Rules have always come after new markets, Rebecca Rettig, head of legal and policy matters at Polygon Labs, tells Brady.

• Asking the crypto industry to conform to rules for older securities markets is an ahistorical position, in her view.

Why it matters: A key argument by the SEC is that it has all the rules in place it needs to deal with crypto.

• But Rettig doubts that approach will actually lead to a market that's as efficient as it could be.

The big picture: It's possible to create rules for blockchains as we know them that also satisfy the objectives of financial regulators, but it's going to take time and effort.

• "This is hard work, to figure out how to put in place the three regulatory goals: consumer protection, financial integrity-slash-market stability and combating illicit finance," she says.
• "It's hard work to figure out how to do it without importing all the intermediaries and the friction we've had in the past, without taking away all the benefits of it."

Yes, but: It's been done before.

Zoom in: Rettig presented two examples of how markets came first and then rules were formed around them.

• The Exchange Acts of 1933 and 1934 were passed following the 1929 crash of the stock market, following what was perceived as an era of abuses by players in these markets.
• Rettig explained that much of the tension came from exchanges being owned by brokers who managed trades for their clients. This put them in the position to take advantage of traders.
• Subsequent laws effectively codified a system where normal people need brokers to trade securities. It's not possible to do it without a broker between a person and the exchange, in the U.S.

Be smart: On cryptocurrency exchanges, though, retail users can go direct, like something created in the internet era.

A second example: In 1998, the SEC promulgated Reg ATS in order to create rules for how alternative trading systems should operate.

• The rule responded to private, electronic networks of traders that the SEC allowed to run for almost three decades, going back to 1969's Instinet.

What they're saying: "It's not like a bunch of philosophers and economists and professors sitting in the room and thinking about these markets. It's really about historical dependencies and how the markets themselves have been built up," Rettig, who serves on the DeFi Education Fund steering committee, says.

Reality check: Crypto has been a fertile place for scammers and money launderers. Every year, the industry sets a new record for illicit use.

• "The law already functions to hold responsible people responsible," Rettig says.
• That is, a core principle in the law, Rettig says, is that it's the people who do crimes and frauds that take responsibility for them — not the people who made a legitimate thing used in an unlawful way.

The bottom line: In Rettig's view, this is a new moment for new rules made to purpose, not some other purpose from another time.

An odd question about a popular collectible takes aim at the working logic behind what constitutes a security transaction, Crystal writes.

Driving the news: "If I purchase a Pokémon card, is that a security transaction?" Rep. Ritchie Torres asked SEC Chair Gary Gensler during a House Financial Services Committee oversight hearing yesterday.

What he said: "No, that's not a security," Gensler responded.

• To Torres' follow-up question, "If I were to purchase a tokenized Pokémon card on a digital exchange via a blockchain, is that a security transaction?"
• Gensler said, "I'd have to know more."

Of note: Tokenized Pokémon exist — folks snapped up NFTs on the Polygon blockchain weeks ago that gave holders the chance to receive one of the pre-disclosed cards.

The big picture: Gensler's analysis of the so-called Howey test is driving the status quo, pitting the regulatory agency against an entire market.

• He reiterated during the hearing, "if the investing public is anticipating profits based upon the efforts of others and exchanging funds..." that would constitute a security.

Yes, but: The question Rep. Torres was really asking appears to poke holes in that logic: "Does tokenizing something — art, cars, watches and other collectibles — transform a commodity into a security?"

💭 Our thought bubble: If you've ever met a luxury-watch or designer-bag enthusiast, they would tell you that the brand on their arm is the best evaaar — and due to the efforts of that brand (like going public with Taylor Swift), the resale value of the item would jump, producing a tidy profit to said enthusiast.

• What could be more "the efforts of others" than that?
• We don't think of watches or designer goods as securities, but rather, commodities.
• So why in token form would they be any different?

Flashback: The SEC brought its first enforcement action against NFTs just last month, settling with Los Angeles-based Impact Theory for an alleged unregistered securities offering.

• The agency argued that the company told customers they would "profit from their purchases" — what appears to be the silver bullet in the case.

What others are saying: SEC Commissioners Hester Peirce and Mark Uyeda dissented.

• "...the NFTs were not shares of a company and did not generate any type of dividend for the purchasers," they said.
• They also questioned whether an enforcement action was necessary.

Quick take: 🤷‍♀️ Gotta catch 'em all.

🏦 The Bank for International Settlements, as well as the central banks of France, Singapore and Switzerland, tested cross-border trading of wholesale CBDCs. (CoinDesk)

🛑 Binance suspended euro-denominated trading for some customers as its banking partner pulls out. (The Block)

🇦🇷 Buenos Aires plans to streamline public services access with blockchain-based and open-source digital identity protocol QuarkID. (Blockworks)

Gensler's Pokemon comments have me thinking about my days playing the collectible card game, Magic: The Gathering, Brady writes.

• Based on my layman read, it sure seems like Magic cards pass the Howey test — in particular, that whole "efforts of others" prong.

Fun fact: The ill-fated Mt. Gox exchange was named after the card game because it started as a Magic card trading site.

• In fact, there remains a robust Magic-to-crypto pipeline.

In the weeds: Magic card prices rise and fall wildly based on the decisions of its maker, Wizards of the Coast.

• When I was playing in 2016, a set called Kaladesh came out in the fall. It included a card that I really liked named Saheeli Rai.
• Saheeli was a fairly rare card but not a huge difference-maker in game play.

That is, until the next set came out: Aether Revolt. That set included a card called Felidar Guardian, which was quite common. Felidar with Saheeli enabled a basically unbeatable combination.

• Even before the set was for sale, the price for Saheeli went from about $2 to around $15, quickly.
• The efforts of Magic to put out a card with synergies made all the difference for Saheeli's playability and therefore its value.

The intrigue: Then in May 2017, Wizards banned Felidar Guardian from the most popular format to play in, Standard.

• Saheeli's price fell quickly in response, eventually settling back down to her old price, of around $2.
• (this is easy to check — there are charts tracking card prices just as there are charts for coin prices)

Quick take: Kaladesh was still a great set. It was all about, like, magic technology.

• Saheeli was herself an inventor with a fun vibe. Good times. Always a valuable card in my memories.