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▶ 0:19:41the subcommittee on digital assets Financial technology and artificial intelligence will come to order without objection the chair is authorized to declare a recess of the committee at any time the hearing is titled a golden age of digital assets charting a path forward without objection all members will have five legis of days within which to submit extraneous material to the chair for inclusion in the record I now recognize recognize myself for 4 minutes to give an opening statement good afternoon and welcome to the first hearing of the house
▶ 0:20:11Financial Services digital assets Financial technology and artificial intelligence subcommittee today we resume the work of this sub that this subcommittee started last Congress under the then leadership of subcommittee chairman french hill I'm gr grateful to the now full committee chairman for trusting me to pick up the mantle and continue our legislative work to provide Clarity for the digital assets ecosystem digital assets present a clear opportunity for the advancement of financial services in the United States this technology has the potential to modernize
▶ 0:20:41our financial infrastructure enhance the Dollar's dominance in global markets increase the efficiency of payments both domestically and abroad and provide American businesses and consumers with a faster cheaper more transparent way to transact in an increasingly digital economy under the Biden Administration we saw regulatory overreach and a pattern of enforcement driven actions that stifled Innovation especially in the digital assets ecosystem instead of working with Congress to establish
▶ 0:21:12clear clear guidelines the Biden Administration opted for an unpredictable and hostile approach that left American entrepreneurs businesses and consumers in a state of uncertainty agencies took inconsistent often contradictory actions pushing innovators offshore and threatening Americans leadership this lack of regulatory Clarity not only hurt American Investment it also impacted everyday Americans let's be clear the Biden administration's approach opened the door to Bad actors and left
▶ 0:21:42consumers more vulnerable to fraud while the EU and UK and even developing economies have advanced regulatory Frameworks in digital assets the United States has fallen behind our government's failure to act could mean that the benefit of digital assets and blockchain Technology will be realized elsewhere while American consumers entrepreneurs and financial institutions are left navigating an uncertain landscape under the Trump Administration we will course correct by creating a workable pathway for
▶ 0:22:12responsible digital asset companies to set up operations here in the United States encouragingly several positive steps have already been taken president Trump issued an executive order on digital assets the SEC repealed Sab 121 the FDIC has announced that it is re-evaluating its supervisory approach to crypto related activities and both the SEC and Trump Administration has stood up working groups to tackle these challenges last Tuesday the White House's
▶ 0:22:42AI cryptar David Sachs joined chairman Hill Thompson Boseman and Scott for a press conference where they all agreed that it's time for both regulators and Congress to get this done last week the chairman and I released the stable act a discussion draft to provide a clear regulatory framework for the issues of state of payment stable coins we appreciate the feedback from all relevant stakeholders the reality is that the status quo for digital assets is untenable Regulatory and legislative Clarity is needed now
▶ 0:23:12together we can ensure that stable coin issuers digital asset firms and blockchain developers operate under Fair transparent and predictable rules in the United States that means working together the Trump Administration congress regulator regulators and Market participants to craft thoughtful policies that uphold our national security protect investors and encourage the responsible development of digital Assets in the full ecosystem today's Witnesses bring a wealth of knowledge and experience
▶ 0:23:43on these issues I look forward to hearing their insights and how we can learn from the mistakes of the past to strike the right balance between Innovation and consumer protection thank you and I look forward to your testimonies the chair now recognizes the ranking member of the subcommittee the gentleman from from Massachusetts Mr Lynch for 4 minutes for an opening statement good afternoon and and thank you Mr chairman and let me be the first to congratulate you on your selection as chair of this subcommittee and I I do look forward to our partnership this congress
▶ 0:24:14with the wide subject matter jurisdiction uh digital assets fintech and artificial intelligence of this committee provides considerable opportunity for collaboration I also want to thank our Witnesses for your willingness to help the committee with its work the Trump Administration and house Republican leadership have clearly demonstrated their eagerness to enact crypto friendly laws and regulations as you noted Mr chairman one of the president one of President Trump's first executive orders established a digital asset working group that will
▶ 0:24:44be comprised of regulators handpicked by the crypto industry in addition just days before taking office sorry on that President Trump also issued a meme coin to further his own financial interest so he is all in the crypto industry spent 119 million in this last election lobbying Congress and and proposals such as a cryptocurrency stockpile and the prohibition of a central bank digital currency speak to the
▶ 0:25:14crypto industry's powerful influence not surprisingly House and Senate Republicans have also announced plans to make digital assets a legislative top priority nonetheless cryptocurrencies remain highly volatile in and speculative interest instruments that if poorly handle have the potential to destabilize our economy I continue to have serious concerns about crypto scams money laundering and illicit Finance uses in 2023 Americans lost over $5.6 billion
▶ 0:25:44to such scams and illicit addresses received approximately 40.9 billion in cryptocurrency on the Advent of this golden age of crypto I remind my colleagues of the crypto winter in which major companies including FDX blockfi and Celsius collapsed and Sam Bank Freedman was convicted of massive fraud fortunately because of our robust Securities and consumer protection laws most of the victims of those scams were not US citizens similarly the damage caused
▶ 0:26:14by the failures of Silicon Valley and Signature Bank did not spread to our broader Financial system I agree with most of my colleagues that a regulatory regime is needed but not one that reflects a wish list from industry Advocates as this committee considers legislation to address stable coins and the market structure I hope we can have collaborative and bipartisan discussions we must seek input from law enforcement the financial crimes enforcement Network academics and other experts to ensure robust consumer
▶ 0:26:44protection anti-money laundering and illicit Finance safeguards are in place I worry that by allowing the digital assets industry to access our banking system we invite the next financial disaster I served on the committee on this committee during the 2008 financial crisis and watched American taxpayers be forced to bail out major financial institutions that made risky decisions in the name of innovation the digital assets industry has had years to prove its use cases
▶ 0:27:14Promises of financial inclusion lower costs and faster payments are better achieved through public policy Solutions this subcommittee should focus its time on exploring legitimate innovations that have the potential to expand and economic access last Congress I was encouraged by the bipartisan approach to exploring artificial intelligence through the working group on AI which I co-led alongside chair Hill and a Roundtable I hosted at MIT with faculty and experts we found shared policy goals
▶ 0:27:45the emergence of an international of international competitors such as deep seek demonstrate that we must move quickly to ensure us competitiveness additionally I hope to continue working with my colleagues on fintech policy issues we seem to agree on these include addressing financial data privacy expanding data portability reducing the cost of payments and encouraging Innovation that expands economic access and financial inclusion Mr chairman I look forward to continuing the important work we began last Congress and I yield back gentlemen
▶ 0:28:15yields back I too look forward to working with you uh representative Lynch I think we have a great opportunity in front of us uh the chair now recognizes the ranking member of the full committee Miss waters for one minute thank you very much uh while Republicans want to discuss charting a path forward on digital co-presidents Elon Musk and Trump continued their hostile takeover and illegally shut down the Consumer Financial Protection
▶ 0:28:45Bureau I find it somewhat disheartening to hear my colleagues talk about guard rails for stable coins or digital assets as the agency that has clawed back to $21 billion from predatory companies for harm consumers is being dismantled that being said I unveil the fruits of nearly three years of work between former chair McKenry and myself stab coin legislation
▶ 0:29:16that was jointly drafted by my staff and chair M Henry's I believe that this legislation provides the best foundation for moving forward to get a federal framework signed into law I thank you and I yield back the G lady yields back uh today we welcome the testimony of Mr Jonathan yahim the deputy general counsel and Global head of policy and government relations at Kraken digital asset exchange Mr G Kim
▶ 0:29:46president and acting CEO at the crypto Council for Innovation Mr Koy Garrison partner at the law firm Steptoe Mr Jose Fernandez deponte the senior vice president and general manager of of blockchain crypto and digital currencies at PayPal and Mr Timothy mid is a is a research fellow and director of digital assets policy project at the Kennedy School of government of Harvard University we thank each of you for taking your time to be here each of you will be recognized
▶ 0:30:16for 5 minutes to give an oral presentation of your summary without objection your written statements will be made a part of the record Mr yahim you are recognized for five minutes for remarks chairman sty ranking member Lynch uh committee ranking member Waters thank you for the opportunity to testify today my name is Jonathan yahim and I serve as Global head of policy and government relations at Kraken our business was founded in San Francisco over 13 years ago and has steadily grown into one of the world's
▶ 0:30:46largest and most trusted digital asset exchanges I've served in my current role for over three years and spent the prior 15 years in private sector roles based in us and Europe including over a decade of experience with two of the largest traditional Market infrastructure groups Kraken has invested heavily in supporting effective policy outcomes around the globe this includes engagement with governments regulators and our industry Partners across the US EU UK Canada
▶ 0:31:17Australia and many other developed and Emerging Markets here in Washington we've continued to support our leaders in Congress in passing foundational Market structure legislation necessary to regulate centralized intermediaries and secondary Market transactions kraken's role in the digital asset ecosystem is diverse today we serve over 15 million customers around the world we custody over 42 billion in assets on our platform we have a team of over 2,000 professionals across 60
▶ 0:31:47countries that support the 247 365 Global nature of the users and markets that we serve we advance our mission to expand the adoption of cryptocurrencies in three key areas first we operate a centralized exchange for crypto markets we offer a staking program and related products and services second we power traditional Market investment allocation into digital assets this includes derivatives offerings and eligible jurisdictions
▶ 0:32:18the world's leading Benchmark provider which Powers a majority of the exchange traded products that have been approved for trading here in the US and other major we also operate a novel State Chartered bank which offers institutional custody under an Innovative Wyoming legal framework third our onchain business includes our wallet and layer 2 blockchain called Inc which serves as a seamless bridge to defi for our new frontier of innovative developers and users
▶ 0:32:48despite the growth in our markets and years of bipartisan work in Congress the US has fallen behind other jurisdictions and passing fundamental rules for centralized intermediaries the opportunity and urgency for legislative and Regulatory Clarity is here meaningful progress has been made despite the failed and harmful policy approaches we saw in the last Administration which included regulation by enforcement and downward pressure through the banking system
▶ 0:33:19this slowed or halted responsible growth and deterred investment job creation and innovation in the United States among many important topics I'd like to highlight a few key components that are Central to effective Market structure policy Frameworks first Congress should Grant spot Market authority to the cftc to regulate centralized intermediaries and secondary Market transactions in digital Commodities second effective disclosure requirements will provide
▶ 0:33:50transparency and customer protection third we must avoid blunt application of centralized rule books to decentralized protocols that do not have centralized governance systems infrastructure and management policy makers must continue to evaluate and craft best practices and distinct policy approaches to address def5 the leadership from many distinguished members of this committee has proven that good crypto policy is not partisan speaking from my own experience
▶ 0:34:20the last several years and behalf of my colleagues at Kraken and around the industry we are incredibly encouraged to see Congress and the Administration now working together towards regulatory Clarity the US must pass rules that are fit for the US markets but there is often Great Value in learning from other jurisdictions that have already advanced foundational rules of the road for centralized intermediaries as we look ahead us leadership and international cooperation
▶ 0:34:50will be necessary to avoid Market fragmentation and support the inherently Global nature of the digital ass ecosystem industry consensus and nonpartisan collaboration is critical for the United States to accelerate towards these goals we look forward to continuing to support these efforts again I thank you for the invitation and look forward to our discussion thank you Mr yahim Mr Kim you're recognized for five minutes thank you chairman style ranking member Lynch and members of the subcommittee for the opportunity
▶ 0:35:21to testify today on how the United States can best chart its path forward to ensure a golden age for digital assets I believe that achieving this goal will require a comprehensive federal legislative framework for digital assets I am pleased to represent the crypto Council for Innovation CCI a Global Alliance of Industry leaders across the digital asset space CCI is grateful that so many members of Congress recognize the need for us to lead when it comes to digital asset Innovation under the leadership of this committee we experienced great bipartisan progress during the 118th
▶ 0:35:52Congress and I respectfully submit that it is critical for Congress to continue such efforts to provide provide the digital assets industry with the needed Clarity to ensure continued growth and leadership in the United States over the past 15 years digital assets have evolved from a topic of curiosity to transforming financial services and how we architect future systems the approvals of spot Bitcoin ethereum ETFs growing retail and institutional participation and increased adoption of digital assets signal industry not only
▶ 0:36:22meeting its potential but changing how we live indeed the global digital asset Market has seen sub substantial growth with a market cap that currently exceeds $3 trillion the stable coin Market alone has grown to over $200 billion demonstrating The increased use of digital rails for payments tokenized assets and new blockchain based transaction rails can improve Financial access and inclusion reduce counterparty risk improve operational efficiencies and lower costs the industry is working to improve on the Legacy Financial system and software gaps that have harmed historically
▶ 0:36:53populations against this backdrop other major jurisdictions have recognized that we are in a race to the top in harnessing and benefiting from this new technology these jurisdictions are delivering exactly what the US digital ass industry has been requesting regulatory clarity through a thoughtful tailored regulatory regime that recognizes the potential of digital assets to that end it is imperative that the US build upon the progress made during the 118th Congress and ensure us leadership and digital assets at the level increased
▶ 0:37:24Clarity regarding regulatory expectations will unleash further innovation and ensure that American markets Remain the Envy of the world CCI is encouraged by this administration's early efforts to catalyze further digital asset development in the US including recognizing digital assets as a national priority in the recent executive order more still needs to be done however to unwind the significant damage and uncertainty caused by a regulation by enforcement approach under the prior Administration unfortunately during chairman gender's tenure
▶ 0:37:54the SEC brought over 125 enforcement actions related to digital assets but issue no clear guidance or rulemakings to clarify when an asset is in fact the security this lack of regulatory Clarity has driven companies offshore to jurisdictions with more defined rules and less ambiguity if a regulatory approach is pushing lawful businesses to move offshore this must change and we believe that change has begun in the interest of time I will briefly outline the specific steps ibos critical to achieving the Golden Age of digital
▶ 0:38:24assets in the US first Congress must pass Market structure legislation to clarify when a digital asset is a commodity or security and to give clear statutory authority to the cftc to regulate the spot markets for digital Commodities legislation should also address risks associated with digital asset markets and technology and provide key consumer protections second Congress should establish a comprehensive framework for the regulation and supervision of stable coin issuers such a bill should also consider rationally integrating
▶ 0:38:54effective state-based regulatory models accomplishing this would realize the powerful potential of dollar back Saab coins in providing individuals with more choice and payments while further solidifying the global role of the US dollar finally Congress and administration should prioritize supporting the development of decentralization and defi Technologies policy makers should recognize the importance of self- custody Solutions and software which enable individuals to securely manage their own digital assets Congress can unleash
▶ 0:39:24digital asset Innovation through a four leing this is the shest way to guarantee that the United States commands the digital future while best protecting consumers and fostering economic growth thank you so much again for the opportunity to testify and I look forward to your questions thank you Mr Kim Mr Garrison you are now recognized for five minutes thank you chairman style ranking member Lynch committee ranking member Waters and members of the subcommittee for inviting me to testify today my name is Coy Garrison I'm a partner in stepto blockchain
▶ 0:39:55and cryptocurrency practice where I've advised cents for the last three years prior to joining Steptoe I was an attorney at the SEC for about N9 years I had the honor of serving as Council to commissioner Hester Pur and also serving in multiple roles within the division of Corporation Finance I testify here today on my own behalf not on behalf of the firm or its clients Congress and this Trump Administration have a tremendous opportunity to work together to bring sensible regulation to the digital asset industry new leadership at
▶ 0:40:25federal financial Regulators are already beginning to reverse the failed crypto policies of the last four years the SEC in particular has a heavy heavy burden to undo the harmful policy decisions that former chair Ganer brought and they have begun the hard but necessary work of rulemaking and providing actionable guidance however regulatory actions alone will not be sufficient to stand up a comprehensive regime Congress needs to fill regulatory gaps by passing legislation for both digital asset Market structure
▶ 0:40:55and dollar denominated payment stable coins first I want to underscore that the moment for Action is now the open hostility of the prior Administration towards this industry has resulted in a marketplace with no federal regulator no protections for token holders and fewer us-based projects fortunately we live in a very different world today the change at the SEC in particular is a breath of fresh air acting chairman Mark UA recently announced the formation of a crypto task force and appointed
▶ 0:41:25commissioner Pur to lead its efforts results were immediate the SEC rescinded the widely maligned staff accounting bulletin 121 their work however is just beginning and was recently previewed by commissioner P's announcement of 10 different work streams for the task force so what can the SEC actually accomplish I offer the following suggestions which I believe are consistent with commissioner P's 10 priorities first the SEC should articulate a sound legal interpretation for when digital asset transactions
▶ 0:41:55are subject to the Securities laws a clean break is needed from the Gensler era's legal imprecision and sweeping assertion that nearly all digital assets are securities the interpretation should begin with an acknowledgement that the digital asset itself is not a security a disciplined transaction by transaction analysis is must be used to determine whether an investment contract is present because it is required by the case law and should be adhered to by the commission second the SEC should consider withdrawing gentler error litigation
▶ 0:42:26alleging unreg reged exchange broker dealer and clearing agency activities as a preliminary matter it is far from clear that these transactions Meet The Elements of the Howe test even if the new new SEC believes that it has jurisdiction over secondary Market transactions consideration should be given to whether beginning a rulemaking process would be a more productive Pathway to the registration of covered entities in an encouraging sign I note that just yesterday the SEC and binance filed a joint motion to stay their litigation for
▶ 0:42:5660 days third the SEC should consider how to better facilitate token offerings in the US by amending existing exemptions and dusting off commissioner pures token Safe Harbor proposals while the SEC can consider these and many other actions Congress continues to have a vital role in establishing a workable framework with respect to Market structure I urge the subcommittee to consider the following principles for inclusion in any legislation the need to establish clear lines between the SEC and the
▶ 0:43:26cftc and a process to determine which transactions are subject to the different agency's jurisdictions requiring disclosures that are tailored to the needs of digital asset holders allowing for dist intermediated trading and real-time settlement of digital assets imposing similar types of corporate controls and risk management requirements that exist today for Securities and derivatives intermediaries as well as requiring segregation of customer assets and prohibiting the co-mingling of funds
▶ 0:43:57a second regulatory Gap that requires congressional action is the federal oversight of dollar denominated stable coins the discussion draft of the stable act provides appropriate protections for consumers and establishes a regulatory framework for the issuance and operation of dollar denominated payment stable coins in conclusion the timing is right for Congress and the administration to work together to implement much-needed regulatory reform thank you for your leadership on this important topic and I look forward to your questions thank you Mr Garrison
▶ 0:44:27Mr Fernandez deponte you're now recognized for five minutes thank you chairman style ranking member Lynch committee ranking member Waters and members of the subcommittee thank you for the opportunity to testify today my name is Jose Fernandez laon and I serve as senior vice president and general manager of PayPal's blockchain crypto and digital currency business I appreciate the invitation to address the subcommittee regarding PayPal's vision for the future of digital payments today I would like to focus my remarks on how respons responsible
▶ 0:44:57Innovation can enhance payments infrastructure and make the digital economy more efficient for all participants 25 years ago PayPal embark on a journey to digitize payments and take them from offline to online now we continue the journey by moving payments online to onchain our customers can today buy sell and hold four types of commonly used cryptocurrencies Bitcoin Bitcoin cash Litecoin and ether our customers can also choose to check out with crypto and use
▶ 0:45:27crypto as a payment method with millions of merchants today in 2023 we launched PayPal USD or PUSD a fully backed regulated stable coin issued in the US by paxos and developed for Commerce and payments our objective engaging in the digital asset space and bringing posd to Market is twofold leverage the latest Innovations to provide a faster cheaper stable payment instrument and ensure that it has utility for mainstream
▶ 0:45:58Commerce and payments with py USD consumers are able to conduct faster and cheaper transactions send money to loved ones buy goods and services online and settle those transactions quickly businesses of all sizes can use stable coins to enable crossb payments open new markets and manage their own treasury more effectively I would like to share two specific examples of how our customers are using PD today the first one is on domestic businessto business payments large Enterprises and
▶ 0:46:28smbs rely on PayPal to securely offer fast and lowcost transfers for busines to- business payments today BD is available to them through more than 25 Partners it has been used among others by our own Venture affiliate PayPal Ventures to fund portfolio companies during weekends and outside of banking hours it has started to be integrated in popular enterprise resource planning systems and we use it ourselves to conduct payments to some of our vendors today second let me talk about
▶ 0:46:58International transfers to businesses and consumers stable coins like PUSD can enable efficiencies for crossb Payments International payments incur in significant cost as they move through the corresponding banking Network to address that we have enabled us customers of our Zoom product to fund millions of dollars of remittances with pu USD at a lower cost when a zoom user choose PUSD as a funding instrument there are no Zoom transfer fees that are incurred in addition on
▶ 0:47:28the wholesale side we have enabled several of our disbursement Partners to settle directly with us using pi USD on the back end of transactions reducing cost and increasing the velocity of those settlements at every stage of our cryptocurrency journey beginning with our buy wholesale product the launch of crypto transfers and the go to market of a stable coin we have been deliberate and methodical in our approach building trust with customers regulators and law enforcement at each step step in terms of policy
▶ 0:47:59we believe that predictable Market policy is necessary for the crypto industry to grow and thrive in the United States we recommend several policies that can help make the US a leader in this technology first we urge Congress to pass legislation providing stable coin and markets and trading Frameworks for the industry second a state pathway is critical for the continued growth of the industry State Licensing is the approach that most crypto companies have taken and it leverages the expertise developed over the years
▶ 0:48:29by the state of New York Department of Financial Services and others Third Federal and State Charters can work simultaneously under a core set of standards in both state and federal regimes the requirements for Reserve Asset Management governance disclosures and Prudential risk management should be fit for the purpose of payments finally any legislation must recognize that the business of payment stable coin issuance is the business
▶ 0:48:59of payments and is not the business of banking and that payment stable coins are not Securities in conclusion the current environment offers an important moment for the US to benefit from a thoughtful and proportionate legislative approach we look forward to working with you to complete this important task thank you thank you uh Mr mid you are now recognized for five minutes chairman style ranking member Lynch committee ranking member Waters members
▶ 0:49:29of the subcommittee and Mr if you could just double check your mic is on we can hear you but the live feed may not pick you up is it okay now okay I'm honored to testify before you today the views I express are my own and do not represent the views of the Harvard Kennedy School you know it was in 2014 under my leadership that the cftc declared Bitcoin a commodity and since that time for over 10 years I've been calling for strengthen regulation we hear a lot of calls for
▶ 0:49:59clarity and everybody can be for that but you know you can have bad rules that have Clarity we need a regulatory framework that truly encourages responsible development of this technology and not just more of the speculative activity and the abuses that we've seen far too much of to date I'm going to focus on stable coins it's the most useful application of the technology to date and I applaud the committee for prioritizing that the stable act
▶ 0:50:30has many features I support such as full reserves for tokens limitations on the activities of an issuer but there are many areas where it is deficient and it is substantially weaker than what was negotiated between the former committee chair and the ranking member uh last fall which the ranking member introduced uh yesterday I want to highlight five issues these are discussed as well as others in more detail in my testimony first the legislation provides for federal and state chartering
▶ 0:51:00but there is far too much risk of weak state standards and an inadequate review process and there is no ongoing Federal supervision of state issuers that's a prescription for a mess we want people to have confidence that any stable coin is truly stable and worth a dollar regardless of what state it comes from we don't want to provide insurance for that as we do with bank deposit so we have to do it through sufficient national standards and
▶ 0:51:31supervision secondly the legislation does not address the bankruptcy of a stable coin issuer if an issuer fails standard corporate the standard corporate bankruptcy process would likely apply that means you've got the automatic stay holders will not get their money quickly and the process could take years and there could be contagion and significant collateral damage the legislation needs to create a DE dedicated resolution process that minimizes those risks third
▶ 0:52:01I don't think it does enough to address the risks of financial crime and evasion of sanctions it says issuers are subject to the bank secrecy act that's a good thing but the BSA relies on centralized intermediaries stable coins can be transferred and traded without going through a centralized intermediary and they can be transferred through a an intermediary that doesn't even comply with the BSA so we need to extend the the the regulatory perimeter and be more creative in tackling these risks
▶ 0:52:31fourth you know the ACT is a bit like putting the lock on the Barn Door after the horses have left when you think about the market today because it's not clear to me it would even have much impact on Tether it's the legislation says it's unlawful to issue a stable coin that isn't chartered but there's no enforcement mechanism for that and no penalties it needs to have those and an explicit territoriality provision and finally there are simply many ways the ACT doesn't give Regulators enough Authority and discretion given
▶ 0:53:01that this could become a very significant market and it will evolve in ways we can't predict I want to turn from stable coins and briefly discuss decentralization and Market structure I'm pleased to see the subcommittee propose that the SEC and the cftc work together uh on these issues I've recommended joint approaches for years now the challenge with the term decentralization and defi is that they're used to describe a lot of things that aren't that decentralized or that still
▶ 0:53:32have elements of human control and discretion so we need to make sure key regulatory objectives uh like consumer protection are achieved even if in a manner decentralization is also not a good criteria for distinguishing Securities from Commodities and for these and other reasons I'm strongly opposed to the fit 21 act it's complex it will generate more confusion than Clarity and could undermine our Capital markets and you know there's it's snowing outside there's often a lot of snow in
▶ 0:54:02this room about this issue because the notion of security versus commodity and people say well a digital token can never be a security if it's not part of an investment contract well if I have a digital token that represents a share of GM stock that's a security regardless of you know how it's sold or transferred so there are better ways to address Market regulation I discussed those in my testimony thank you and I'm happy to take your questions thank you very much we'll now turn to member
▶ 0:54:32questions the chair recognizes himself for five minutes for the purpose of asking questions um last week during a press conference with chairman Hill Thompson Scott and bosan uh the White House's Ai and cryptar David Sach said the administration's committed to working with Congress on a market structure and stable coin framework while Financial Market Regulators have the power to clear up some of the regular regul regulatory ambiguity related to the digital asset ecosystem there's some obvious gaps where no regulator
▶ 0:55:02has jurisdiction I want to start with you Mr Garrison we'll kind of jump around just a little rapid fire to stage set here um can you help me describe some of those gaps and explain how the ecosystems been impacted by them for example is the crypto spot Market lack of clear fredal regulator yes it does lag and is there is there a regulatory framework for stable coin and stable coin issuers there is not and is defi even contemplated by existing law it is not uh and the
▶ 0:55:33ambig the the ambigue is legal classification of digital assets is a security as a commodity that's an open question correct okay so then Mr Garrison your view what would be the outcome to the digital asset ecosystem if Congress cannot get these gaps filled will companies move offshore to jurisdictions uh with regulatory certainty um or because of possible enforcement actions yes I think we see that today and would you agree with that Mr Kim absolutely uh chairman uh we're seeing a lot of American businesses moving offshore due to the lack
▶ 0:56:03of clarity uh in the United States and you see the same thing Mr yahim absolutely regulatory Clarity drives investment and growth for businesses like ours would would you foresee the us having to import regulatory standards and Market practices from other countries if the United States fails to act Mr Garrison yes that is a likely outcome and do you think we're already lagging behind in the space today yes other jurisdictions including the European Union United Arab Emirates and uh Hong Kong are further
▶ 0:56:33ahead and I want to come back back to with there being no standards in the US for some of these crypto companies consumers were trying to to vet different projects different tokens how is that altering the market with a lack of regulatory Clarity in the United States there's a lack of consistency in the types of disclosures that are provided and how there's a lack of consistency in the protections that are provided to persons engaging in digital trading let me now jump to to you Mr Kim and say what if
▶ 0:57:03we did put in place a framework uh for stable coin for the ecosystem to have a federator regulatory framework uh governing stable coin issuances with those stable coin ecosystems can they actually develop with established Legacy financial institutions taking part absolutely chairman u a comprehensive stable coin framework will provide certainty and Clarity to the industry law for us Innovation and Leadership and most importantly protect consumers and investors by giving them uh various standards and requirements to best protect um customers as well Mr Fernandez deponte
▶ 0:57:33would do would you agree with that I will it's a strange circumstance that today uh the majority of dollar denominated stable coins are actually issued outside of the US and there are many jurisdictions that are moving faster in that space uh Clarity on their regime in the US would enable American issues to compete and accelerate Financial Innovation for the benefit of American businesses and consum cons and if we provided that regulatory standards for stable coins we would be eliminating a major Gap in the ecosystem is that accurate
▶ 0:58:04it is yes okay so let me let me continue on I'm going to come back to you Mr yaham um how do you envision the digital asset ecosystem will change if regulatory a federal regulatory framework for digital asset Market structure were enacted by Congress well I think in the first instance that will allow businesses to to plan and invest um it will drive consistency I think it's it's also important to keep the international landscape in view other jurisdictions have moved forward and I think as we've seen in other Financial Market
▶ 0:58:35reforms let's take the dodf Frank reforms for example jurisdictions moved in different substantive directions on somewhat similar timelines the most challenging part of those post2 2008 crisis reforms we're trying to rationalize crossb Market access for large infrastructure players these turns into bilateral and geopolitical uh challenges and I think we have an opportunity here to to avoid those so I think it's very important that the US uh puts a leadership seat
▶ 0:59:05at the table thank you and our final 30 seconds um when with new technology people identify potential risk and I think we see digital asset Skeptics claim that the industry is ripe with fraud with abuse could you just very briefly comment on how you're monitoring AML and kyc so Kraken invests heavily in the Personnel tools and Technology to detect and prevent illicit finance and any illicit Finance uh being conducted on our platform we create a a very strong ecosystem where we not only Monitor
▶ 0:59:35and kyc check everyone coming into in our environment but in terms of transactions that coming in out and off of our platform they're subject to sanction screenings and other compliance tools thank you very much I yield back I now recognize the gentleman from Massachusetts Mr Lynch also the ranking member of the subcommittee thank you Mr chairman Mr mid uh I don't think we should overlook the lessons of the failure of Silicon Valley Bank uh in that case uh we had a stable coin issuer
▶ 1:00:05who had a huge amount of deposits in a single Bank most of which of which was was uninsured uh just months before the collapse of Silicon Valley Bank and Signature Bank the fed the FD and OCC released joint guidance cautioning Banks about the volatility and vulnerab ility of crypto assets the everyday American was largely insulated uh from The Fallout of these bank failures likely because crypto companies
▶ 1:00:36uh uh likely because of the risk management systems and heightened capital reserve requirements uh to insulate most banks and crypto companies had limited access to the banking sector I have deep concerns about opening the floodgates for non-bank companies to our payments systems or off for fed accounts additionally allowing crypto companies free reign could could put pensions retirement accounts and other typically safe investment
▶ 1:01:06Accounts at risk the next crypto crash could have disastrous effects on on The Wider economy uh Mr mid what additional risks should this committee consider as it crafts legislation to protect our broader economy and our traditional Finance system from the volatility and instability of of crypto assets what's safeguards uh would you recommend especially with regard to the volatility
▶ 1:01:36of of crypto to to perhaps take down uh the entire financial industry uh thank you for the question uh representative Lynch first of all I think with respect to the banking system we certainly don't Banks invest in in crypto on the asset side of their balance sheet meaning you know buying crypto or otherwise making Investments I think with respect to other
▶ 1:02:07issues like services that are for a fee like custody or Payroll Services you know I think assuming that we put in a good comprehensive framework on stable coin issuers so they manage their risks and on crypto trading platforms so they manage their risks I think those kinds of banking servic you know can can be done and I having having a firewall between the crypto side and and tradition absolutely absolutely and um you know we need to address affiliations and so
▶ 1:02:37forth but you know your point on the concentration of deposits that's why it's not enough for a stable coin issuer as you know the stable act says you can have Bank deposits you can have all these things it doesn't have any rules on concentration or C you know customer uh concentration um so I'm quite concerned about that um you know I think this all comes back to looking at this comprehensively and looking at the fact that we really don't have a regulatory framework for a lot of these crypto firms
▶ 1:03:07and we've seen you know a lot of uh fraud and manipulation and problems as a result of that so I think it has to be done in building blocks I applaud the committee for starting with stable coins I would get that piece done and then turn uh to the market structure uh issues because those are a little more complicated and I think we'll learn a lot uh by getting the stable coin piece done what about the contagion piece of this where you have banks that have access to the discount window you have uh FDIC
▶ 1:03:38Insurance uh you've got and and then on the other side of the house if you've got volatility and instability you've got you've got sort of Co co-mingling or or association between various uh crypto companies so that there's a domino effect that that could result it actually there clearly is runs into the traditional Finance system right well two things one that's because of the
▶ 1:04:08lack of transparency about this you know industry I mean sure the blockchain is transparent in the sense that it's it's pseudonymous but you know you don't know exactly what a lot of the relationships are and who's got exposure there's a lot of Leverage in the crypto industry and we don't track that even in the ETF Market there's a lot of do you think there should be a Prohibition on uh government bailouts of of uh you know crypto firms certainly certainly there should be okay um but but the other thing I would
▶ 1:04:38I would comment on is you know with respect to the the the the um the banking sector um we we really don't want Banks exposed to the credit of this industry um and that's why I would limit it to you know sort of services that are fee based or you know taking deposits that are in dollars um as long as again we we have some concentration limits thank you Mr chairman I yield back gentan yields back um the gentleman from Michigan Mr heno
▶ 1:05:08is recognized for five minutes uh thank you chairman style and I do just want to extend my congratulations to you as well becoming chairman of the digital assets subcommittee and having been the former chair of the capital markets subcommittee where a lot of this issues were housed I know this is complic ated and welld deserved though uh on your part but also congratulations to chair Hill for seeing that we needed to break this out I think this is a a very positive thing so I look forward to working with you all um Mr Garrison
▶ 1:05:39um uh Mr yahim let me start with you um digital asset Market participants have rightfully criticized the lack of predictability and certainty and going back to 2019 uh SEC chair Clay Jay Clayton uh actually attempted to provide some clarity by releasing ing a framework for investment contract analysis of digital assets uh but we we've just seen and just exited the last four years where former chair gendler famously told crypto firms to come in and register
▶ 1:06:09uh whatever that meant exactly they provided a little very little uh uh direction or way for that to actually happen instead it seemed that firms received was a threat of enforcement for doing so uh is it fair to say that the SEC uh has thus far not produced desirable or discernable uh standards for digital asset ecosystem that facilitate consistent application of the rules Mr yahim Mr Garrison Congressman thank you for the question um that's absolutely true
▶ 1:06:40there's just been a complete lack of policymaking and it's it's been a regulation by enforcement regime using a decades old jurisdictional test to try to shoehorn um the the diverse set of digital assets in the market into the into the Securities Law and let's just be clear uh regulation through enforcement is the bad thing right it it is a Bad Thing uh and and some sometimes my some of my colleagues and friends don't always see it that way they just think that
▶ 1:07:10that's another tool in the toolbx but that lack of predictability I would think would be very hartful it's it's been in start contract Congressman to you know we we've watched in many major markets around the world um a constructive policymaking process where jurisdictions have crafted definition past legislation past regulation we're in the implementation phase it has been the exact opposite experience here in the United States yeah Mr Garris I want you to answer this part what what must be done to ensure consistent guidance regarding the classification of digital
▶ 1:07:40assets so I think the SEC needs to take a deep breath and start aesh on its Guidance the 2019 guidance that you mentioned while well-intentioned has over 60 factors and no way to actually weigh the different factors that's simply not actionable there's a I I think we're good news is acting chair UA is uh seemingly doing that taking a very different approach one of his first was to resend the uh staff advisory bulletin 121 Sab 121 followed by the creation of a crypto task force
▶ 1:08:10headed by fellow commissioner Hester Pur um so additionally we've seen the SEC pause some of their pending crypto related enforcement actions citing a desire for resolution uh uh Mr Kim uh on these examples what other actions could the SEC PS pursue as far as lwh hanging fruit uh to improve its approach in digital uh asset regulation that Congress could legislate thank you very much for your question uh first of all I want to just uh reiterate that
▶ 1:08:40it's been so encouraging for the industry to have the SEC crypto task force and a new SC leadership um welcoming and work willing to work with the industry uh in addition to pausing or withdrawing enforcement actions based solely on registration registration violations without uh any allegation of fraud orious conduct it's clarifying some of the issues that the industry has been requesting what is an what is a security U clarifying and confirming that a stable coin that is back one to1 US dollar denominated is not a security and just continue to work with industry uh the industry wants to
▶ 1:09:10work with a Regulators to make sure that we can enhance Clarity and provide for leadership I've got about a minute left I want to try to hit a couple of quick things but uh Mr yahim in 2023 the SEC went after Kraken staking program uh you operate in 200 over 200 countries is that correct um that's correct yeah okay uh that's a fair number uh being a member of the Foreign Affairs committee I know that that uh that that constitutes much of the known uh uh Digital World on that but
▶ 1:09:40uh did any other regulator around the world uh shut you down as former uh chair gendler did um uh no congressman and I think you know to put um our Global operations in context um in those jurisdictions that have advanced clear rules of the road we've um worked with Regulators to put those in place and we are regulatory compliant um there are a lot of jurisdictions that haven't and you know markets operate on a verse solicitation basis but most of our business is
▶ 1:10:11across North America and Europe where um you know we see regulation moving forward my my time has expired but I will uh put a question into you all about whether us lawmakers should be concerned what Europe uh was first out of the gate with some of their uh regul in their framework and what lessons can the US learn from uh from MAA so with that Mr chair I yield back gentleman yields back the gentlem woman from California Miss Waters uh who's also the ranking member of the full committee is recognized for five minutes to ask questions Mr
▶ 1:10:41mid consumer protections are under attack in this country and this will have profound consequences for all of our constituents as Elon Musk and the Trump Administration try to delete the cfpb Republicans on this committee have offered stable coin legislation that is also light on Consumer Protections in the legislation I release there are robust protections for Consumer wallets including risk
▶ 1:11:11management and financial resource requirements uh to ensure consumers do not lose their payment stable coins to the scams and fraud that have plagued uh the crypto industry for far too long what will it mean for consumers if these protections are Stripped Away as Republicans on our committee have suggested well I think you're exactly right uh congresswoman that we could see a lot of um consumer
▶ 1:11:42harm uh you know today stable coins aren't stable um because we don't have this framework around them and it's not enough just to say okay you've got to have full reserves for tokens we do need to go beyond that and you've noted some of the ways and also your point about wallets I think is very good we have to look at this you know extend the perimeter here in terms of Regulation and look at how these things are transferred they're transferred they can be transferred on self-hosted wallets which
▶ 1:12:12raises a lot of issues of evasion of sanctions and financial crime and uh unless we really put in a comprehensive framework um we're going to have these problems I think the bill that uh the legislation that you negotiated with the former committee chair does a lot of this it has stronger Federal standards it has um standards that go to wallets it has a dedicated uh resolution process so it has a number of features I think that would better ensure protection
▶ 1:12:42of consumers uh thank you um days before being inaugurated president Trump followed in the footsteps of his co-president mus to profit off of meme when Trump launched his own meme coin I warned these speculative dangers and mared risk for investors who would be blocked from class action lawsuits if they were swindled Trump's profiteering also challenges critical
▶ 1:13:12National Security and anti-corruption laws now we're seeing reports that after Trump's token crashed a large number of investors suffered over $2 billion in losses according to chainalysis data 100 million in trading fees have gone to the Trump family and his Partners while pump and dump schemes run rapid with me uh coins it is clear that early traders Trump's
▶ 1:13:43family and their parent Partners have been the biggest winners at the expense of hundreds of thousands of investors and so when I heard about this meme coin I asked what is it they said it's not an investment it's not a contribution to the campaign it is all about the president of the United States and then his wife and now his children all being involved in creating their own coins and making money and those who understand
▶ 1:14:13what it means to have the rug pulled out from those who are unsuspecting this appears to have happened what do you think about this I think it's plainly wrong and I don't think you need to be an expert about crypto to know that I mean look this is like you know paying to join a fan club except it's a digital token that then you trade and you and you buy it to trade because you hope that somewhere someone at some time will pay more for it than you paid it's clearly contrary to the spirit of the executive order it's clearly a conflict of interest
▶ 1:14:44it will create ongoing conflicts of interest because the because companies and countries may now try to buy the coin to Curry favor with the administration and they're going to continue to release additional coins um so you know I think it's it's a black eye for digital assets it's exactly the kind of behavior we should be trying to down well uh just quickly upon taking office president Trump signed an executive order Banning the creation and issuance
▶ 1:15:14of a US Central Bank digital currency also known as cbdc the US is now the only country in the world to impose a presidential ban on CBD while China and Europe are free to lead the global competitive landscape I just get that in there because our Central Bank why don't they want our Central Bank involved well if I can just add a couple thoughts to that I mean look I know there's a lot of pros and cons about a retail cbdc but we need the Federal Reserve to continue
▶ 1:15:44doing research and development in the area of digital assets if you want digital assets and tokenization to really grow as a sector then the federal payments infrastructure must be geared to handle that and so that's why we need the Federal Reserve to continue to to do work in this area unfortunately the executive order suggests it can the gentleman's time has thank you thank you very much the gentleman's time has expired uh the gentleman from Minnesota Mr emers recognize for five minutes thank you
▶ 1:16:14H to uh you chairman style and to Chairman Hill for your tremendous leadership and partnership on digital asset legislation I am honored to serve as the vice chairman of the this subcommittee and I'm humbled by the great work already done by your subcommittee under President Trump promises made our Promises Kept and a new day for crypto Innovation opportunity and Excellence has finally arrived crypto technology shifts economic power from centralized institutions back into the
▶ 1:16:44hands of the people it's transformational the wrong leadership our past administration feared this transformation they did everything they could to kill it the right leadership the Trump Administration welcomes this transformation will do everything in their power to make the United States the crypto capital of the world for this reason we are in a moment to drive real change to legally anchor the digital asset Community to unlock a peer-to-peer internet with an abundance of
▶ 1:17:14opportunity to be globally competitive with our regulations to expand the status of the dollar as the world's Reserve currency and to Foster in the Golden Age of America doing this requires leading with two priorities first we must ensure crypto policy nonpartisan Republicans and Democrats have a 10-year history of working productively together on Solutions in this space that kind of teamwork must remain the status quo second we must craft statutory
▶ 1:17:45regulations that honor the core American values that are enshrined in digital asset technology privacy individual sovereignty and free market competitiveness I'm encouraged by the strong nonpartisan Coalition of members on this subcommittee and this full committee uh who have put up American values at the Forefront of crypto policymaking this Congress I look forward to supporting this subcommittee as its Vice chair and Drafting and passing stable coin legislation and Market structure legislation
▶ 1:18:16I also look forward to passing the cbdc anti-surveillance state act which bans the government from ever creating a central bank digital Curr curency and the blockchain regulatory certainty act which gives entrepreneurs the legal Clarity they need to innovate right here in the US and the Securities Clarity Act which codifies in law that a token is separate and distinct from an investment contract this committee has long been at the Forefront of innovative policymaking for the digital asset ecosystem in this
▶ 1:18:46Congress I'm excited to see the legislative products of our labor pass and get signed into law thank you again chairman uh style chairman Hill and my colleagues across the aisle for your long-standing partnership in good faith to unlock an abundance of Economic Opportunity for our constituents we have a lot of work ahead but our constituents can trust that a great bipartisan team here in Congress will bring this across the finish line and deliver for the American people again I'm honored to serve as your Vice chairman uh Mr
▶ 1:19:16style and I yield back the balance of my time we're honored to have you as our vice chair we look forward to your participation the gentleman yields back uh the gentleman the gentleman from Illinois Mr Foster has recognized for five minutes thank you Mr chair and congratulations um and and and thank you to our Witnesses uh particularly Mr mid your um your testimon is really excellent I read it twice and I urge anyone who wants to sort of understand the issues here to have a long read on your your testimony um one of the points you made in this is the inadequacy
▶ 1:19:46of the current corporate bankruptcy codes for resolving um for stable coins I was wondering if the other Witnesses have any comments on that do you view the current uh bankruptcy code is adequate for resolving failed um failed stable coins or do you think we need a separate uh resolution regime for B for um stable issuers anyone wants to just raise your hand you if you think the current regime is adequate and we don't need a new one just raise your hand
▶ 1:20:16okay so it looks like all of you agree that we need some kind of new resolution regime for bankrupt uh issuers of stable coin so that's it really should be on our to-do list on here um let's see Mr Jack you emphasized the regulatory oversight um over your platform but as Mr Mass points out that's only half the battle you know if you accept sell um as crypto assets that have been self-hosted you must need some mechanism to make sure that they haven't been used for you know fentanyl
▶ 1:20:47purchases or um you know or North Korean uh missiles all the sort of things that are really you know key to have that work how do you ensure that the crypto assets that you bring on board have not been used for these illicit purposes thank you for the question Congressman um you know cracken employees is a zero tolerance policy for elicit finance and if you think about ecosystem there is kyc there are kyc and AML checks for every user that comes on board just to be specific
▶ 1:21:17let's say a you've had Bitcoin that's gone through these washers and transferred to other Anonymous currencies and then it shows up in your platform form from a self-hosted wallet how do you have any idea whether that money has been um thank you for the question Congressman th this is the beauty of blockchain technology and I and I think this is where um the blockchain analytical tools really power this ability to surveil detect and prevent this type of behavior we employ these tools to ensure that not only all the transactions within
▶ 1:21:48our environment and on our platform um are subject to these screens but also onboard offboard and if we're interacting with uh other uh centralized intermediaries self-hosted wallets that are owned by our customers those are subject to San they're owned by your customer yeah I'm not worried about your customers the people you kyc I'm worried about people that are out there on the dark web you know trading anonymously with self-hosted wallets to buy fenel precursors or all the things that are you know killing Americans or the or
▶ 1:22:18the North Korean nuclear missiles that threaten us um and and so there it seems like or if you have a solution to that that actually works I've been asking for it for 10 years and haven't received it um and so if you if you could have as you know for the record say exactly how you can guarantee that when you bring on a crypto asset that that value has not been used in an illicit transaction if you could answer that for the record i' I'd appreciate it because it's it's one of the two things that you know for one of the reasons why we've actually
▶ 1:22:48you know over the last 10 or 12 years passed exactly zero legislation on crypto is that the two fundamental issues are anonymity and finality uh so just you know for an example on the finality why that's so tough you know if if someone comes if you're self-hosting and someone comes and puts a gun at your head drags you into an alley says get out your cell phone transfer all your crypto to me you know is it your view that you're just screwed and that's it you know that that money has disappeared into another self-hosted
▶ 1:23:19wallet wandered off to the dark web or do you think that we need some way of tracking it down and find out where where it went well Congressman I think it's really important to put the market into context here the crypto markets are reached over three and a half trillion dollars 85 to 90% of that activity today goes through Central centralized intermediaries like the 15% that is going threatening us with nuclear missiles we cannot stop from North Korea all right this is I'm not worried
▶ 1:23:49about the 85% and I'm not even anyway so if you have a solution congressman if I may I think the 85 to 90% is what we're here to talk about today that is why it is so important for the United States to move forward with Market structure regulation if we can we can there are many issues to debate uh over the next several years but we need to move now and put that basic foundation in place unless 85% is used as an on-ramp for the 15% that's killing Americans um yeah Mr mid you look like you wanted to say something well I was just
▶ 1:24:19going to say you know when I hear the uh industry defend it this way and yet at the same time they want to promote defi um so you might say well okay are you willing to to somehow restrict Defi and have everything go through centralized intermediary so we can have BSA checks thank you my time's up y back the gentleman yields back the gentleman from Ohio Mr Davidson who's also the chair of the subcomittee on National Security elicit Finance in international financial institutions is now recognized for five minutes uh thank you chairman for uh holding today's hearing a golden
▶ 1:24:49age of digital assets given the title I think I'll get a question in at least on old back stable coins uh but I I want to strongly support legislation that provides legal CL Clarity for payment stable coins you know first traditional SP stable coins are priced at $1 per token and they are backed by custody of $1 of either cash or cash equivalents like us treasuries as the name implies a gold back stable coin is backed by physical custody of gold consequently with a
▶ 1:25:19claim to the gold that's on deposit each token reflects the market price of gold uh similar commodity back stable coins are obviously viable but why would anyone prefer a stable coin of any kind to a traditional bank deposit well first banks have fractional reserves and although the risk of a bank default is normally small cases like Silicon Valley Bank exist uh stable coins are fully reserved and they have audited balances of
▶ 1:25:49one: one in the case of uh dollars it's $1 per dollar or in the case of something like gold it' be 1 ounce per token um the other thing is self- custody so while people the Skeptics keep trying to undermine uh the market the whole point is self- custody permissionless uh which is no payments and the idea that you have to go
▶ 1:26:20through an intermediary to be trusted basically says that unless the government grants you permission we just assume you're a criminal that you're trying to do everything that uh that we want to criminalize and there is no decentralized Finance without the decentralized part if you don't uh if you don't protect self- custody you essentially don't have all you really do is change which intermediaries are involved you don't really do that much truly interesting work uh so I don't think any serious piece of legislation
▶ 1:26:50uh to try to chart a path for a quote golden age of digital assets assets could possibly exclude serious protections for self- custody and I was really pleased to hear you highlight that uh Mr Kim so uh Mr yakum Kraken list some advantages of gold back stable coins uh you obviously have them available uh do you agree that there are advantages to using a gold back stable coin to other stable coins thank you for the question congressman and um to touch on your prior Point thank you for your leadership
▶ 1:27:21uh in terms of helping others understand the importance of self custody in in the crypto markets with respect to stable coins um we believe a robust and healthy and competitive stable coin Market is going to be important um we've seen instances where you know the market um either due to regulation or other forces is uh has been dominated by a couple players but again in Europe let's look to this example we've seen the emergence uh as rules have been in put in place new issuers
▶ 1:27:51register and competitive forces at play and I I think that's what we all want for the market so this includes goldback stable coins I think there's going to be a lot of innovation in the space uh but it's important for the US to put rules in place for issuers right now we see other jurisdictions moving forward which is requiring every Global stable coin issuer to consider registration in one jurisdiction another and I think it's a good point I mean I think the the big thing the Committees try to do and we had Witnesses
▶ 1:28:22including uh director Harris from New York mean we've had uh uh legal Clarity in America for years now we just haven't made it Federal and so some people want to make it only Federal and essentially nuke what's worked successfully with a regulatory regime in New York and I look New York rarely gets regulatory Frameworks right in a way that I will applaud but this is one that seems to have been pretty effective a lot of times it seems very heavy-handed but this seems to have worked and we've got people that don't want to recognize
▶ 1:28:52that and and and basically want to eliminate the state-backed stable coin path you one of the other things that we talked about was you know legal Clarity one of the first bills I introduced in the space was the token taxonomy act and it gets at this idea that there has to be a bright line test I'm going to rapidly run out of time but Mr mad you know is there any place that really doesn't look like a Jackson Pollock painting I mean that everyone looks at it and says this is really a bright line test this is a security and this is not
▶ 1:29:22you know um Congressman thank you for the question it's very tough but I think we need to remember that other jurisdictions are struggling with this security versus commodity or security versus something else also Europe has this too it's whether it's a whether it's a crypto asset or a financial instrument the difference is they have in some of these other jurisdictions because this also exists in Hong Kong and other places they have more unitary regulation so it's a little bit easier to well it is the challenge before us and we have to get a bright line I'm sure other
▶ 1:29:52will highlight it sadly time's expired if I can just add though on New York if all gentl gent time has expired the gentle time is expired you can you can enter it for the record uh the gentleman's time has expired uh the representative from Massachusetts Miss Presley is recognized for five minutes thank you to our Witnesses for joining us today there's so much exciting excitement around digital assets especially cryptocurrency understandably so cryptocurrency is the new thing it's
▶ 1:30:22shiny it's flashy people on the internet are always telling stories about how much money they're making on their investments in the latest coin but the stories that stick with me the most are not on social media posts they're the ones that I hear in community or that come to my office as casework like the college student whose digital wallet was drained they don't know who to turn to for help or the Elder who lost everything when responding to sex messages from a number that was pretending to be their grandchild in order to set up a crypto access account
▶ 1:30:54these stories and many more are the heartbreaking reality of crypto scams and I believe we all government and Industry should do everything we can to stop them Mr Kim you are the president and acting CEO of crypto Council for Innovation do you think it is important for government to play a role in reducing scamming and fraudulent activity through cryptocurrency uh thank you very much for your question congresswoman um as a general matter it's extremely important um for any counter lit activity
▶ 1:31:24to be stopped and CCI is committed to coming up with policy Solutions um my opinion is that the best way to accomplish this is through a comprehensive Federal framework for both Market structure and and payment stable coins to make sure there are consumer disclosures that there are consumer protection standards um and all of this information can help prevent scam at CCI we run different types of educational aware campaigns with our members to make sure these types of scams do not come to be uh in the US centralized um exchanges as my colleague to the right of me mentioned they are subject to robust ml CFT
▶ 1:31:54oversight uh but no amount of counter listed activity is is acceptable and CCI is committed to working with you and your office to making sure that we promote awareness and education to Best Stop um consumer scams thank you uh actually uh my next question is for the ential entire panel of witnesses so uh please raise your hand if you oppose crypto scams and support protecting consumers excellent let the record reflect that every single witness today raised their hand uh I'm glad we can all agree on that
▶ 1:32:24but it's not enough to Simply talk about it we need to be about it and that's why I want to bring attention to the Consumer Financial Protection Bureau this small But Mighty government agency is one of the top Watchdogs fighting hard for workingclass people and their bank accounts and that's precisely the reason Elon Musk is trying to kill it if you're not familiar the cfpb has put 21 billion that's with a B dollars back in people's pockets and when it comes to digital assets cfpb collected data from consumers and found
▶ 1:32:55that 40% of crypto asset complaints were about fraud and scams they then use that information to develop resources for consumers and prioritize regulations for crypto firms to reduce predatory behavior but the agency is now under attack Elon Musk and his so-called Doge Bros have kicked out the employees locked the door and stopped all the work from continue and they did it with the
▶ 1:33:26blessing of our scammer and harmer in Chief Donald Trump earlier this year Trump launched his own cryptocurrency meme coin he promoted it on social media and people invested in it but then it quickly lost value roughly 40% when Trump insiders pulled their money for a profit resulting in workingclass people stuck with the losses it was a scam so let's be clear on one hand Donald Trump will steal from people through a crypto scam on the other hand the hardworking staff at cfpb will fight to get people
▶ 1:33:56their money back and that's why we need this essential agency to be reopen to finish its necessary work Mr mad the consumer protection Financial Bureau before it was attacked by Elon Musk and Doge proposed that crypto payments are subject to the electronic fund transfer act why do you think that is important well I think uh Congressman thank you for the question I think I think we have to have a complete framework of regul ulation and you know particularly given
▶ 1:34:26uh the fact that the industry likes to push back against whatever regulator is uh is trying to do something um you know and and to your point about shutting down the cfpb we cannot build strong financial markets if we're going to sort of regulate by a pendulum swing you know sort of go way over here one Administration then go way over here the other Administration I mean reasonable people can disagree with some of their rules but you don't shut down the agency thank you
▶ 1:34:57I yeld back the gentlewoman yields back uh all members are reminded to refrain from engaging in personalities towards the president uh the gentleman from Tennessee Mr Rose is now recognized for five minutes thank you chairman style and thank you riking member Lynch for holding this hearing and thank you to our Witnesses for taking time to be with us today uh one aspect of stable coins that interests me greatly is their utilization for business-to business trans actions Mr deponte why are stable coins a
▶ 1:35:27better tool than traditional settlement rails for de for domestic businesso bus transactions thank you so much for the question we have been active in the space of of crypto for the last five years and in the stable coins for the last year and a half and the reason that that we are there is because we are a payments company not not a blockchain company we see the potential of the technology to bring the next generation of payment rails and we believe that busines to business payments is one of the places where we will see that that adoption
▶ 1:35:58first in terms of domestic payments there is a very clear advantage that even in places that have adopted Real Time payments in more traditional rails through the transactions on with the stable coins on blockchain businesses can transact outside of banking hours outside of Monday to Friday outside of 9 to5 we see that for many small businesses that we serve that means that they can't get their payments in two days earlier they can get their payments in without waiting for an a transfer to
▶ 1:36:28to settle we see fundamental advantages in reducing Financial cost for those businesses thank you and recently I had a constituent Express a great deal of frustration regarding the cost and difficulty of conducting an international wire transfer to pay an invoice Mr Deonte do you see similar benefits When stable coins are used for international crossborder payments between businesses thank you so much for the question if there is on the domestic side there is even more value on the international side the cost of sending an international wire
▶ 1:36:59is in the range of $50 the time that it takes to settle is in the range of 3 to five days and there might be other cost Associated for the receiving party internationally when we can do transactions that are fast and cheap and they can settle 247 and they can settle in minutes we are saving those businesses at least in three ways we are putting five days of money back on their balance sheet because they don't need to refund the the money in many cases they can get better exchange rates because they can time when they do
▶ 1:37:29the transaction and they are also reducing the counterparty risk because they don't need to have pre funded money with their disbursement Partners I have the the luxury of being able to engage with our consumers and businesses uh and I remember a few weeks ago I was talking to one of our small businesses a Pottery business out of Texas who was very clear that she would the main reason that she was excited about this technology was not the need to reduce the cost of payments but to grow her business and she said that very really
▶ 1:37:59she had to decline a significant order from overseas from the Middle East because they could not figure out the way to make the the payment so if we can provide this fast and cheap and 247 settlement vehicle we will be helping her grow her business and and other millions of other American businesses thank you I think I think you said great light on that I'd like to shift gears now and discuss the benefits that stable coins offer to Consumers not just businesses Mr Kim I understand that traditional financial institutions charge 5 to 12%
▶ 1:38:29for remittances how can stable coins be used to lower those costs for consumers looking to make remittance payments U thank you very much for this important question Congressman uh you're absolutely right uh traditional institutions can charge anywhere from 5 to 12% for cost crossb remittances stable coins can reduce reduce that to 1% or lower um I'm from New York in New York uh New York are sent $10 billion overseas on remittance es we're talking about $500 million that could be spent on the local economy and other good reasons and this is why it's so important to have a
▶ 1:39:00comprehensive uh Federal framework for stable coins to further spur this Innovation and leadership in the United States when it comes to stable coins Congressman thank you um I fear that a lack of strong communication between the cftc and the Securities and Exchange Commission has been why the Biden Harris Administration was so unsuccessful in appropriately regulating digital assets Mr Kim would you be supportive of supportive of a joint advisory commission between the SEC and the cftc to help
▶ 1:39:30harmonize them and resolve the jurisdictional overlap uh absolutely Congressman inter agency collaboration and cooperation is critical to getting this right for the United States uh we need clear delation of responsibilities between two agencies and this is something that the president's working uh the president's executive order also recognized by establishing the working group and I want to thank you Congressman for your leadership with the bridge act as well thank you and I I have full faith that this uh this Congress uh we will pass legislating legislation uh regarding both stable coins and Market structure
▶ 1:40:00for digital assets uh and as we blaze a path forward it cannot be done with Coop without cooperation and communication between this SEC and the cftc thank you Mr chairman I yield back the gentleman yields back the representative from New York Mr Torres is now recognized for five minutes uh thank you Mr chair um I feel we in Congress should neither romanticize nor demonize emerging Technologies like blockchain like all Technologies blockchain has constructive uses
▶ 1:40:30and destructive uses and I feel like our mission should be to develop a regulatory framework that maximizes the best uses and minimizes the worst uses because without a bipartisan agreement we will continue to have a dangerously deregulated status quo that benefits offshore overleveraged deregulated actors uh and for me a bipartisan agreement would be fundamental Improvement upon the status quo I want to follow up on Congressman Rose's questions on remittances I represent
▶ 1:41:01uh the Bronx which is one of the poorest counties in America I have constituents who pay exorbitant fees simply to transfer their own money to their loved ones abroad whether it be Mexico or the Dominican Republic uh my first question would be for Mr Ponte PayPal is obviously one of the largest payment processes in the world what is the cost of transferring money by the conventional payment system versus the crypto or stable coin payment system thank you for the question Congressman the cost of
▶ 1:41:31sending money overseas varies widely by Corridor but information coming from sources like the World Bank would put the average cost in the ren of around 6% uh with a target of I think that the desired Target for the World Bank is to bring that down to 3% but the current average I think is in the range of 6% when you're doing those transactions on stable coins today if you're doing that purely from a stable coin wallet to an stable coin wallet depending on on the protocol that you're using it can be as low as 1 cent per transaction
▶ 1:42:02in in some of the most a efficient wallets that still would not address part of the complexity because then you would need to explain to the person on the other side they need to get a crypto wallet they need to find an exchange so there is still some friction there but we are finding experiences that combine Fiat and stable coins for the benefit of the user for instance a I just want to simplify it so the average cost of remittance is is 6% the World Bank has a sustainability Development Goal of
▶ 1:42:323% what is your cost with stable coin when when somebody on zum our remittance product we have enabl stable going as a funding instrument when somebody sends a remittance funded by P USD we don't charge any transfer fees so the the the transfer fee that is charged to the user is zero there is still a component on the Forex spread depending on where that Corridor okay so it's zero when it comes to the transaction fees and then if you factor in the spread for the foreign currency exchange rate what would it be
▶ 1:43:02uh that that would vary I would need to come back to you for followup it is it less than 3% in many cases it will be less 3% we're living in a time when foreign demand for us stable coins is on the I'm sorry foreign demands for us treasuries is on the decline and it appears to me that stable coin issuers are becoming the largest purch purchaser of us treasuries um it would seem to me that the proliferation of stable coins can dramatically
▶ 1:43:32expand the market for us treasuries what impact would that have on the cost of US debt thank you Congressman for for the question ER us treasuries are definitely being established as one of the assets that are that are being preferred for reserves of of a stable coin and as the market grows that will inaptly drive demand especially as American issuers are able to issue more here inside of the US and and they're able
▶ 1:44:02to to write that increase in in the market I I don't have an an opinion on what that would make for the cost of debt of of the United States but definitely is one of the aspects where net demand for treasuries could grow it seems to me economics would dictate that growing demand for us treasuries would lower the cost of US debt um Mr mad do you feel uh stable coin should be regulated in the same manner as Banks well not quite in the same manner but and with some similar
▶ 1:44:33principles uh such as some of those in the stable act like full reserves and capital and liquidity requirements risk management measures and so forth I mean I've been calling for this for years because not just to address you would concede that you know a stable coin issuer that has no fractionalization of reserves and no lending for qualitatively different from a bank they're not creating therefore should have its own regulatory framework okay I see my time is about to expire so I will
▶ 1:45:03leave it at that thank you the gentleman yields back the chair now recognizes the chair of the full committee the gentleman from Arkansas Mr Hill thank you chairman sty and thank you for your leadership of our important work in the 119th Congress on digital assets appreciate the questions of my fellow committee members and appreciate all the witnesses being with us today Mr Garrison today's uh investors make investments in digital asset projects through a series of exemptions that the SEC has
▶ 1:45:33crafted each with their own advantages and limitations could you take a minute and discuss the different exemptions that digital asset projects are currently using to raise money with investors and what the principal uh uh obstacles are to that process sir ly the the primary exemption that most digital asset issuers rely on is is regulation s which is a safe harbor for offshore transactions to prevent us
▶ 1:46:03investors from even participating so as a starting point many US investors are just kept out uh for those that do issue to uh to us investors they go you typically do through do so through the regulation D Safe Harbor which can only be sold to wealthy investors so you have to have uh over 200,000 in income or a million dollars net worth to participate in that uh so uh in the US there really is no uh straightforward way to get digital assets out to retail
▶ 1:46:33investors in a uh either registered or exempt offering yeah so that's that's helpful to me because this is you know what I think the ecosystem has to understand is that not all these uh needed activities can be taken care of by the commission by itself without uh without Congress so what would be the in your view the key features of a workable ex exist exemption type system that that SEC could add to
▶ 1:47:04that without without Congress certainly so the SEC could uh use its exemptive authority to uh uh to add a new exemption uh similar to commissioner person's token Safe Harbor proposals from a few years ago for example so a few features that that could be helpful there is a uh the ability to access retail investors uh as well as tailored disclosure items for this industry right so token holders have different interests than a shareholder and
▶ 1:47:34a company uh the types of disclosures that are needed are completely different uh in this situation yeah so providing that type of information and you can pair that with many investor protections uh individual limitations on how many people can participate how much they can participate of their net worth uh many of the same Concepts in in existing Securities Law exemptions uh can can be grafted over in a in a way that makes it a a balanced approach thank you I think we've we've worked certainly with that concept as we've drafted our fit 21
▶ 1:48:04bill in the last Congress Bitcoin clearly is the most popular digital asset in the ecosystem and it's one example where both the SEC and the cftc have agreed that it's not a security along with ether do you think under the current Securities laws it would be possible for a nation security exchange to list Bitcoin and a security alongside each other is that possible you think under current no no it is not not you don't believe it is
▶ 1:48:35uh Mr yahim you agree with that you think uh I think there uh Congressman thank you for the question I think there um could be exemptions put in place um you know it's our view that rather than do this piece by piece through exemptive relief and no action um you you know from from the agency it's really important for Congress to set a clear statutory framework and do that across both agencies you know we've seen prior examples where markets have dual registrations
▶ 1:49:05at the SEC and cftc and the fact of the matter is the rest of the developed world and most other emerging jurisdictions have just called these crypto assets you have one regulator one registration framework um and you know we have to work within our unique legal system but I think in order for our framework to be durable and keep Pace with the Innovation the tests and the jurisdictional lines need to be clear and simple Mr Garrison you agree that yes there's without a doubt a need for Clear jurisdictional
▶ 1:49:35lines and Clarity you've advocated for a joint SRO to oversee digital assets as a convenient way to sort of sidestep these questions still advocating for that Mr Garrison I'm sorry clarification for a joint SRO to oversee uh SEC and cftc trading yeah uh yeah I think that could potentially work great any type of communication between the two agencies and coordination
▶ 1:50:06on regulations would make sense but time's expired Mr chairman I yield back gentleman yields back the representative from Texas misss Garcia is recognized for five minutes thank you Mr chairman and thank you to all the witnesses I want to do some followup to the questions that Mr to was asking uh with you Mr Deonte um you know the crypto industry has always boasted about the easier access and the savings of
▶ 1:50:36using uh crypto or stable coins uh in lie of of remittances and they talk about all these prices but the reality is do we have that many using um crypto or stable coins to trans Smit uh remittances there are no no thank you for the question so much the use of remittances broad the use of stable coins broadly
▶ 1:51:06for remittances of other type of of payments is still on the early stages the vast majority of the use case for stable coins today where stable coins have been adopted is mostly on crypto and and trading markets we see some early stages in which both consumers and businesses are using that for crossb P2P pay for crossb P2P payments or for businesso business payments but it's still in very what percent of remittances today do you think are are used are being transmitted through with crypto or stable coins
▶ 1:51:37uh I don't have data for that but my best estimate would be that it's going to be in the low single digits is still a very small amount it's very small right because frankly at least when I still remember the first hearing we had on this topic and I questioned the witness at the time and he too could not give me a single instant where it s it done because it's a practical matter yes it may be easier to transmit but the receiving party has to have the capacity to receive it it's not something
▶ 1:52:07you can just get go to the market and buy your milk uh likewise do you have any data on the the breakdown by income of the buyer customer consumer the investor uh that that does does use stable coin or does invest in stable coin or crypto I don't know that we have the data but I I can consult it with our team well again it's a question that I've been asking now it seems like for five years uh and no one seems
▶ 1:52:37to be able to to answer that question even some of these working groups that are put together and experts come and you all like to talk about how inclusive this could be and that this will help the unbanked and it's it's lootable goal but the reality is unless you're really very rich you're not doing any of this and the average American just seems to be overwhelmed with this discussion that they don't really even understand what we're talking about that I think it's going to
▶ 1:53:07be really hard for us to get past some of those hurdles and when you talk about the underbank those with limited English proficiency I think it's getting there's a lot of um dubious people about what this really means we know cash cash is keing and we really don't want uh at least in my district uh anybody competing with the US dollar and I think it there's a big hurdle here that we have to use but we also got to make
▶ 1:53:37sure that whatever we're doing that we do have a framework uh to protect the consumer uh and that we can make sure that they also have a remedy remedies for for for justice if they get scammed as Miss uh Pres mentioned so Mr Missi do you think the government white mandate to eliminate diversity equity and inclusion efforts will change the crypto industry in the long run um that's a good
▶ 1:54:07question congresswoman I uh I'm sure it will I think it's very unfortunate to eliminate these programs entirely um even if you can find examples of how they been used that you think are an overreach the notion that we should eliminate these things um I think is is not good policy again well it's part of The Branding of this industry from the beginning as I said you know we'll be there for the unbanked for the poor person
▶ 1:54:38you said a remittance for everybody we'll include everybody we're not going to be like the banks well no I I agree with you that the industry likes to talk about inclusion um I don't think we've seen that much of that and to your question about stable coins who's using them for remittances and so forth you know we might see that use case develop the fact is stable coins are mostly used today for trading crypto um now if we had a regulatory framework with sufficient protections that people could have
▶ 1:55:08confidence that a stable coin was really worth a dollar then we might see people use remittances and I agree with Mr Delonte that um the cost of remittances is very very high and we should be looking for ways to bring it down there are other companies trying to bring it down through non blockchain Technologies and they're making progress in that regard thank you I yield back the gentlem yields back the gentleman from South Carolina Mr Timmons is recognized for five minutes thank you Mr chairman I want to thank the witnesses
▶ 1:55:38for being with us today over the past four years under the B Administration and chair Gensler Innovation within the digital assets sector has been driven out of the United States numerous groundbreaking blockchain companies with potential to transform our economy have relocated to jurisdictions with wellestablished re regulatory Frameworks meanwhile International competitors have gained a distinct competitive advantage while American businesses in the space were essentially dismissed by the administration with the message to Simply go away uh Mr Fernandez dupon
▶ 1:56:09as an American company how has PayPal's digital currency business been affected by the absence of regulatory certainty over the past several years thank you so much for the question we have been in industry we having on the payments industry for 25 years and we have been reg we are regulated in many many jurisdictions and we take that regulation very seriously so when we decided that we were going to enter the space we went to the highest reg regulatory standards that we could go we obtained the first provisional bid
▶ 1:56:39license in in New York we obtained the first upgrade for a for a full bid Licensing in New York and then and we obtain a a limited purpose trust Charter out of New York as well so we have have gone the state route in in the place in which the regulation was available to us and where we could interact with with the system it definitely there are constraints on how products are designed that that derive from that lack of clarity and that lack of understanding of when one specific
▶ 1:57:09token would be considered a security or or not we support a very small number of tokens in in our platform and are mainly driven by utility quick followup question how could clear legal guidelines for digital assets and blockchain technology help non-bank entities like PayPal compete more effectively on the on the global stage we believe that as the world move to the next generation of payment rails it is incredibly important for a payment company like us to be to be involved as the move as the world move toward mobile
▶ 1:57:40money wallets internationally and toward networks that will interoperate in each other we see an increasing volume that is going into those rails and we need to have an ability to compete in that International Market because it is happening outside of the US before it's happening in the US thank you for that um Mr yah how about for Kraken what would your answer be how would clear legal guidelines help uh assist competitiveness of the US economy thank you for the question Congressman the the
▶ 1:58:10clarity needed and provided by the legislation that's Advanced over multiple Congressional Cycles I think would solve for a key foundational piece of this puzzle which is regulation for centralized intermediaries that will allow investment in growth now if you if you look at the trend that's happened here um both at the level of the project development teams and the innovators um through to the investing community and then to the centralized markets we have lacked that Clarity in the United States
▶ 1:58:40which has pushed Innovation and pushed development offshore and you know it's not just the legal bills it is the distraction of management and board and our businesses to to think uh proactively about investing so um we're very excited for for the change in tone and the cooperation and we think that's going to drive new innovation here in the US thank you for that I can assure you help is on the way um last Congress I introduced the New Frontier and Technology act with my colleague from New York
▶ 1:59:10Mr Torres uh the aim of that bill is to provide clear definitions within within the expanding and often ambiguous digital assets regulatory landscape as you may know non-fungible token creators and marketplaces have faced challenges for years due to unclear regulations while countries like Japan Singapore and South Korea have created favorable conditions that that have allowed nft companies to thrive I was encouraged to see a discussion draft of my bill included in today's hearing and I look forward to advancing this important work later in this Congress Mr Kim
▶ 1:59:40can you describe some of the regulatory ambiguity regarding the treatment of nfts and explain why these assets need to be approached in a different manner than say Bitcoin or ethereum uh absolutely thank you for your question congressman uh it's important to clarify the non-security status uh for nfts such as artwork Collectibles and non-financial applications imagine an artist looking to hire a Securities attorney apologies to my colleague to the left of me before selling this art piece uh and this is why your U bill is so important thank you to you and Congressman Tes for your leadership there to clarify
▶ 2:00:10this important issue thank you for that I'm particularly interested to see how nfts can revolutionize various sectors but particularly real estate I think there's a lot of efficiencies long term that we can uh use the blockchain and um this legislation would help uh go a long way in that endeavor Congress has an obligation to make sure the US economy is the best place in the world to start and build a business and that's what we're working on in the subcommittee and I'm optimistic we'll get it done this Congress thank you I yield back gentleman yields back
▶ 2:00:40uh the representative from California Mr Lardo is recognized for five minutes maybe you're able to pull the mic over thank you my mistake wrong button
▶ 2:01:11thank you uh and thank you Mr chairman congratulations as well I uh I appreciate uh testimony of the witnesses thank you all for being here and I I hope that uh we do move Sable coin bill out with some bipartisan support and I appreciate the the hard work that's been done on all sides um and also particularly appreciate our ranking members work uh late last year to try to achieve a compromise uh which I think was a good bill um I am interested and perhaps I'll start with you Mr Fernandez
▶ 2:01:41depante um since your company is a well-known National B brand even to those who are not uh familiar with crypto uh and you happen to be headquarter in a great American city of San Jose uh I wanted to ask given the focus that you have and your company has on having a stable payment system um in your testimony you wrote on page five that regular and predictable Market policy is necessary for the crypto industry uh to grow and Thrive and that's certainly understandable and you clearly
▶ 2:02:11support state regulation uh an option for State regulation um but I noticed that you also uh encouraged that there be uniform stand standards for example around requirements um around uh risk management governance so then do you share the concern that Mr mad has that there ought to be some federal um regulation or oversight over what the
▶ 2:02:41standards ought to be if we're going to have state chartered stable coin thank you congressman and and thank you for your leadership in our home City and it's a great City indeed San Jose ER yes we we advocate for for the need for legislation and we advocate for the state path the reason that we advocate for the state path is that when we look it from our perspective we are a payments company and payments are regulated that at the state level and we strongly
▶ 2:03:12believe that fully backed Fiat back one21 Reserve stable coins are and issuance of those payments stable coins is the business of payments not the business of banking no fractional Reserve all the all the points that were made here so we do believe that it is important to maintain a an State path I think that the point on standards is that state path can coexist with a federal path we we see the advantages of having a a a federal path as well I we do believe that
▶ 2:03:42there should be that General set of standards that is important that we have equipable standards in terms of Reserve management between any federal path and and any uh State path we also believe that it's important to not have a duplicity of of Regulation so this idea that they can coexist and share common standards we we think is an important one thank you very much Mr Yim do you also agree that there ought to be some uh Baseline standards
▶ 2:04:12set even if there's a state Charter stable coin AB absolutely Congressman thank you for the question I think you know if you look at in the stable coin space again with the goal of encouraging a healthy vibrant competitive stable coin Market uh both state and federal Pathways uh are important and and you know there should be minimum standards set I think you know from our standpoint as a centralized intermediary um it's slightly different and if you look at how markets are regulated
▶ 2:04:43in traditional markets whether it's derivatives or equities a unified Federal framework is essential today we operate with over 40 State money trans licenses there are only a handful of states that have put in place crypto focused regulations for centralized intermediaries so we believe it's imperative to advance and finalize as soon as possible the market structure bill which puts a clear Federal framework in place for exchanges like ours and then going to Mr mad's concerns about on the stable
▶ 2:05:13act about extra um shouldn't we give the Attorney General the authority uh to enforce and explicitly ensure there's extra application since we clearly have many of these entities are jokim well I think it's important first and foremost to get a stable coin Bill done in
▶ 2:05:43terms of the cooperation and international cooperation with other jurisdictions I think that's the most uh important First Step um we're seeing we've seen stable coin rules finalize in the European Union and we've seen the results of those stable coin rules um now go into effect uh in fact um those stable coins that have not taken steps to register as issuers and bring themselves within the regulatory per uh perimeter
▶ 2:06:13are being delisted for major exchanges and I I think again that is just a case in point of why it's so important to move this forward as quickly as possible thank you I y Gentleman yields back uh the representative from Indiana Mr stutzman's recognized for five minutes thank you Mr chairman and thank you to the panel for being here today I think this has been a very informative uh hearing and one that obviously uh I'm excited about the future and uh obviously a lot is happening I was actually
▶ 2:06:43I served eight years ago and I remember when this committee had its first hearing on cryptocurrency back in 2014 and Mr heisinger was a the chairman of the committee will fast forward to 2025 and this house has taken substantial steps regarding a federal framework for how digital assets can be incorporated into our financial ecosystem despite the substantial work my colleagues have done on Market structure we saw an Administration over the last four years that chose regulation by enforcement over permanent statute
▶ 2:07:14the Biden Administration engaged and all out assault on digital asset firms token issuers and blockchain Developers furthermore the SEC and the cftc were in a Turf War over their jurisdictions over these tokens and it's my understanding there was a lot of confusion that resulted in a lack of unity and regulation by enforcement which harmed emerging Technologies and US Supremacy in digital asset technology um so while the confusion since
▶ 2:07:44the the uh uh Trump Administration thankfully is has taken over um commissioner Pierce has unveiled a 10-point action plan uh for the sec's new crypto task force and I would just share with my colleagues on the other side of the aisle that it's it's a really good read and I would encourage you all to read it um one of the points that uh the commissioner makes is where Congress has directed the commission to impose requirements on Market participants SEC rules will not let you do whatever you want
▶ 2:08:15whenever you want however you want some of these rules will impose cost and others compliance burdens that some may find irritating and the commission will use its enforcement tools when necessary to pursue non-compliance goes on to talk about uh you know the direction that he's going and then of course list off uh 10 different um directives or plans of action and um Mr Garrison and I would offer to anybody else if they would like if you could Briefly summarize some of the most important points
▶ 2:08:45in the action plan and explain some of the impact that you think that they will have on digital assets if they're accomplished certainly so the the first two priorities I think are incredibly important uh the first is clarifying the status of digital assets under the Securities laws as well as the second scoping out activities that are outside the scope of the federal Securities laws and I think that really is the foundational question that the SEC has to tackle uh creating a very clear interpretation of
▶ 2:09:15how the SEC views when a digital asset that is sole pursu to an investment contract fits under the Securities laws everything else flows from that uh another maybe bucket I would say for for the 10 priorities is writing rules and providing guidance on how regulated intermediaries by the SEC can touch digital Assets Now that would apply both in the context of digital assets that are not Securities as well as digital assets that are securities like a tokenized stock uh providing a clear pathway for broker
▶ 2:09:45dealers advisers clearing agencies transfer agents to be able to engage AG will uh really allow the ecosystem to flourish will allow it to do so under a regulated way and in a way that is complying and safe yeah anybody else like to comment quickly got if I could um I think it's a very thoughtful plan I have great respect for commissioner Pur and uh acting chair UA um and I think given that and uh given the legislation
▶ 2:10:16that you all have have noticed to S create a joint committee I would urge you to let the commissions work on this for a while and get stable coin legislation in place let's learn from that but not rush on Market structure because I think we could easily screw things up through the market structure legislation more than help thank you uh got 45 seconds anybody else want to comment yeah just very briefly Congressman I think again at the risk of repeating myself this just reflects the new SEC
▶ 2:10:46leadership Administration which wants to work with industry which is extremely um encouraging and I think it was Mr Garrison's written testimony where he had a great line which said the industry is not looking for special treatment just fair treatment so we look forward to working with the task force on next steps okay and Congressman if I may add one subject that hasn't been mentioned is Clarity around staking which commissioner Pur uh does outline in that plan we think it is a very important part of the ecosystem uh it's a lesser known um component but it is unique to the crypto ecosystem
▶ 2:11:16um so it's something we're looking forward to getting regulatory Clarity here on the in the United States times expired but I would be curious you know if some point somehow um just some specific elements from successful regulatory Frameworks that other jurisdictions have what you all would recommend would be something that we keep in mind so thank you I yield back gentleman yields back the gentleman from California Mr Sherman's recognized for five minutes the ranking member made it I think demonstrated how the Trump coin uh was pumped up to $75
▶ 2:11:47and now dumped down to $17 and chiefly was owned by 40 wallets could be only one family could be the Trump family it's called the Trump coin but I want to focus on Dogecoin uh on November 5th everybody knew TR it was that election was going to be good for crypto and Bitcoin went 22% onecoin Dogecoin went up in one week six times as
▶ 2:12:18fast as Bitcoin and after one week they named a big time Department after the coin and the coin still uses the dodged Go Dog as its emblem so somebody knew for a week that as long as Trump had got been elected there would be this new entity called Doge and that that would popularize the coin Drive its price up now I don't know
▶ 2:12:48who would have known that this new commission would be called Doge uh I I don't know whether Mr musk or Mr Trump knew uh but they did give it the name exactly one week after the election um Mr mid uh assuming that Dogecoin isn't a security is it subject to um uh uh insider trading laws no it is not so by arguing that it's not a security you can engage
▶ 2:13:19in knowing a week in advance that it's going to be popularized through a government action creating a well-known and and very popular commission trade on that make a lot of money and they say that musk isn't smart um the uh I'll point out that Trump used to uh well has just recently threatened the bricks countries if they dare try to compete with the US dollar
▶ 2:13:49while favoring the Crypt Bros who have announced that the purpose is competing with the US dollar all while trying to pass laws preventing a central bank digital currency because that would allow the dollar to compete with crypto um but I want to focus a little bit on uh stable coin most stable coins are tied to the US dollar so say we're thinking about one of those now stable so the question is how's a stable coin different from a money market mutual
▶ 2:14:19fund now it's cooler because it's called a coin and uh being a cool thing it can dream of a functionality it doesn't have just as my Fusion my Ford Fusion is dreaming of self-driving but in terms of current functionality and putting aside just how cool it is to tell people you don't have a money market fund you got a bit you've got you've got a stable coin what does it what does a stable coin tied to the US dollar offer the investor that old-fashioned boring mutual funds that
▶ 2:14:49the money market funds don't well thank you for the question Congressman I think the way I think about stable coins is they should not be an investment vehicle they should not pay interest and and not not not even the little bit of Interest I get on well not to start out with I think we're better off you know it's worse than a money market fund my money market fund is absolutely stable strongly regulated and pays little interest and you're talking about a stable coin that may or may not be stable and would pay no interest at all so what's
▶ 2:15:19the advantage that it has as assuming I'm not trying to avoid the anti-money laundering statutes assuming I'm not a tax evader I'm not hiding money from my spouse I think what advantage does it have I think it's the potential that the technology does provide certain cost Savings in terms of how these can be moved some day in the but why why buy why invest in it now that's like buy I don't view it as an investment Congressman I don't want it to be an invest why would pay why would anybody buy a stable
▶ 2:15:50coin which today is a worst payment system for any honest person on the theory that someday in the future it may have a greater functionality than it has today why would anybody own a stable coin now assuming they're not a drug dealer a terrorist or tax evader Congressman I think the question is if we create a framework that addresses the risks will stable coins become a means of payment generally used that question isn't clear the money the M the money market mutual
▶ 2:16:20fund already is well no that's an investment in my mind it's not I I don't I don't use that coffee I'm sure I could find a money market fund that pays zero interest if I I hated the concept of the world investment but but I'm not but there's a transfer agent there's lots of reasons why I don't use a money market fund to go buy a pair of jeans or pay for dinner um a stable coin you certainly can't use a stable coin to do that I'd assert that we're creating a stable coin to facilitate those who are trying to hi hide assets and I'll yield
▶ 2:16:51does the gentleman yield back gentleman yields back uh the gentleman from Florida Mr Donalds is recognized for minutes thank you chairman uh that was a very interesting um my statement is not to be is not to be disrespectful as to be factual about where we're going I think based upon the previous qu the previous uh conversation the question could be why did they make decide to make calculators when an abacist can do
▶ 2:17:21um that's just simply because technology is taking us to a place where it's far more functional you could do so many other things it's far more interactive it's far more user friendly and it actually speaks to the experience that people are choosing to operate in and no difference with how you choose to do calculations or how you choose to exchange whether it's a currency a stable coin uh a cryptocurrency etc it's really the medium of holding value and or
▶ 2:17:51exchange that people choose to engage in and obviously with with where people are going not just in the United States but in the world stable coins and crypto and blockchain Technology are not going away they are the modes of storing value Andor transacting into the future and so it would behoove Us in Congress to make sure that we have a framework that allows for the proliferation of what human beings especially Americans choose to want to invest in and want to
▶ 2:18:21do going forward that said uh Mr uh Fernandez deponte the US dollar is the asset is the asset that basically 98% of transactions in stable coins a stable coin use flourishes in countries around the globe so does the US dollar would you describe the role that stable coins play in supporting US dollar dominance particularly given the current Global landscape thank you for the
▶ 2:18:51question Congressman the role of the US dollar as a global Reserve currency is a fundamental strength of the US economy and I don't think that we should take it for granted if this technology ends up generating that next generation of payment rails uh as you said the very the vast majority of stable coins today are denominated in US Dollars I don't think that we should take that for granted the reason for that is because the preeminent use case today is crypto trading and the crypto trading markets are denominated
▶ 2:19:22against the US dollar as these stable coins make their way into mainstream Commerce and payments I do believe that we will see the appearance of stable coins that are denominated in other currencies therefore it's very important that stable coins that are denominated in US Dollars and issued in the US are able to compete with those stable coins that are going to emerge ER outside and also I think that it is important that we have a situation in which not the vast majority of those dollar denominated
▶ 2:19:52assets are issued by companies outside of the US and sometimes may be backed by ER reserves that are not doll denominated either we think that a clear framework for the stable coin issues in the US will contribute to the maintaining the US position and the US dollar position externally within a with with a strong competition driven by American companies all right thank you for that Mr Garrison as we consider legislation to provide regulatory Clarity to the the digital assets industry what role could
▶ 2:20:22self-regulation play in the larger structure I think self-regulation is an important layer of the overall uh sector right I think we see that in the financial services world and it works as a good model um self-regulatory organizations have existed in the Securities context since the beginning of our framework the we currently have finra I mean even even the national Securities Exchange system is a group of each one is self regulatory organization so you see that on the
▶ 2:20:52derivative side as well with the NFA uh and there's um absolutely no reason why porting that concept over into the digital asset space um would not make sense okay thank you for that and uh lastly Mr Yim quick question for you this kind of doubles back to the US Financial systems uh dominance what's your view in terms of stable stable coins um really being an additive towards not just us market dominance but also US dollar dominance on the world stage yeah thank you for the question
▶ 2:21:23Congressman um you know there's a wide variety of use cases that have been proven out some uh that have not yet been proven out it's very clear that stable coins are going to improve efficiency in crossb admittance and I think we've we've heard that from the panel today it's it's going to be really important that the US leads in terms of putting rules in place other jurisdictions have done this um not just for stable coins but for centralized markets they go hand inand if you look at the top 4% of assets on our platform
▶ 2:21:53it represents over 60% of of the volume right and two of those are stable coins uh if you look at the top 10% right that represents almost 80 to 90% so again let's focus on passing rules for um you know the most important pieces of the market today uh thank you gentlemen thank you chairman I I yield back gimen yields back the gentleman from Illinois Mr caston's recognized for five minutes thank you uh thank you all for staying here so late um there's been a lot of conversation about this the serious end of crypto
▶ 2:22:23stable coins I'm I'm going to focus on the silly end the meme coins um and I it's funny we have all these rules of decorum and it is hard to talk about meme coins with the language that the industry uses to talk about them um I see you all smiling we'll refer to them as feal coins for the purpose of uh for of this hearing is it is it safe to say from your smiles that you generally share the view of the industry that this is not a this is not something that has any innate value these meme coins
▶ 2:22:53yes yes all right have any of you invested in again this starts to get a little bit colorful language the HW to a girl's coin has anybody have any of you invested in that no okay they're fan clubs is really what they are yeah and and I and I say that to raise a more serious point that as several of my colleagues have noted the president of the United States issued something that has no innate value um and um it doesn't have the value that maybe a Bible or a pair of sneakers or a steak
▶ 2:23:23or a bottle of water has it has no innate value it hit I think $75 at its peak the day before the inauguration on the 19th anybody know what it's trading today it's a lot less but I hav't check it was like just under $16 when I was just checking here a moment ago but like the Haw Tu a girl coin it's it's really volatile you know you boost your boost your Q score and it bounces up and then people realize they're holding something the um the rise in value when
▶ 2:23:54it popped up according to chainalysis um said that it included it appeared to include a significant profit to Chinese traders that 50th of the largest investors in the coin have made profits in excess of $1 million each and the crash in the coins price has caused more than 800,000 wallets to lose2 billion dollar combined now as I understand the work that chainalysis does they don't have they don't capture any offchain transactions so you know stuff happening at kren or otherwise so Mr yakam
▶ 2:24:24is it reasonable to assume that the $2 billion doll in offchain Trans in onchain transactions is much less than the total loss that's actually been experienced um from mcoin investors well Congressman thank you for the question I can't speak to the specifics of onchain versus uh offchain I know for our markets um again we but I'm just making the point that like the chainalysis reports they're tracking onchain trades right so we know I mean there's been like National Bureau of economic research that said that for Bitcoin
▶ 2:24:54maybe maybe 10 times the volume is is offchain so if if we know it's two billion onchain and there's all this offchain volume safe to assume that the total losses are more than two billion right uh potentially Congressman I think you know when when it comes back to your question of the role the value I think value is in the eye of the beholder and a lot of these are sentiment driven assets fine don't any value now I'm not I think there's a lot of conversation
▶ 2:25:25we can get into about what's the net worth and obviously like you know that the Trump family and the entities they control has gained a lot on this but because we allow we still have rules that commingle Brokers and issuers and dealers the the reports are that and again according to chain analysis is that entities that the Trump family controls has made perhaps $100 million on trading fees for these coins setting aside what the value of the coin is and again that's just based on the onchain transactions that
▶ 2:25:55they track Mr mad you say got a comment there I'm assuming that you would agree with me that from family has probably made more than100 billion doll in broker fees we just can't track it I we cannot track it but but Congressman you're raising so many good points and the thing about these are that you know the industry talks about Securities versus Commodities distinctions these if I were the C at the cftc today and someone came or 2014 someone came to me with the Dogecoin instead of Bitcoin I wouldn't have declared that a commodity okay it
▶ 2:26:25shouldn't be traded as a commodity it shouldn't be regulated by the CF maybe by the cfpb but that's the kind of speculative stuff there's Rich investor protection here but I want to I'm running out time I want to get to another point if you have something that's hard to track that has no innate value that doesn't require you to give something like a sneaker or a Bible in exchange for goods and services isn't this just a way to transfer money to people and if we know that foreign governments are are participating in these markets isn't this a violation of the emoluments Clause of the
▶ 2:26:55Constitution now I know we've had conversations about engaging in personalities this is not partisan this is a question of do we in Congress think that the constitution is worth defending and if the president of the United States is putting out something that has no innate value and is getting foreign entities to pay him for it isn't that a direct violation of the amoon clause and if we are taking our oath to defend the Constitution should we care that yield back the gentleman yields back uh the gentleman
▶ 2:27:26from Iowa Mr nun is recognized for five minutes well thank you chairman Steele for convening this very exciting and important discussion on where we're going this is something that is going to change the landscape of the country not just in the next years to come but in the months ahead as a member of both the financial services committee and the ad committee we have dual jurisdiction here one that we've talked about before between both the Commodities and the securities place however after this past election I believe we've turned a page here and I can't emphasize how different
▶ 2:27:56the atmosphere in DC Fields particularly when it comes to our transitioning back from an SEC chair who claimed jurisdiction over every single token out there except for maybe Bitcoin and a launching of a crypto task force this uh year together I believe that we're going to have the opportunity to really cement the future of America being a destination for crypto and digital assets moving forward something for the last four years we've remained highly rless
▶ 2:28:26first and foremost American leadership I believe with this new Administration we can anticipate a wave of innovation particularly in blockchain products this comes after losing 2% of market share per year in blockchain development and this has been over the course of the last half decade so I want to qualify this for everyone who's paying attention that's a market share drop from 40% to 29% the US losing out as a global leader in a space where just years before we had pioneered and now we're seeing
▶ 2:28:57immediate competition coming out of Beijing but I believe strongly that it's not too late Mr chairman we have the opportunity to reverse course with this Congressional session so with that uh Mr yahim uh first off thank you for fighting back against the sec's regulatory overreach consistently over the past four years I want to talk to you about how do you see the new SEC and cftc addressing previous uh conflicts regarding you know confusion on where this jurisdiction
▶ 2:29:27would lie do you see this as a reset opportunity first and foremost thank you for the question Congressman uh absolutely we see this as a reset moment um and again I think the urgency is is very clear if we look around the rest of the world and see what other jurisdictions have done to provide regulatory Clarity um you know our our company was sued on our staking service we settled we testified before Congress the next day the SEC called and said they were going to sue us again that's right
▶ 2:29:57this has been the threat the past three years of our story um while we've engaged other governments and Regulators in moving through the legislative regulatory process providing clear rules of the road so I think with respect to your question on cooperation um these things are not mutually exclusive I know there's been discussion of let's wait let's move stable coins first let's wait on Market structure we cannot wait any further and Congress doesn't need to move a market structure bill that solves every single problem in the ecosystem
▶ 2:30:28we are talking about the most basic foundational rules of regulating centralized exchanges uh and you know these two agencies can continue to work in tandem while Congress advances the bill uh in this cycle could not agree more and clearly we are not waiting in London or in Singapore or in the UAE to move forward on this we've seen some take it in the Direction I would say the EU but they've moved out the United States should not be sitting on its hands as this is developed I'd like to talk on the National Security side here you're going to be talking
▶ 2:30:58to a number of National Security Professionals here but over the past few years we have seeded technological leadership to China creating a significant risk to our national security and economy particularly in this area and that's why in the last Congress I took lead on the financial technology protection act which creates a new working group specifically targeting elicent Finance in this area stop Americans from scammers act which empowers law law enforcement to address and uh um tackle things regarding blockchain tools and The Clarity Act which keeps blockchain made
▶ 2:31:28here in America not seed that power out so I look forward to working with this team as being a leader in this Congress on making sure that these things are enshrined in law building on EOS that are already moving out I'd like to talk to you Mr Kim about not only your efforts in pushing this but how can Congress ensure that we balance our Innovation as well as our national security to combat these Bad actors while not squelching new technology uh thank you so much for your question Congressman uh as I mentioned earlier today um countering elicit finance and National Security are key priorities including for CCI and their members
▶ 2:31:58uh I would encourage additional public private Partnerships I know CCI we would love for additional opportunities to engage with all of you and be a resource on any policy issue including National Security and in order to ensure us leadership Innovation we need to again establish comprehensive Frameworks for both Market structure and stable coins but also ensure National Security to your app Point Congressman we have a real opportunity here Mr chairman to make sure this is not only made in America but that the the best practices that drive the resourcing the security and the onshore investment can R happen right here in main streets from Iowa all the way to New York City
▶ 2:32:28with that thank you very much Mr chair appreciate it looking forward to stable coin made in America gentlemen yields back the gentleman from Montana Mr Downing is recognized for five minutes thank you uh chairman style um and uh thank you to the witnesses I represent Montana's second congressional district which is uh Rural and sparsely populated you know some of the counties in my district have under a thousand people actually there's one that's got just over 500 people so it's very very sparse so geographically we're very large um and you know blockchain
▶ 2:32:59technology is not something that only you know highly populated and Tech heavy areas should be concerned with you know rural communities can also reap the benefits of of this technology and and I'm really excited about it actually so I'm just going to start out uh with Mr Kim uh can you describe the benefits the digital assets and blockchain Technology are bringing to rural communities like my district and explain why rural users might want to use a blockchainbased financial product over
▶ 2:33:29something more traditional uh thank you so much for this important question Congressman um as I've mentioned throughout today uh blockchain and general assets allow for uh more efficient seamless uh low cost and pricing uh mechanisms including for payment purposes and I think uh we've talked a lot about today about the potential you know what are the use cases how can this grow but in order for us to really unlock this potential Innovation even more again we do need the comprehensive Frameworks to ensure us can lead uh when it comes to digital asset Innovation including in your District's Congressman well thank you
▶ 2:33:59um uh Mr Fernandez deponte anything to add that thank you for the question Congressman I I ABS I subscribe to the potential to drive a additional flexibility on on payments and many rural areas there is and a scarcity of traditional payment institutions and financial institutions and banking branches so this ability to be able to have payment instruments that are fast and effective and they can circulate Wily we believe that would benefit substantially residents in rural areas thank you
▶ 2:34:30you know as several of my colleagues have mentioned you know countries around the world are well on their way to EST stab establishing regulatory Frameworks uh for digital assets and uh payment stable coins you know if the United States does not Embrace this technology and provide a clear regulatory framework we will fall right now the largest digital asset trading platform and stable coin issuers are based outside of the United States uh I'll go back to Mr Kim
▶ 2:35:00what what are the implications of the US seaing leadership to other countries in digital Assets in blockchain technology uh thank you Congressman um as I mentioned in my written testimony it's a race to the top a lot of other leading jurisdictions are racing uh to establish regulatory Frameworks and it remains critical and imperative for the US to lead on all of this um due to the past four years of a regulation by enforcement approach as we've talked about throughout today responsible established American companies have had to open offices and pursue licensure elsewhere
▶ 2:35:30other jurisdictions uh so time is critical and Congress as I've mentioned respectfully needs to come up with a comprehensive framework to ensure that leadership Innovation stays here in the us both for stable coins but for many other digital asset companies um and intermediaries thank you uh Switching gears a little bit uh you know Montana was part of a multi-state enforcement action under NASA against FTX and understand the FTX debacle and other hacks and scams in the digital asset ecosystem have made some people skeptical about this technology you know there's
▶ 2:36:00legitimate concerns that bad actors in the space are not being held accountable and investors are being defrauded um we can preserve the promise of this technology while weeding out the Bad actors I've always said Bad actors are bad for business nobody wants that you know as Montana's former regulator regulator for Securities and insurance I did just that it was my job to go after frauders while making sure Montana remained the place where entrepreneurs came to thrive so uh Mr Garrison can you explain why someone who is skeptical of digital assets would want Congress to provide
▶ 2:36:31regulatory certainty to the digital asset ecosystem through legislation rather than uh deferring to The Regulators it's because The Regulators have failed to act uh that you have situations like FTX right so uh this is an example of fraud not coming from the technology but from centralized Bad actors right now there is no current federal regulator overseeing the spot trading of digital assets so therefore there's no one for FDX to report into into the us thank you uh
▶ 2:37:01Mr yahim anything you want to add to that so I think uh thank you for the question Congressman it's important from a centralized Market standpoint we have clear Federal rules um we've tried to navigate this Patchwork of uh multi-state licenses I think you know the states will continue to have important role to play play for Consumer Protection as you know from your your your previous roles but um as with we've seen in the equities and derivatives markets a clear unified Federal framework is essential in order to C uh protect customers
▶ 2:37:31and and continue innovation in the United States well thank thank you all for being here and uh thank you Mr chair I yield My Time gentleman yields back the gentleman from Florida Mr heropoulos is recognized for five minutes thank you Mr chairman I appreciate this this is always eye opening as we're getting started in the committee and as a new member um I wanted to pick up where chairman Hill left off uh Mr Masid uh you in past testimony have advocated for joint SRO to oversee digital assets as a convenient way to sidestep the questions
▶ 2:38:02of whether or not an asset is a security or a commodity in today's testimony you're advocating for loc Lo locating authority to regulate non-security digital asset spot markets at the cftc through legislation you were clear that security token should be removed from the cftc's jurisdiction it seems you punted on any actual factor of what makes a token a security token only offering vague handwaves
▶ 2:38:32that were that the agency should consult and there should be Provisions to deal with disagreements so my question sir is how does this actually solve the most pressing issues Congress is currently facing if at the end of the day no one knows who's regulating what thank you for the question Congressman I I would say a couple things first of all what I advocated before and I did this with the former Republican chair of the C of the SEC Jay Clayton
▶ 2:39:02was a joint approach because it is very difficult to draw this line but having said that what I would say today is this if everyone up here thinks it's so easy and Congress should do it why not let the SEC and the cftc do it they are now going to be chaired by Republican appointees they have the expertise they only have to get three votes of Republican members to adopt something they don't have to get 60 votes in the Senate
▶ 2:39:32so if it's so easy it would be a lot faster to have them do it the the thing is and I have confidence that they can come up with some interesting ideas but this is a very difficult issue to address and I'm worried that if Congress tries to do it we'll undermine our Securities markets more than answer any questions appreciate your answer I believe in democracy but I appreciate your answer uh that said I wanted to get into the question um with Mr yahim um with Kraken
▶ 2:40:03uh you know good customer service is always nice and it seems like when you all attempted to work with the government uh and in good faith you're in 200 countries I think you'd mentioned before and uh you're obviously not a five by night company could you just describe to a new member like myself what it was like to deal with the SEC and other government agencies you attempted to find Common Sense regulation Congressman yeah thank you for the question um and
▶ 2:40:33again with our Global business footprint about 90% of that is is North America and Europe and if you look at Canada the UK the EU um we have worked very constructively with the legislator and The Regulators to move regulatory Clarity forward um and and these jurisdictions are ahead um regarding our engagement experience with the SEC um we and others other industry leaders um devoted a significant amount of time and resources to put legal
▶ 2:41:03and policy thought to the agency uh we were met with lawsuits and again we're now turning a new page and we really we commend the SEC the leadership of the crypto task force um this work and the evaluation is but it cannot slow down the great work that has been done in Congress we've seen bipartisan work over the last several Congressional Cycles uh and again this is not solving every problem in the ecosystem but statutory Authority
▶ 2:41:33is needed to put basic rules in place to give the cftc spot Authority and create a comprehensive regime for customers the United States thank you for your candidate answer with that Mr chairman thanks again for your leadership on this I look forward to working with you and the and the other side of the aisle in solving this issue I think this is an issue that Congress should address and not leave it to Regulators exclusively because administrations change and I think there might be a an important part so thank you and I yield back Mr chairman the gentleman yields back the gentleman from North Carolina Mr Moore is recognized
▶ 2:42:04for five minutes thank you Mr chairman uh to our Witnesses again I want to Echo what the other uh members have said and thank you for your testimony today I did I wish uh some of the members of The Other Side were were still here because I remember when our meeting started out there were some unfortunate comments made by one of the senior members on the other side of the aisle taking shots at U at the president and at uh Elon Musk and I think that's very unfortunate I think this should not this should
▶ 2:42:34not be a political Enterprise in the sense of of this testimony today this is so important you know digital assets are not a thing of the future we're not talking about the Jetson we're talking about something that's actually a real thing that roughly 90 million people in this country either invest in or use or both and the blockchain technology and digital assets hold so much potential to transform our financial system offering greater efficiency transparent transparency
▶ 2:43:04and accessibility and some of the arguments that I that I would hear from the other side of the aisle was there was worry about about fraud so it couldn't be used and you I'm just a before I got here small town lawyer from rural North Carolina but the best analogy I would know would be someone saying you shouldn't use a $220 bill because there might be a counterfeit one out there somewhere uh the reality is you know in anything you have there's going to be frosters and criminals who try to come in and abuse the system and I appreciate what the industry has done to
▶ 2:43:34try to deal with it but I do believe that's very important Mr chairman and members of the committee that we as as Congress move forward with a very strong solid um system in place to to make sure they guideline guid poost in place just like fit 21 and what the industry has worked on and uh I I just I had a series of questions but I think you all have covered most of that but I I did want to follow up on one thing Mr Mr Yim who I believe you're an NC State grad in fact so uh you're having a better
▶ 2:44:04season than my Tar Hill so U I'll give it to you this year on that one but uh I I did want to ask this my understanding is that U and I think representative her Herod Doos mentioned this just a moment ago about last year some of the issues you dealt with Mr Gensler and basically it sounds like your company being targeted it sounded like a lot of that happened after you brought testimony before the committee and I'm just curious how did this regulation how did these actions by them affect your digital ass your company but more importantly
▶ 2:44:35the digital asset community and investment in digital assets I think it's unfortunate but I I think folks need to hear how that how that impacted you all thank you for the question Congressman uh and as a Wolfpack fan you have to believe uh um and you know we we believe and are confident that this Congress is going to get a build on on Market structure um regarding you know our experience uh again we were sued once on one of the programs we offered again there was no clear
▶ 2:45:05path to registration for staking uh there still is not regulatory Clarity we've seen the UK move forward with legislation on staking we've seen other jurisdictions do this we know the United States can do it uh and so that's one priority for us um and you know Kraken did testify in Congress and the next day um you know we got a phone call said you're getting sued on another business uh I made sure not to wear that same tie uh for that hearing uh um but it it it's important
▶ 2:45:35that we move past that and I know we want to make sure uh actions of the past administration are held to account but we are looking forward and we think there's been a lot of bipartisan support um that's necessary to get this bill done in this Congress well I'm glad to hear that and uh and to all of the panelists really appreciate your expertise and your commitment to this and look forward to your suggestions as we move forward on this legislation Mr chairman I yield back the gentleman yields back this concludes our our portion of the questions I'd like to thank our Witnesses for their
▶ 2:46:05testimony today without objection all members will have five legislative days within which to submit additional questions for the witnesses to the chair the questions will be forwarded to the witnesses for their response I ask your witnesses to please respond no later than March 31st the hearing is adjourned