings than anyone else. But you know I would say at SPI we we do demos and briefings all the time. I think one thing that is really unfortunate is that the way the federal laws operate right now is that for the executive branch, not necessarily the Congress, Congress is different, but for the executive branch, which includes, you know, agencies like the SEC and the CFTC, they aren't allowed to engage in crypto transactions.

And so what they're trying to do is put this framework in place but they you know can't can't dial in and you know go participate in you know a borrow lend or you know do some sort of swap or something like that like they have to see that. And so we've done many demos even at the agency level to uh you know just allow them to sort of see and experience without directly engaging in those types of transactions themselves.

That's very interesting. I would have not I would not have expected that they'd be disallowed from kind of like interacting with the technology entirely. It feels like if you wanted to make any policy, you you'd need to understand what it is and how it works in the first place.

Yeah, you would think so, right? you know they're allowed to invest in you know mutual funds and they're allowed to hold US dollars and they're allowed to do a lot of other types of transactions but they're they're not allowed to transact in crypto and I don't think it's going to stay that way forever.

I know there's a big effort to get that get that changed but you know at this time you