Does the Clarity Act Have a Human Trafficking Blind Spot?

**Renato Mariotti** (0:00)
A very, very big trend, agentic trading, and I think it's gonna have really profound legal implications. I mean, first of all, much harder for prosecutors to prove intent when it's some AI agent off on its own doing things.

**Rebecca Rettig** (0:20)
Welcome to The Policy Protocol, your weekly espresso shot of the latest in crypto law and policy. Not just what happened, but what actually matters. I'm Rebecca, and I'm here with my co-host Renato. How are you, Renato?

**Renato Mariotti** (0:32)
Doing great.

**Rebecca Rettig** (0:34)
We have another big show this week. We'll do our hot topics of the week as always, a little AI, agentic trading, and of course prediction markets on my side. We have a very interesting guest this week, Katie Boller Gosewisch, who's the Executive Director of the Alliance to End Human Trafficking. And we'll talk about why Meta is our person of the week. But let's kick off. Renato, tell us about your hot topic of the week.

**Renato Mariotti** (0:59)
Well, it's got to be agentic trading. I mean, there's a big announcement by Coinbase this week. Now AI agents can be trading on your behalf.
Rebecca, this is something that is occurring, of course, off chain as well, but it is a very, very big trend, agentic trading. And I think it's going to have really profound legal implications. I mean, first of all, much harder for prosecutors to prove intent when it's some AI agent off on its own doing things. There's going to be a lot of compliance issues that are going to be created because there's going to be inadvertent missteps by AI agents. Things like, for example, wash trading between AI agents that are employed by the same company. And I actually think that there's definitely going to be a lot of confusion at times amongst retail. I mean, in other words, the average person who's not a professional may be having conversations with their AI agent that sound good. And I wouldn't be surprised if they lose a lot of money if afterwards, they suggest the AI agent didn't properly disclose things or didn't provide them with the information they needed to make informed decisions.

**Rebecca Rettig** (2:06)
Yeah. I see this really as an extension of robo traders or robo advisors, which we've had for a long time and are regulated by the SEC. I think the most interesting thing about the Coinbase announcement is that this is an SEC registered AI agent trading agent. And I would love to go see, as you talked about, sort of the disclosures that are going to have to be made, what type of information will have to ingest about you as a trader before it actually starts making recommendations. We do know that AI still hallucinates. And so how do you cabin any problems with hallucination? Even if you give information to say, oh, I only want to spend $500, but they're recommending certain types of stocks for you that don't line up with that.
How do we really, to your point, go about prosecuting that or making sure that there are good guardrails around it? So even though it is an extension of the types of things we've seen in trading before, I think there are a lot of unanswered questions. And the SEC has been grappling so much with crypto for many years. And it has, of course, been grappling with AI, but not in as public of a way. And this is really, I think, the first step forward for the SEC to grapple with and enable something relating to AI within its jurisdiction.
So my hot topic of the week is that the tribes put out a letter asking both the Senate Majority and Minority Leaders, Senator Thune and Schumer, to add in provisions into the Clarity Act to basically prohibit prediction markets from allowing gaming. This is a really interesting development because all of the Clarity Act really only addresses spot. It does not get into swaps, futures, other types of derivatives, because those are already well within the CFTC's jurisdiction and Clarity is really only meant to expand the CFTC's jurisdiction over spot crypto trading. But this is really interesting because obviously prediction markets are a very hot thing. There is a whole section on DeFi and how we deal with that. I think people are really or the tribes here are really looking at Polymarket from a DeFi perspective and thinking that this may be an end run around CFTC's jurisdiction and enabling them. But what's your take Renato?

**Renato Mariotti** (4:32)
Look, I think it makes a lot of sense from a certain perspective, Rebecca. Right now, the tribes are very upset about prediction markets. And really, those concerns aren't getting them anywhere.