DEX in the City: How Prediction Markets Pose a National Security Risk

Hi all, and welcome to Decks in the City where the wallets are cold and the takes are hot.

First, we have Jessie, Web 3 prosecutor turned Web 3 protector at Ribbit Capital, along with V from the SEC to Web 3.

And I'm your host, KK fluent in Tradfi and conversant in deep tech over at Starkware.

Before we get going, as always, remember, we're lawyers, but we're not your lawyers, so nothing you hear on Decks in the City is legal or financial advice, and it doesn't create an attorney-client relationship.

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Welcome back.

So these days it seems like you can't swing a dead cat without hitting a bunch of new prediction markets.

I've always hated that expression.

It's kind of creepy.

Never heard that expression.

Is that an expression?

Very common wing.

You can't swing a dead cat and start an episode like that.

You can't swing a dead cat without hitting a bunch of lawyers who are good at the SEC, for example, but not the CFTC.

Well, the same goes for prediction markets.

Yeah, way to start the episode, Catherine.

But the point is, everybody's obsessed with prediction markets, right?

The market, the tradvi, the latest, uh, was NASDAQ is actually filing for, with the file with the SEC, um, for, uh, To list prediction style binary options on its NASDAQ 100 and NASDAQ 100 micro indexes.

So this is in many ways a good thing, right?

Um, a lot of people are confused because sometimes prediction markets have nothing to do with crypto.

But unfortunately, we've also seen a lot of absolute chaos in the prediction market, market over the course of the next week, or over the course of the past week.

Jesse, tell us more.

I could rant about this one forever, and there are a lot of avenues to take here, but I'm gonna try one that hasn't been bludgeoned by Twitter lately and over the weekend.

But first, some facts to sort of lay out what's going on for those who haven't been following it minute by minute.

So, as we all know, there is a war going on in the Middle East, um, which started with an attack on Iran.

By the United States.

Um, 71 minutes before the world found out about the US striking Iran, someone went on a prediction market and placed half a million dollars on it.

And the account name that placed that bet was Maga my man, which I'm just gonna say grown to.

And he wasn't alone because there were also 6 wallets coordinated together, made over a million dollars, who all loaded up right before the news of the strikes dropped.

And this isn't the first time, I think we've talked about it on here before that we've seen something like this.

So we had suspicious profits tied to the Venezuela operation.

We had an IDF, the Israeli military, arrest a reservist of the Israeli military for betting on their activity and bombings.

So yes, people are debating whether this is unethical.

They're debating whether it's insider trading, we'll get to that later, and they're debating whether betting on war is fucking gross, for lack of a better phrase, and I'm gonna say yes to pretty much all of that, but from a national security perspective, the problem is bigger and nobody is really talking about this.

Prediction markets have created a direct financial incentive to leak classified intelligence.

Gonna pause there.

Before these markets existed, if you sat in a classified briefing, I've done many of them, and learned about an upcoming military strike, who could you sell that information to?

A foreign government, maybe a journalist, but the risk is enormous and the buyer pool is tiny, and it's a lot of work to be a spy.

You should all go watch Breach, which is about Robert Hansen, which we could talk about, but he's a very famous spy that really changed how the FBI sort of shared information.

But he had to smuggle secrets into a park and take them under a bridge.

That was how espionage used to work.

But now the buyers could be everyone.

Spies used to need tradecraft and a handler and a dead drop.

Now they need market access, and I, I don't know.

I don't have information that these were spies, that these were people from inside the government.

I don't have any of that, but the pattern is really, really bad, and it's a bad look regardless for how we maintain classified information and how we purport to support prediction markets.

And the incentive structure is actually insane when you think about it, and Matt Levine really talked about this in depth, but I just want to mention it for a second, like, you can bet on which city will be bombed, and potentially the people that are making those bets are ones who have control over those bombs, or ones who have control over how long a war lasts.

I I just don't really know how this is real that we potentially have Bloomberg terminal espionage.

And it gets worse because these wallets are visible.

So even if you don't have this like spy espionage wanting to sell information to another foreign country, but rather just like thinking about profit and access to prediction markets, and you're working in the government, you're not making enough money, or you just happen to hear about something from someone in the government. because DC is a really small town, these wallets are visible, and so if 6 accounts are loading up on US strikes Iran, 71 minutes before it happens, and let's be clear, those markets were very, very low.

It's like 1 or 2% of an Iran strike before this all happened.

But who else is watching that?

It's not just crypto Twitter, it's foreign intelligence services because they monitor financial flows for a living.

This is in no way farfetched.

I can tell you this from my prior life.

Like they can just look at these markets and potentially guess what is going to happen, or at least what the likelihood of it all is going to happen.

Our sense of information sharing is just completely changing.

And so where are we with all of this?

There's a lot of speculation, we don't know who the insiders were.

It could have just been a good guess, right?

But tools are being built to stop insider trading on these platforms.

Yes, DOJ can stretch wire fraud.

Yes, the CFTC says platforms should self-police, but I'm sorry to say platforms can't really even figure out market resolution yet, because you can think about how Kalshi was scrambling this past weekend to deal with the commanding.

Market and whether it was a death market or not, and I'm sure KK you'll talk about that.

Right now we don't have a single institution with the tools, the staffing, the legal authority to treat this as a national security problem.

It either is or could become.

And until we do, every briefing could be a potential trade.

And it's just not as sexy as James Bond in my mind.

Instead, it's just people online potentially sharing information or at least getting lucky and foreign governments tracking this minute by minute.

It, the national security point is such a good one, Jesse.

I want to educate people about a couple of things here.

One, I mean, first, you alluded to this, uh, what Calhi's actions that they took.

So they accused two users of insider trading, including an employee of, um, the really popular YouTube channel, Mr.

Beast, which my son is obsessed with, who was said to make trades.

On the content of his shows, the outcome of the shows, and Kelsie suspended and fined the two users.

And I know a bunch of people were really confused about that, like, why is Kelsie doing this?

And this is actually an important distinction that a lot of people arguing for federal CFTC jurisdiction versus state gaming jurisdiction make.

And the the distinction I'm talking about is gaming markets like gambling is regulated by.

State gaming commissions, you know, third-party regulators, uh, DCMs, uh, as a refresher, as we've, we've talked about before, um, these are CFTC designated contract markets.

Those are the, those are the registration you need in the United States to be a prediction market.

DCMs are subject to very specific requirements, and it is effectively a self-regulatory like framework with a public.

Rulebook, a required disciplinary tribunal, very specific oversight, like that is required.

The, the private organization must have a process for enforcement, separate and apart from the regulators.

So that's exactly what Calci did.

It was enforcing its own rulebook.

And this is also why CalSci can't have, or any prediction market can't have contracts on whether You know, predictions on death effectively, because under the Commodity Exchange Act, prediction contracts must serve an economic purpose like hedging, but B, must not be contrary to the public interest.

So, if a contract is a moral hazard, and it creates a direct financial incentive to cause that death, obviously, it's not.

It is not in the public interest.

And I mean, this actually feeds on your national security piece, Jesse.

Say someone like bets that so and so is going to die or is removed, and, and obviously, this is the, this is the issue with the Kalshi contracts linked to the issues in Iran right now is, I believe the specific language was removal.

And now Kalshi's saying, well, That's not necessarily death.

Well, well, what is removal, right?

It gets very gray and very fuzzy very quickly.

But what is stopping someone from effectively putting like a bunch of money on polymarket or calci or another prediction market about the removal of an individual, and then going and killing them or hiring a contract killer, and then making millions of dollars.

Now, some of And what's even, sorry to interrupt, but like what's even really more interesting about this is like, the prediction markets are purported to be the single source of truth.

I haven't seen that play out yet.

I mean, you can just talk about what the percentages of an Iran strike were before all of the people put their money on, and whether we should be betting on this is sort of a or predicting markets on it.

We can't say betting um is right or not, is like one question, but whether this actually gets at truth is also another question because The contract essentially on Kohi seemed to be designed so that the most likely outcome wouldn't trigger a payout, if I'm understanding correctly, because it was something like, you know, will the leader be out, right, or removed.

But if he either survived.

Or got killed, but he just decided because he was old or he decided to leave or whatever, the expected value of the contract actually goes down.

And so there is no source of truth here either because like the people who have the information about it shouldn't be betting on it, but also like the way it's worded isn't getting at what the truth is.

So are we even accomplishing anything here?

Yeah, OK.

So I think we, like literally, this is like 10 different really important and really challenging issues.

But I want to focus on the like this idea of like death markets aren't allowed, right?

So yeah, I mean, sure, if someone spins up.

Like a market that says so and so is gonna die by like April 1st, that is clearly a death market.

It'd probably be taken down right away and it would be illegal under like the CEA, uh, guidelines, right?

But like if you think about it, isn't any betting market that is tied.

To an individual, inherently a death market.

Like, if I, you know, if I, no, seriously, like if I get that Catherine is gonna run for president or like some player in an NBA game is gonna score 9 points, right?

If that person dies, it turns into To a death market.

And that's, that's like putting aside the whole like perverse incentives thing, right?

Like, so, so the question is, is like, how do you even decide ahead of time whether a market is going to end up violating either Cai's own like internal.

Guidelines or like terms of use or like the actual CFTC laws themselves.

It's a creepy but really interesting point, and um it's, it's a hard assessment and the other thing I really wanna take a beat.

And mentioned that there are also a lot of really good things about prediction markets.

Like, obviously, we've seen a slew of kind of disturbing behavior, a lot of legal and functional questions, but I want to remind everyone that in addition to the fact that they really do have a strong track record of, like, really robust evidence of predictions that they are historically Um, this kind of activity is, is, there's a long history of this kind of activity in the United States.

They provide real-time probability, which is extremely valuable for hedging, market liquidity, um, and then they also provide real, they reveal information that other mechanisms suppress, including things like price discovery.

So this is all.

Well, good.

And uh lastly, what is really important in 2026 is a lot of people will assert that prediction markets are not political or partisan.

They're ideologically neutral, which is a beautiful thing because more and more of everything is partisan in one way or the other.

These are all good aspects.

The question is how do we ensure.

That these good aspects are there while preventing the, the troublesome aspects that we're talking about.

No, like, not to jump ahead to insider trading, and I actually like, I really want us to like use that term more precisely.

Like insider trading has a defined like legal meaning or like a settled legal meaning, and it's usually like in the context of the stock market, right?

Like trading on.

Public company stocks like I think here securities, yeah, exactly.

So like here when people talk about like quote unquote insider trading on in betting markets, prediction markets, they're, they're typically talking about just people who have like Inside information or confidential information and they're trading on it.

It's not necessarily that we're saying that they are like committing insider trading the criminal law, right?

But so like to your point about prediction markets potentially being a valuable source of truth, right, as reflected in like the price.

I, like, I think there's a really important kind of policy question embedded in that, which is, are we OK with price and information being more accurate because it might reflect People using inside information to inform that market.

Like, I don't, I don't actually think the answer is clearly no.

I think maybe that's, that could be a public good, right?

I think in the in the market we have decided as a matter of law that we are not OK with that, right?

Like even if insider trading probably does make prices more accurate, we have decided as a society that we care more about markets being fair.

And so insider trading is a crime, but it, it, it definitely like price discovery, right, exactly.

But so I think we sort of need to think about prediction markets and the presence and maybe even the prevalence of like insider information informing these markets.

Like, are we OK with that in general?

Are we OK with it maybe just with respect to specific kinds of bets, right?

Like I think that's actually a really important question that like we have not fully grappled with.

I want to jump back to, because I think that's a good point, V, but I also want to jump back to something, Catherine, that you said, because this isn't a challenge as more as I, I just don't think that people have gotten specific enough on why these prediction markets are useful.

There are a lot of hand wavy comments of like, this is the source of truth.

It's better to have the all information out there.

And you have a historical knowledge of what these were before polymarket, Calci, etc.

So, can you just make that a little bit more tangible because it's very easy for me to be dubious of this claim when a lot of the conversations are about war markets or death markets, or even sports issues that aren't betting, which feels like, is that really what we want?

So, the best example, and this is often cited in scholarship, is actually, it predates modern prediction markets, but a lot of people might recall the space shuttle Challenger disaster, or they might not, I mean, I was too when this happened, but within minutes of that explosion, The market had already identified the O-ring manufacturer as the culpable party of the Challenger disaster, and its stock dove like far more severely than other contractors.

And this happened, like, almost in real time, you know, hours, if not days before, if not months before official investigations and confirmations.

And now, that's a good thing, right?

Like that funneling media.

Real-time information, the culpability.

Now, equally dangerous is if those prediction markets had gotten it wrong, which brings us to the ZAXPD axiom investigation, like meaning, if there's a critical mass of people that are betting on the wrong thing, it creates kind of a FOMO dynamic.

But the other thing I'll also cite is people forget that the United States and In particular, had a very, very long history of what were effectively prediction markets on things like political elections and the outcome of political elections.

And if anything, there was a huge volume of betting in, for example, the 19th century in the United States that diminished when the uh kind of morality of gambling came into play in the, like, early to mid-20th century.

So there's a, there's definitely an argument to be advanced so there's nothing wrong with this.

There's nothing wrong with people exercising their free speech and hedging their own, um, you know, the, the, the core, the core, uh, ethos of futures contracts, hedging their own exposure on a variety of different scenarios.

I was like thinking, no, I'm, I'm, I love that example about the Challenger, and I wish we had more tangible ones or at least people were talking about them more because I I think maybe prediction markets could be great, and there are a lot of people building in this space, and there's a lot of opportunity here, but there's also something sort of like hold your nose at financializing, geopolitical wars, issues about leaders dying, because like, people are being affected by this war right now, right?

And a lot of people are just talking about the markets or like the, you know, there's a lot of issues about who gets it.

Decide who gets paid when, when like there's a lot happening right now in the world and I, I, I guess just to double click on what you said, someone made fun of me of using double click.

You love that expression is that true?

I don't know.

I think it's like synergy.

It's wait, Jesse, before you go to the, I want to cite one other example where I can't believe this didn't occur to me.

Who can, who can forget the fact that the prediction markets accurately.

Predicted the presidential election.

I think we're gonna say that one significantly more so than the polls.

So I look, whether that's good or bad, who knows, but they were like the accuracy of these prediction markets are usually on point.

Again, in a minute I'll talk about axiom, but usually on point feels a little bit extreme.

No, I have a lawyerly expression.

I, I think that is, that is an example that is not.

As problematic as some of the other betting markets that you see, right?

Cause it's, it's an example of an event that like no one person or small group of people could directly influence.

It's literally millions of Americans.

So there I think it is valuable and does not create like perverse incentives or a moral hazard.

That's just not the case with a lot of the markets that we're seeing out there, and I think that's where you run into a problem.

Yeah, so how do we fix it?

Like, I, I think your point is interesting about like, is insider trading actually good for markets or what, what is the way that we should be running this?

And I don't think you're necessarily arguing for that, but I would love your sort of SEC perspective on this, right?

So how does that work?

Let's assume we take out the national security stuff.

If you work for the government or you have access to classified materials, you can't be a part of this, OK?

But if you're inside a company, right, and like.

Is that a different rule?

Like if you work at a public company, are you sharing that information?

Or if you are the wife of someone who works or a husband?

Like, how, so I've, I touched on this, I think like we did a prediction markets or insider trading episode like a while back, but, and I can't help but look at prediction markets through like.

A securities, like law lens, right?

And like, I mean, maybe KKU actually worked on insider trading cases too, when you were like in private practice, but I did that when I was at a law firm.

Obviously, I worked on those cases when I was at the SEC.

Um, and Jesse, you know, from working at an RIA that they have very strict insider trading policies because they're a type of company that frequently comes into possession of material non-public information.

So any company in the private sector that's likely to have MNPI, right?

We have really like robust like compliance procedures and processes to make sure that insider trading is not happening by their employees.

And at the SEC, right, we have like a pretty developed, like, there's pretty developed laws around insider trading and so we do a lot of, we did a lot of investigations, um, and it.

It can be really hard, right?

Like, even with all of the reporting that's required, even with like all of the monitoring that FINRA and the SEC do, it's really hard.

And that is just the stock market.

It's like one in one thing, right?

Prediction markets, you're literally opening up the ability to bet or trade on the entire world and like anything that could potentially happen in life.

How are you supposed to police that?

It's literally, it's structurally impossible.

And so like, when, you know, when the prediction market, you mentioned earlier, KK like announced the two investigations that they did, I almost laughed because I was like, good job.

Do you really think to even scratches the surface of what is going on in these markets like on a daily basis, right?

So, and, and there's like one employee working at the CFTC's office in Chicago.

So I, I, I don't think it's an understatement to say.

We are so woefully under-equipped to go after this problem and, you know, I do think it's something that both the platforms and the CFTC are taking really seriously.

I think it's going to be a monumental challenge.

Well, look, I, I have to throw something in the mix here.

I mean, one of the solutions to this, in my mind, at least with prediction markets, is more accountability to the predictions markets themselves, like more internal enforcement, you know, looking at if I were at a prediction market right now, I would be looking at my own rulebook and looking at my own enforcement mechanism and doing everything I could I could possibly do to turn up the volume.

Particularly in light of the fact, there was some exciting news in that we finally got a director of enforcement appointed at the CFTC, David Miller, a longtime ex, um, federal prosecutor at the Southern District of New York.

And fun fact, by the way, I hate lawyer shows, but the one lawyer show that I have enjoyed over the years was HBO's, or sorry, Showtime's Billions, which was loosely based on Steve Cohen's hedge fund and the Southern District of New York's attempt to nail Steve Cohen's hedge fund, which they did not nail him.

Personally, and now it's 0.72 and that fund is doing better than ever.

Um, but anyway, David Miller, the, uh, uh, new head of enforcement, exceptionally well qualified for this role.

I'm thrilled to see additional CFTC enforcement.

Enforcement is good for crypto, you guys, like we need more enforcement.

Against all of the bad actors in the space, it lends credibility to us all.

But anyway, he was a consultant on Billions, like, it's on his LinkedIn profile for years, which I'm like, they did such a good job on that show of relatively showing how federal prosecutors work on Billions.

I really enjoyed it.

So I want to see more enforcement from the prediction markets themselves.

I want to see more enforcement from the CFTC.

I want to eliminate this YOLO, we can do whatever we want environment that exists to some degree within crypto and with prediction markets.

We basically need to tamp down appropriately, narrowly tailored rails so that we can get the good and minimize the bad.

I don't know if Billions was super accurate as an ASA.

However, Damian Lewis was a hottie, and I was really into that show too.

He's a great actor, but he has red hair, and I just can't like redheaded men.

It just doesn't follow redheaded people around.

Why do you think that?

The other thing about that is, look, I, my biggest issue with lawyer shows is everyone is always way too attractive and in really good physical shape, and I'm like this that's not realistic.

OK, so look, I think there's a consensus that prediction markets are a bit of a mess right now, but there's some good in that.

We are gonna take a quick break and then we're gonna continue with some more conversation around market manipulation, the cousin of insider trading, and talk about Jane Street.

After the break, um, we're gonna hear from our sponsors.

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And we're back.

So before we get to a discussion of Jane Street and alleged market manipulation, one of the things I teased and then didn't cover is related to prediction markets is Zach XPT.

So really quickly last week, he basically went on and they, they teased this major investigation dropping February twenty-sixth on one of crypto's most profitable businesses that created kind of hysteria in the market.

Obviously, a, a contract as to what company this was, fair amount of liquidity.

Well, apparently a bunch of people specifically and trickily pumped Meteora, a project as the leading contender, and everyone assumed, oh, it's Meteora.

Then boom, it turned out to be Axiom, and the conspiracy theories are effectively proliferating over this, but The sense is that someone hired Zach XBT to do an investigation, knowing um that they would come up with Axiom, pumped Meteor as a distraction, and then at the 11th hour bet on Axiom.

So really manipulative, really sad.

It's, it's cost a, you know, kind of cast a shadow.

Over Zack XBT, um, in addition to all alleged participants in this, but it raises the same kind of questions we were discussing about people in power manipulating these markets.

And it leads us very naturally into what is market manipulation versus what is insider trading.

And V is gonna talk a little bit more about this in the latest kerfuffle with Jane Street.

Also kind of involving like a conspiracy theory, which I feel like we talk about a lot on this show.

So, I think you guys talked about Terra's lawsuit against Jane Street for alleged market manipulation last week or insider trading.

Um, so that sort of revived, uh, uh, an old narrative or conspiracy theory about James Street that's kind of been out there for a while about them manipulating Bitcoin's price.

Um, and so like, it, you know, it sits in between, like crypto.

Twitter conspiracy theories and like, what the actual law is.

Again, something we talk about a lot on this pod.

Um, so the question is, is like, what, you know, what is James Street actually doing?

And is what they're doing illegal market manipulation?

Um, so what James Street does is that, um, they sell Bitcoin at 10:00 a.m.

Eastern every day, which is when the US equity markets open.

Um, and, you know, I think other, like, large institutions also do this too.

And the theory is that this sort of practice, uh, artificially pushes the price of Bitcoin down.

And they think that Jane Street as a major ETF, they're a major ETF market maker and a major liquidity provider, that they could be doing it, um, where they're like selling spot to hedge ETF flows or they're trading futures against spot, or they're capturing some sort of basis on it, or they're doing some other sort of like manipulative trading to deliberately push the price down, right?

So, the idea is that it's engineered, it's not just like natural market activity.

Um, and what I mean by that is like, you know, the market price reflects like actual uh forces of supply and demand.

And that's what's determining the price, right?

So, I think we, we kind of need to slow down when we're talking about, like alleged manipulation.

Um, because I want to make one thing clear, which is like, markets can move and they move all of the time, even in very, like, dramatic ways without it being manipulation, right?

Like we all know when large firms place orders, absolutely, that can move markets, that is not controversial, right?

So if you're a major liquidity provider, hedging ETF creations and redemptions, you probably will move the price if you're doing it over a short window, or if you're arbitraging future and spot, like I was saying earlier, that could also Um, like, significantly move the price, but the legal distinction that matters is that Manipulation, the legal definition of market manipulation, it requires 3 things, right?

It requires 1, a deceptive or fraudulent act.

2, it requires an intent to actually mislead the market.

And 3, there has to be an artificial price impact from that, right?

So, if you guys have heard of things like spoofing or wash trades, or layering or pump and dumps, or putting out false information to move the price, right?

Those can all be market manipulation and they're legal.

But simply selling a large amount of an asset, even if you're doing it like at the same time every day or in some other programmatic way, that alone is not a legal market manipulation if it's real trading.

But again, the intent to mislead or deceive matters, right?

So, I, I'm not seeing any evidence of that here.

I don't know if you guys have seen or heard anything more, right?

Like I said, it's very normal for market makers and authorized participants, which Jane Street also is for the ETS.

They regularly hedge.

Um, it's normal, and it can be aggressive, but it's not generally.

Illegal, right?

And I just, I haven't seen any evidence of deceptive conduct by them beyond that or like a coordinated scheme or any fraudulent statements that they put out or anything like that intended to move the price.

Um.

I, I think you're right.

I think you're right on this, and like it's one thing I want to flag is this is completely different than the Jane Street terraform thing that we discussed last week.

Like it's just odd coincidence that this is like two Jane Street pieces of news.

So putting their involvement or alleged involvement in terraform aside, exactly as we said, this is a bit of a conspiracy viral theory, and a lot of people are furious at Jane Street.

You know, they're basically saying that exactly as you described this price dip, like Jane Street is an authorized participant for a lot of popular Bitcoin ETFs.

And, you know, these authorized participants keep, you know, ETF prices in line with Bitcoin's actual price by creating or redeeming shares, and they profit from small price differences along the way.

And this theory that they're pushing, you know, that they're selling.

Off Bitcoin every morning to push the price down.

I, I don't think it is legally sound to market manipulation here.

I agree with you.

I also think, I don't know why crypto's pushing this narrative, because I think that if one firm had the power to do this, this raises macro questions about decentralization and the stability of Bitcoin that we don't need to go there right now, crypto, like take a breath.

Um, I'll also add, like, I think part of the viral theory is coming from the fact that this is Jane Street.

Meaning this firm is notoriously secretive.

Obviously, Sam Bankman Fried started his career at Jane Street.

I mean, that's not Jane Street's fault.

Clear.

The other interesting thing is there's all these weird conspiracy theories about their interview process, like their, their, uh math-oriented probability puzzles and bizarre interview process of asking people to like play poker and uh solve like mental math calculations became notorious with quants and on Wall Street.

Um, so it, you know, it, they, they kind of lend themselves very well to conspiracy theories.

And on that note, by the way, I will say, I've had a fair amount of jobs, and I, no one has ever asked me to solve a math problem.

Maybe that's a lawyer thing.

I mean, Stark Wars technology is based on the most complicated math and cryptography there is.

They did not ask me to solve math problems.

Thank goodness, because that would have been a problem.

Now you can just use plot.

I mean, on the Jane Street thing, just to sort of compare different regulators, uh, just thinking back on what SEBI and India did against Jane Street, you know, they were able to bring a humongous enforcement, um, decision and order against them for manipulation of something like bank nifty derivatives, I think it was.

And, you know, the specific of it aren't that important to this conversation here, but Sebi was able to act really, really quickly, freeze hundreds of millions of dollars in assets, bar traders from the market, etc. because the market manipulation standards in India are different.

Um, and you know, I think mens rea and having intent is super important and essential to the US justice system and India.

Some of that I'm not, I'm not minimizing, you know, their justice system as well, but SEBI is able, because it's a huge regulator that oversees a lot of, you know, more varied, uh, instruments, they're able to sort of act quickly and differently in these markets that sort of maybe jump over derivatives and the SEC and sort of just general regulation as well.

Yeah, I, I also think like people like to yell market manipulation whenever crypto prices move in a direction that they don't like or that like doesn't make sense, which I get because I think crypto is not at a place yet where Either fundamentals or where current events always have a predictable impact on the price, right?

So, like, we're kind of in this place where we're kind of grasping for explanations and market manipulation is just, it's an easy term to throw around.

See, I wonder if you hate insider trading as a phrase or market manipulation more.

They're both quite vague.

Yeah, yeah, they're both sort of nebulous, and they both get used way too casually, for sure.

Used and misused, and what like crypto GCs for years have been like, look, you can always see, you can always flag a bad crypto GC when they have a quote unquote insider trading policy at their company like PSA.

These are crypto assets.

It's not.

Insider trading, they're not securities, so don't have a policy called an insider trading policy.

You can have an ethics policy.

You can have a manipulation policy, yeah, or you can have like a, like a misuse of confidential information, conflicts of interest, but words have meaning.

I mean, every lawyer knows that regulators know that there's a reason you need to be precise with this language in these terms.

Yeah, I think it's sort of crazy that crypto started this idea of like.

Getting rid of or minimizing financial intermediaries, and here we are talking about authorized participants with ETFs and all the different regulators overseeing it.

It's just we have really gone far from that original nugget of Satoshi.

It's a perfect transition to our, our next topic, Jessie is speaking of Tradfi, the OCC or the Office of the Comptroller of the Currency.

Um, of the Treasury Department, which is in charge of, basically in charge of banks, uh, came out with some like pretty serious guidance on Friday, vis a vis stables, and like, good, we need to take a break from talking about market manipulation, when you talk about stables, which everybody loves stables, regulators, Stratify, OK.

So what they basically said, and I want to remind people that the Genius Act was passed regulating stables, but it actually isn't going. to be in force until 2027.

So this is another words have meaning point.

When people say it's a genius compliant stablecoin, I'm like, it's not actually genius compliant because genius isn't in full force.

I think what they mean is obviously the requirements of the stable adhere to what is in genius right now.

But a whole host of regulators are, you know, basically, as the OCC did, publishing guidance for market comment and feedback and potential revision.

And the OCC came out and said basically, stablecoin issuers, you cannot pass on yield to users.

And I will just briefly mention this is not all bad.

There was also impact of foreign payments stablecoin issuers, so it's a bit of a pro-American narrative.

Uh, it's, uh, it's a little unclear how this is going to interact with the Clarity Act and the ongoing negotiations.

But the biggest takeaway is, look, you can't give yield to your users.

So there are a lot of implications.

For example, the Coinbase circle arrangement.

And once someone in crypto asked me why, why no yield?

Why are they doing this?

And I very briefly want to mention that if an Issuer holds assets and passes interest income to users, this starts to look like a bank and a bank deposit paying interest.

And this is a problem for the OCC because banks are only allowed to do this when they're insured, when they're subject to a long list of complicated requirements, and stablecoin issues under Genius are not subject to the same level of vigor.

So it's a little unfair in a lot of ways.

And So, the OCC and Congress really intended for a narrow framework for stables, meaning they hold stable assets, they issue tokens redeemable 1 to 1, that's it.

So passing on yield goes beyond this and makes it harder to regulate, whether people agree with that or they just think banks are getting a deal here like TBD.

So, obviously, you used to be at Anchorage.

Anchorage has a big part in this conversation.

It was obviously a federally chartered bank.

Do you have any thoughts on the OCC's guidance or how the market is reacting to this?

Yeah, I, I mean, I feel like we've been talking about this, like crypto's been talking about this nonstop in the context of the Clarity Act, right, because the big fight or the big holdup, um, on getting the bill passed is like Coinbase pushing for the ability to be able to pay yield on like.

Just, uh, holding balances, and the banks pushing back super hard against that.

So, I, I like think the whole, like, I mean, I get your, what you just raised, KK about like why this might feel unfair to banks and, and why, like the band could be a good thing to just kind of level the playing field.

Um, but like 22 points to that, right?

One is like, stablecoin issuers, the way, one big way that they will Differ from banks is that they're not allowed to touch, like the reserves, right?

So it's not like where banks can do things with their customer deposits and, you know, that's part of why there's like FIDC insurance and that sort of thing.

So none of that like applies to, to banks.

They can't do anything with the reserves, like they're required to hold the backing to the stablecoins like 1 to 1.

Um, but I will say the whole fear of Like deposits just completely fleeing banks.

It's a little bit overblown.

I was actually doing some research into the history of this recently and they've actually made the banking industry, that is, they've made this argument so many times throughout like the last few decades.

Anytime There was some new product on the market that they thought would compete with bank deposits.

Um, so this happened when like money market funds were invented and securitization and other types of non-bank lending, right?

So, I think just as a general matter, I'm a little just kind of skeptical.

Um, that this is gonna like lead to the collapse of credit and the collapse of the economy.

It's like, calm down, that's probably not gonna happen.

Um, and then second, I mean, I believe in capitalism, and I believe we all believe in financial innovation, which is why we're in this industry.

If there is a product out there that is more attractive to consumers, and that's where they would rather deposit their money or put their money, I think the market should be allowed to innovate and the government shouldn't.

Basically be intervening.

To prevent that.

That's just my general view.

Like I, my views specifically on this issue are a little bit more nuanced, but I think in general, it's usually a bad idea to have that sort of like state planning.

Yep, it's always a question too between sometimes regulation can feel a little paternalistic.

Um, I think that's definitely a bit of a specter here.

Look, like we do live in America, people should be able to do what they want with their money and not have the government tell them what's safe and what's not.

Um, now, of course, there's limits to that.

It's not always that clear cut.

So I agree with you that it's nuanced, but But great points.

So I want to move on to one more topic very briefly because it really wouldn't be an episode of Sex in the City in March of 2026 without our AI corner from Jesse.

And there's so much happening with AI.

Like it's like AI and prediction markets.

I mean, the robots. are taking over.

They're stealing all of our jobs.

We saw, we saw significant, it's not funny.

Um, we saw significant layoffs this week with Block.

We also saw an article from Zach Shapiro go completely viral on how to basically make AI legal work more efficient.

Jesse, tell us more.

Well, first I wanna start with everyone should go watch that robot fighting dancing video in China.

I will make sure it's in show notes or whatever because that just shows you how impressive.

Their dexterity is, I'm 40 and I can't move like that.

So, uh, we are gonna really talk robots on the dance floor.

But, um, what's interesting this week is the block news that you mentioned, which is scary and also informative, but also I don't think we should take it too far.

So much has been happening in the past like maybe month or so, a few weeks that have affected the market.

So much when it comes to AI, there's like a report that comes out and then markets associated with SAS or with cybersecurity or with legal tools plummet or whatever it is, and cloud in particular, but many different AI tools are just like the a number of new things that are coming out all the time is really hard to keep track of because it is really so exciting.

So everybody try your best to keep track of it, but we will keep bringing up.

These kinds of things as well, but essentially Block has reported through a Jack Dorsey tweet and through their sort of public earnings report that they are cutting about 40% of their staff.

And a big reason for this, or a stated reason is that they have developed this internal tool called Goose, which essentially replaced a lot of the coders, and you should all go listen to the Lenny's podcast on.

Interviewing the CFO and how they sort of created Goose, cause it's actually really, really interesting.

Now, a lot of people are saying, like, is the layoffs because of Goose, or is it because they overhired during COVID?

Like, that is really unclear.

We should also all go read Jack Dorsey's note on it and the note that he sent to the employees, cause it's really devastating.

A lot of people are losing their jobs, and at the same time, like, he's trying to be.

Thoughtful about it, but it is unclear what ramifications this will have in the market, particularly because the block square, you know, stock rose so, so much when this news came out.

So what does that mean for other companies who are at least going to do layoffs to get a stock bump or some excuse?

We, we don't really know.

So that's sort of the sad, scary side of it, but the good side of it for all you lawyers listening.

Is that there's amazing opportunity here for lawyers in the space to leverage this technology, and the Zach Shapiro, uh, tweet thread or whatever we call them, an article did go viral talking about this in particular, and Zach Shapiro is someone that has worked in crypto for a while.

He's, um, you know, he started his own law firm that deals a lot with corporate and some regulatory issues for crypto and other companies, and he's been doing a lot of really good publishing.

On how he uses AI to sort of increase and enhance his legal practice.

And it's not one of these like tweets that's like lawyers or consultants or finance advisors or tax people are going to be replaced, but rather how this is really, really exciting because it can make your entire profession better and more efficient.

I, I hate to say that I pretty much thank Claude every single day in some form, and I don't.

Just mean writing thank you, but I mean like my heart falls back in love with Claude almost every single day because how much better it makes my job, not just in helping me learn, but helping me be more efficient.

So everyone go read the Zach Shapi article, but also go play with the tools, please, and be, don't be someone that maybe gets replaced, but rather figure out how to make yourself exponentially more efficient.

Can you give us a tutorial?

Yes, I would love that.

I use Claude every single day too.

Like Claude is becoming my best friend.

I like how he greets me.

Like, good morning, Catherine.

Like, you know, it's, it's, you can also ask Claude to call you specific things.

Like I have friends who are like, Claude calls them queen, which is, you know, whenever I say something good, it automatically goes, Yes, queen.

So yes, I, I need to, I need to do that.

We need all, we need all of that.

We need all of the good vibes in a bear market.

So, really briefly, I, I don't wanna take too long because up next, we have an Unchained episode that promises to be particularly good.

It's Laura interviewing Will Clemente, Investments at Sticks, Joe Vazzani, co-founder and CEO of Lunar Crush, and Marcus Wu, research analyst at Delphi Digital, so packed with Alpha.

But I want to end with, as usual, our crypto good news.

And now, this is somewhat non-traditional crypto good news because it's a Visa and Bridge partnership.

And I know, OK, OK, Tradf should never be part of the crypto good news.

But the good news is they're expanding their collaboration to bring stablecoin-linked cards to 100 countries.

This is actually pretty cool.

And the deeper story is, it's On chain settlement pilot, you know, a Visa can settle transactions in stables on Solana rather than routing through traditional correspondent banking, it dramatically cuts settlement time from days to seconds and reduces costs substantially, um, especially for transactions in countries and markets like Africa where correspondent banking is both expensive and slow.

And they haven't actually announced the 100 countries, but they have alluded to the fact that this planned expansion is gonna cover the Middle East.

So the fact that company or countries that are experiencing obviously macro volatility right now have access, like, look, this is a use case for crypto that we are seeing in real time.

It is impactful.

So it's a beautiful thing, and I wanna shout that out.

So all, thank you so much for joining us on another jam-packed episode of Deck in the City, and we will see you next week.