David Kuhn

operations, legal and regulatory functions across technology, finance and sports ecosystems.

[David Kuhn @gr8day4this]

@sam_mcquill is right that Rice v. Chicago Board of Trade (1947) doesn't resolve what exchanges can permissibly offer — it's about federal preemption of conflicting state regulation once jurisdiction attaches, not about permissible product scope.

But that's actually @BrianQuintenz's implicit point. As @FormerCFTCGC made clear, once sports event contracts are "commonly known to the trade as a swap" under CEA § 1a(47)(A)(iv) (which is now, since DCMs list them as swaps, FCMs offer them as swaps, and DCOs clear them accordingly) federal jurisdiction attaches independently, and Rice preemption follows. Jurisdiction and permissibility are different questions. Rice answers the first even if it doesn't answer the second. (https://t.co/sVPbxNyFit, fn. 9)

The permissibility question is where Christie (1905) comes in. Justice Holmes tolerated speculation because it served legitimate commercial purposes - risk transfer and price discovery in underlying markets. Speculation detached from those purposes shaded into wagering. That functional distinction is the doctrinal through-line from 1905 to the CEA to today's event contract debate.

Sportsbooks are natural commercial hedgers, and their investors will eventually force them into liquid prediction markets to offset tail risk (to smooth earnings & increase valuation multiples). The harder issue is liquidity, not doctrine, b/c commercial hedgers are typically last to arrive in developing derivatives markets. Confusing infancy with incapacity is the analytical error the economic-purpose inquiry needs to avoid. (https://t.co/Zr823mzc3M)

[David Kuhn @gr8day4this]

There's a test for this. Let E₀ = company's MC as equity-only, no token. Let E₁ + T = combined value of equity + token in dual structure. If E₁ + T > E₀, the token added value, & whatever discount you'd apply for the weaker legal claim is already reflected in T, & the structure still came out ahead.

Conservation of value would support your position if the token just re-sliced the same cash flows, but an automated buy/burn is a programmatic, non-discretionary claim on protocol fees (a stream equity only captures in intermediated form, net of entity-level tax and management discretion). The pie isn't fixed.

Fair to argue the market overpays for T. But that's just a pricing issue.

[miles jennings @milesjennings]

The US regulatory approach to crypto was an abject failure.

CLARITY is here to fix it.

[David Kuhn @gr8day4this]

This is right, and I'd add the piece that's usually missing: most tokens aren't financeable because the issuer retains discretionary control over the exact economics a lender would rely on: supply, fork rights, governance, fee switches.

From https://t.co/YcTitjtSjq on p23:

"Tier 3 is appropriate for protocols… whose tokens are used as collateral in DeFi lending markets, where the financeability rationale... applies directly."

BTC and ETH clear that bar by rough consensus. HYPE and BNB clear it via credible value accrual + some constraints on founder discretion. Expanding collateral beyond that handful of tokens means issuers have to actually bind themselves, not just promise buybacks.

[David Kuhn @gr8day4this]

Great letter, sir. One addition to Proposal 2 might help close the gap: DGS carveout applies only where founding entity has surrendered residual discretion over the revenue routing architecture. The Commission gets a workable limiting principle. You get a cleaner severance of the managerial-effort chain. https://t.co/j7FFPVprkv proposes architecture for the structural constraint. Cheers.

[David Kuhn @gr8day4this]

@lex_node @MetaLeX_Labs I'm here for this

[David Kuhn @gr8day4this]

@JacobRobinsonJD @valkenburgh @SH_Brennan @jchervinsky @austincampbell @mikekatz29 sounds great!

[David Kuhn @gr8day4this]

The term “gaming” in § 5c(c)(5)(C) was added by the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, § 721, 124 Stat. 1376, 1669 (2010). At the time of Dodd-Frank’s enactment, commercial sports betting was lawful in only a small number of jurisdictions, as the Professional and Amateur Sports Protection Act of 1992 (PASPA), Pub. L. No. 102-559, 106 Stat. 4227 (codified at 28 U.S.C. §§ 3701–3704 (2012)), prohibited most states from authorizing sports wagering. PASPA was not invalidated by the Supreme Court until 2018. Murphy v. National Collegiate Athletic Ass’n, 584 U.S. 453 (2018). Because sports betting was unlawful in virtually every state when § 5c(c)(5)(C) was drafted, the drafters plausibly understood that any event contract tied to a sporting outcome would have been separately prohibitable under the statute’s existing hook for contracts “illegal under . . . State law” — making a distinct “gaming” prong directed at sports wagering redundant. On this reading, the intended scope of “gaming” is genuinely ambiguous, and its drafting history does not resolve whether the term was meant to reach wagers on exogenous sporting outcomes or something narrower.

see more: https://t.co/vq97HXrGOH

[David Kuhn @gr8day4this]

@sam_mcquill is right that Rice v. Chicago Board of Trade (1947) doesn't resolve what exchanges can permissibly offer — it's about federal preemption of conflicting state regulation once jurisdiction attaches, not about permissible product scope.

But that's actually @BrianQuintenz's implicit point. As @FormerCFTCGC made clear, once sports event contracts are "commonly known to the trade as a swap" under CEA § 1a(47)(A)(iv) (which is now, since DCMs list them as swaps, FCMs offer them as swaps, and DCOs clear them accordingly) federal jurisdiction attaches independently, and Rice preemption follows. Jurisdiction and permissibility are different questions. Rice answers the first even if it doesn't answer the second. (https://t.co/sVPbxNyFit, fn. 9)

The permissibility question is where Christie (1905) comes in. Justice Holmes tolerated speculation because it served legitimate commercial purposes - risk transfer and price discovery in underlying markets. Speculation detached from those purposes shaded into wagering. That functional distinction is the doctrinal through-line from 1905 to the CEA to today's event contract debate.

Sportsbooks are natural commercial hedgers, and their investors will eventually force them into liquid prediction markets to offset tail risk (to smooth earnings & increase valuation multiples). The harder issue is liquidity, not doctrine, b/c commercial hedgers are typically last to arrive in developing derivatives markets. Confusing infancy with incapacity is the analytical error the economic-purpose inquiry needs to avoid. (https://t.co/Zr823mzc3M)

[David Kuhn @gr8day4this]

@thatgerald @Sei_Labs @Sei_FND @CryptoAmerica_ @jacqmelinek @EleanorTerrett congrats boss

[David Kuhn @gr8day4this]

Agree. One concern I have is that the exercise can become too question-begging if the framework starts from mid-century securities cases without enough attention to how crypto networks can be structured to constrain issuer discretion ex ante and reduce it over time.

That is the basic thesis of my Token Continuity Framework paper: https://t.co/NuD5IPQ7GD

I also put the broader set of papers, including Parts 1 and 2 of the series, here, if you have a moment: https://t.co/jGkdGhNs1O

[David Kuhn @gr8day4this]

@cwmtwtr @lex_node @zumbah @apoorveth making equity easier to issue natively on chain should definitely be a regulatory priority! 100% aligned on that.

[David Kuhn @gr8day4this]

here's something I've been working on that isn't public yet -

crypto's dual equity/token structure recreates ground lease subordination without any of the protections ground lease law spent 50 years developing. token holders are in the same economic position as a leasehold lender. ground lease doctrine solved this. tokens haven't.

translated it into an 18-issue design framework tied to the March 2026 SEC/CFTC release. dropped interactive version at https://t.co/j7FFPVprkv. early look for @zumbah.

paper: https://t.co/rsX7W78CYt

[David Kuhn @gr8day4this]

@apoorveth appreciate the early signal @zumbah - haven't officially dropped this yet so the timing is good to know there's appetite. full interactive framework at https://t.co/VnvSXYZ5Go.

paper: https://t.co/trmjqk1FiV

[David Kuhn @gr8day4this]

here's something I've been working on that isn't public yet -

crypto's dual equity/token structure recreates ground lease subordination without any of the protections ground lease law spent 50 years developing. token holders are in the same economic position as a leasehold lender. ground lease doctrine solved this. tokens haven't.

translated it into an 18-issue design framework tied to the March 2026 SEC/CFTC release. dropped interactive version at https://t.co/j7FFPVprkv. early look for @zumbah.

paper: https://t.co/rsX7W78CYt

[Zumbah @zumbah]

@apoorveth https://t.co/5qAA3ylGbG

technical in a different way if you are into these things

[_gabrielShapir0 @lex_node]

good callout here from my friend @RebeccaRettig1 against Canton and its concerted FUD against real blockchains

however like my own Canton critiques, the Canton crowd will just attribute it to bag bias since she works for a Solana org

So, here is a brief summary of critiques of Canton from State Street stalwart Swen Werner who has a storied TradFi capital markets background and seemingly zero bag-bias. These critiques all cut to the bone and don't even require you to be 'cypherpunk-aligned'; they are simply logical:

1. "Synthetic atomicity" — Canton's cross-domain transactions are not actually atomic.
This was Werner's first flag, raised in the April 2024 piece. Canton's pilot report used the word "atomic" 45 times in 43 pages. Werner's objection is definitional and he considers it important: true atomicity exists within a single block on a single chain, where all transactions are collectively validated and committed (or rejected) together. Canton's cross-domain transactions span multiple independent systems coordinated through synchronization domains and sequencers. Werner argues this is "synthetic atomicity" — a process designed to mimic single-chain atomicity through additional coordination protocols, but that is not actually atomic in the strict sense. When 90% of pilot participants said they were confident Canton could "enable secure, atomic transactions across independently controlled distributed ledger applications," Werner's reaction was that the systems are not actually independently controlled — they're subnets subject to a common consensus protocol, with independent configuration of business logic but not independent consensus.

2. Broadridge DLR on Canton/VMware is not real tokenization — it's "blockchain theater."
Werner digs into the actual architecture of Broadridge's Distributed Ledger Repo solution, which is the flagship Canton use case. He points out that DLR runs DAML smart contracts on top of VMware blockchain (now owned by Broadcom), where Broadridge controls the consensus to book updates. Settlement still happens "by triggering a payment on conventional payment rails," and the whole thing is "built on top of its existing connectivity with central securities depositories and custodian banks." The DAML runtime handles all execution, logic, and permissions — VMware blockchain just stores the data. Werner calls this a "layered architecture" where there's "no direct interoperability between Daml contracts and the chaincode." His summary: no real decentralization (just centrally controlled nodes), no real tokenization (just internal bookkeeping with a new label), and no independent settlement (still relying on traditional rails). The benefit is workflow orchestration, which banks have been doing since before blockchain existed.

3. Canton's privacy model means assets cannot be independently verified — which means they cannot be marketable securities.
This is Werner's most structurally important critique. In Ethereum, when you mint a token, the entire network sees it and can verify its existence. In Canton, each participant stores and processes only the data relevant to its own contracts. There is no universally shared ledger — just a "virtual global ledger" composed of private ledger segments that exchange cryptographic proofs. Werner's conclusion: "If Goldman Sachs tokenizes an asset on Canton, that token is just a data entry — it has no independent market presence. Unlike a real tokenized bond on Ethereum, a Canton-based bond cannot be independently verified unless GS allows it." An asset's visibility and existence depend entirely on the issuer's discretion. This, Werner argues, is fundamentally incompatible with the concept of a marketable security, where "the entire point of a security is that it can be freely traded, without needing the original issuer's permission for every subsequent transfer." Canton's selective disclosure model means no free transfers and fragmented visibility — characteristics of syndicated loan markets, "the most cumbersome and inefficient asset class in existence." Hence the title: Canton doesn't tokenize securities, it syndicated-loan-izes them.

4. The IT bottleneck: every new counterparty relationship requires cross-firm software deployment.
Werner's most operationally grounded critique. In traditional finance, onboarding a new counterparty doesn't require deploying new software across everyone's infrastructure — legal agreements and settlement instructions are process-driven, handled by middle-office and operations teams. Under Canton, every new counterparty relationship requires a DAML contract explicitly modeling the terms of that specific A-B pairing, deployment of that smart contract across all involved parties' IT environments, and coordination between each party's IT teams. If one party's IT is unavailable — overwhelmed with a compliance upgrade, under a December moratorium, whatever — "the whole transaction is delayed or impossible because the smart contract must be actively deployed and updated on all participant nodes." Werner calls this "radically different from today's financial markets. Radically different, but not radically better."
He extends this to the multi-domain case. If you're lending a security to Counterparty B but waiting for Counterparty A to deliver it first, the A→You contract doesn't provide atomicity for the A→You→B chain. You'd need a combined contract, and your local IT team must integrate it before the transaction can occur. Add cross-domain coordination on top and "the simple act of lending a bond turns into a multi-party software deployment problem."

5. Counterparty node dependency creates new systemic fragility.
Canton's own documentation acknowledges that "an offline participant can prevent the pruning of contracts by its counter-participants." Werner points out what this means operationally: if Bank A and Bank B share a contract, Bank A cannot garbage-collect or archive that contract's data while Bank B's node is down. Canton is developing "attestators" (trusted third parties that help progress workflows when a counterparty is unresponsive), but Werner flags that delegating control to a third party in this way introduces its own legal and operational risks — and reintroduces centralization through the back door.

6. The endgame: CSDs will absorb Canton's use cases.
Werner's prediction, framed through an extended historical analogy to the Franconian Knights' Cantons under the Holy Roman Empire (which were absorbed by Bavaria in 1806 when the Emperor no longer provided protection): "When external forces — regulatory pressure, market realities, and operational inefficiencies — demand an answer, systems like Canton collapse into centralized control." If a CSD launched a centralized digital repo system, it could coordinate transactions without Canton's smart contract dependencies. Once Canton collapses into centralized governance, "its core value proposition disappears, and its software is no longer the best choice." The only real question is when and how CSDs take over.

sources:

https://t.co/2jOoMUjGhb

https://t.co/UdsfSB0aA3

[David Kuhn @gr8day4this]

You may be right descriptively about the current phase. But that is not the same as being right about the category. Present users do not settle ultimate function. Many markets start as speculation and only later become useful for risk transfer. The harder question is whether event contracts can mature into a venue for distributing concentrated event exposure. That is the financialization path people are missing.

more on financialization of event risk via PMs: https://t.co/8zpILcZiE5

analytics on sportsbook hedging on PMs:
https://t.co/2qfB3Qitw6
https://t.co/HvsF34aZbh

[David Kuhn @gr8day4this]

https://t.co/X9GgJXqHyN

[David Kuhn @gr8day4this]

Markets over monopolies — and the legal framework agrees.

The bill claims sports contracts lack economic purpose under CFTC's core principles.

But derivatives law has never required hedgers to show up on day one. It asks whether a contract CAN support risk transfer as the market matures.

Sportsbooks are the natural commercial hedgers. They're just waiting on liquidity.

I built the model: https://t.co/LcfWCOsQOu

[David Kuhn @gr8day4this]

Correct. And there's a legal framework to prove it.

The bill assumes sports contracts lack "economic purpose" because sportsbooks don't hedge today.

But commercial hedgers are always last to arrive in a new derivatives market. That's not a defect — it's how every derivatives market in history has developed.

I modeled exactly when hedging becomes viable as liquidity grows. This is the argument the CFTC needs to make.

https://t.co/LcfWCOtoE2

[David Kuhn @gr8day4this]

The Schiff-Curtis bill rests on one legal claim: sports event contracts lack economic purpose because no one hedges them today.

That's never been the standard for any other derivative.

Derivatives law asks whether a contract CAN support risk transfer once the market matures — not whether it does on day one.

Sportsbooks warehouse hundreds of millions in event exposure. That's a real commercial hedging use case.

I built the framework (interactive model and paper). https://t.co/LcfWCOsQOu