▶ 0:14:58e e
▶ 0:15:50like to invite our witnesses to go to the witness table
▶ 0:16:27for for
▶ 0:17:14how are you committee on financial services will come to order without objection the chair is authorized to declare a recess of the committee at any time this here is entitled navigating the digital payments ecosystem examining a federal framework for payment stable coins and consequences of a US Central Bank digital currency without objection all members will have five legislative days within which to submit extraneous materials to the chair for inclusion
▶ 0:17:45in the record I now recognize myself for four minutes for an opening statement good morning and welcome to today's hearing entitled navigating the digital payment ecosystem examining a federal framework for payment stable coins and the consequences of a US Central Bank digital currency global payment systems are leveraging technology and modernizing Legacy infrastructure driving Innovation and expanding access while lowering costs the evolution of payment stable coins and their increasing
▶ 0:18:16ad adoption beyond the digital asset ecosystem reflect broader modernization efforts in the United States and the global payment infrastructure every day there are billions of dollars of stable transactions reducing friction and crossb payments streamlining commercial transactions and giving more communities broader access to digital Financial tools since 2022 committee Republicans have worked to establish a legislative framework that strengthens their potential to become
▶ 0:18:46a Cornerstone of a modern payment system last Congress this committee passed the clarity for payment stable coins Act of 2023 at the start of the 119th Congress we built upon this foundation in coordination with the Senate Banking Committee the house product the stable act which we notice as a part of today's hearing reflects these key themes since it's initial notice at digital asset subcommittee chair Brian Styles hearing last month we've Incorporated updates to the discussion
▶ 0:19:16draft based on the extensive written feedback that we received these refinements serve to strengthen the operational standards for payment stablecoin issuers as well as clarify the supervision and enforcement authorities of state and federal Regulators that will oversee these entities the stable act also makes sure that bank secrecy act and anti-money laundering compliance along with cyber security and oversight are a critical part of the framework the committee is grateful for the engagement
▶ 0:19:46and the feedback that we've received on the stable act and we hope it will continue as we further iterate and strengthen this legislation a properly regulated stable coin Market can strengthen the us Dollar's dominance modernize our payment infrastructure and promote Financial access without government overreach it's essential that we deliberate and get this job done and done right unfortunately there's a competing Vision about the future of digital money
▶ 0:20:17one that puts the government at the center of every transaction and that's a central bank digital currency or cbdc A government controlled digital dollar would put the Federal Reserve in direct competition with the private sector and undermine the very progress that stable coins are making chair Dan Muer's oversight investigation subcommittee has explored the troubling cases of debank of politically favored Industries unlike stable coins which operate in a competitive market
▶ 0:20:47a cbdc would concentrate Financial power within the federal government restrict consumer choice and undermine Innovation that has made the US financial markets the strongest most liquid in the world a cbdc would also suppress competition jeopardize Financial privacy and weaken the role of the US banking system I'm so grateful to my colleague and friend Republican whip Tom emmer for leading the charge to prohibit a us cbdc and I thank him for the work that he's done to get
▶ 0:21:17his anti- cbdc surveillance State act reintroduced in this Congress and noticed for this hearing before I close I want to emphasize that in addition to payment stable coins this committee has continued its efforts on a bipartisan basis to begin the work that we began last Congress to establish a comprehensive framework for digital assets Market structure we're moving full steam ahead in this Congress to strengthen and expand that pro-innovation agenda I look
▶ 0:21:47forward to today's discussion and I yield back the balance of my time I now recognize with pleasure the ranking member of the full committee Mrs waters for 4 minute opening statement uh thank you Mr chairman for years I and my colleagues have sought to craft Common Sense crypto legislation with grade rails uh for consumers and strong oversight in less than two months president Trump and Elon Musk have undermined
▶ 0:22:18all of this work in fact since taking office Trump has only enriched himself his crypto cabinet and the rest of the crypto billionaire class last and he has done nothing to improve the economy let alone anything to bring down the cost of groceries energy or housing as he promised in fact under Trump egg prices are up 53% and just yesterday the SNP 500 fell
▶ 0:22:48a blistering 2.7% Trump started uh with the Mimi coin scheme uh that scammed investors out of two billion while Trump his family and other insiders pocketed $350 million and just last week Trump signed an executive order to spend US taxpayer resources to create a fund of billions of dollars of crypto that would squarely enrich
▶ 0:23:19Trump musk and Maga cronies already holding these cryptocurrencies Mr chairman despite my believe that the Trump Administration only wants crypto legislation that personally benefits them and protects their crypto financers I still hope we can work together on a bill that requires stable coins be robustly and fairly regulated unfortunately the bill noticed but
▶ 0:23:49this hearing strips away critical protections to Shield investors from criminals the bill also tears down the wall that used that was used to separate banking from Commerce allowing big Tech firms including those owned by Elon Musk to issue their own money just like Facebook tried to do with Libra I'm proud of how this committee stopped Libra and Facebook and I will
▶ 0:24:19do everything that I can to stop musk also it is also clear that given trumps trumps and musk actions on crypto and the mass layoffs of the employees who would be charged with overseeing crypto we must go back to the drawing board on stable coins the best starting point for moving forward is the waters M Henry bill which I released a few weeks ago before I close I'm so deeply concerned that
▶ 0:24:49we are considering a bill today to strip the Consumer Financial Protection Bureau of supervision of big Tech payment apps this comes after Trump's appointees halted all Consumer Financial Protection Bureau supervision of big Banks moreover the Republican resistance to even allow the FED to study Central Bank digital currencies is not only anti- Innovation
▶ 0:25:20but it is anti-American as it helps China win the digital currency Space Race and undermines the US dollar as the world's reserve of currency Mr chairman I am prepared to work with you and this committee and we need to go back again to the drawing board on stable coins and get started so we can really get into crypto and I just believe that your leadership will take us there I just not cannot believe uh that this committee
▶ 0:25:50would follow what Trump is doing for himself and the other billionaire cronies of his I yield back the balance of my time the gentlewoman yields back the chair recognizes the gentleman from Wisconsin the chairman of the digital assets Financial technology and artificial intelligence subcommittee Mr style for one minute thank you very much Mr chairman for holding this hearing the Golden Age of digital assets the goal of our digital assets policy is to make sure that the next wave of crypto and web 3 businesses emerge
▶ 0:26:21in basements and in dorm rooms not in boardrooms and law firms and that's what our digital assets policy will do the digital assets and blockchain chain technology they're democratizing the internet and our financial choices these Technologies can extend dollar dominance lower costs and expand Financial choices just over a month ago chairman Hill and I released a discussion draft of the stable act the bill establishes a framework for issuing and operating usback US dollar
▶ 0:26:51backed stable coins we're now in the process of collecting feedback on the legislation as we move forward and I'm excited for where we are today and for where we're going thank you for holding this hearing Mr chairman I yield back gentleman yelds back I recognize the gentleman from Massachusetts Mr Lynch the ranking member of the digital assets Financial technology and artificial intelligence subcommittee for one minute thank you Mr chairman as this committee considers a potential regulatory framework for payment stable coins it's critical to prioritize Financial stability National Security and consumer protection
▶ 0:27:22I have grave concerns about the Republican proposed legislation that I hope we might be able to address naming the Republican bill the stable Act is like calling the Titanic the Titanic and telling the passengers it was Unsinkable first allowing big Tech firms like meta and apple to effectively become stable coin issuers and dominate the stable coin Market leaves consumers vulnerable to financial data exploitation and removes the separation of banking from
▶ 0:27:52Commerce next uninsured deposits have proven to be vulnerable to systemic runs legitimizing stable coins without adequate safeguards risks of financial stability additionally allowing issue is a state pathway without sufficient credential oversight creates a race to the bottom and very little in this bill prevents money laundering and illicit Finance as every major economy races ahead of the US in developing a central bank digital currency discussions in the US have been obscured by disinformation and political ideology
▶ 0:28:23if my colleagues truly share the goal of maintaining dollar Supremacy they would encourage this type of Innovation thank you Mr chairman I yield back Gman yields back today we welcome the testimony of Miss Carolyn Butler who's Global head of digital assets at the Bank of New York melon Mr Charles cascarilla who is the CEO and co-founder of paxos Mr Pat Collison who's the CEO of stripe Mr Randall gwy who's the head of Davis PK's financial institutions group
▶ 0:28:53and Miss Carol House who's a senior fellow at the Atlantic Council go economics Center and a c senior visiting scholar at Georgetown University's cyber Mark Center we're so delighted to have all of you for being here each of you be recognized for five minutes to give an AAL presentation of your testimony and without objection your written comments will be made part of the record Miss Butler you're recognized for five minutes good morning chairman Hill ranking member Waters and members of the committee thank
▶ 0:29:23you very much for the opportunity to testify here today on innovation in the financial system including the use of stable coins my name is Caroline Butler and I am the global head of digital assets and BM since 20123 and prior to that I ran our custody business I have more than 20 years of experience working at Global systemically important Banks which guide me and BM in applying regulated banking Concepts to blockchainbased Solutions in doing so we maintain the core tenants
▶ 0:29:53of asset safety and protection regardless of the technology rapper applied to the asset founded by Alexander Hamilton in 1784 we are a global financial services company that helps make money work for the World by managing it moving it and keeping it safe for over 240 years we have continuously adapted to the needs of the US economy and have a number of Firsts we provided the first loan to the US Government after the Revolutionary
▶ 0:30:24War we were one of the first companies on the New York Stock Exchange and we were one of the first institutions to use an electronic system for clearing securities these actions often taken for granted today were Financial Innovations at the time and have played a significant role in helping the US become the world's predominant economic engine as the world's largest custodian with more than 52 trillion of Assets in custody bny helps
▶ 0:30:54companies and Banks big and small access the money they need bmy plays a central role in supporting US Treasury markets and process approximately 2.4 trillion of payments per day across all payment rails our commitment to advancing the future of Finance includes the integration of blockchain this technology has the potential to make money move smarter and faster St coins can use these benefits to serve as a complement
▶ 0:31:25to the existing payment services and rails we offer offer our clients today bmy supports stablecoin issuers by providing our traditional banking services payments deposit taking and custody for example we serve as the primary custodian for the reserve assets of the largest stable coin issuer in the US today providing these traditional services to a new client type was a Natural Evolution for bmy the stable coin ecosystem will
▶ 0:31:55continue to develop as Market participants explore use cases based on their business models and client needs this ecosystem will benefit from federal legislation that advances Clarity and consistency no matter the type of stable coin issuer or the governing regulatory regime bmy greatly appreciates the committee's bipartisan work past and present in developing a federal framework towards those end goals I appreciate the opportunity to testify
▶ 0:32:25here today and I welcome any questions you may have thank you very much for your testimony Mr cascarilla you are recognized for five minutes chairman Hill ranking member Waters and members of the committee thank you for the opportunity to testify today my name is Charles cascarella and I'm the co-founder and CEO paxos for 25 years I've worked in financial services as an analyst investor and entrepreneur getting a front row seat to the inefficiencies and systemic risks embedded in our Legacy Financial infrastructure these experiences drove
▶ 0:32:55me to found paxos in 2012 as a regulated financial institution using blockchain technology to rep platform the financial system in 2015 paxos received the first limited purpose trust Charter from the New York DFS we have worked closely with global Regulators to advance the safe adoption of regulated stable coins today we provide stablecoin and tokenization infrastructure to some of the world's leading Enterprises including PayPal Mastercard Robin Hood and stripe there are three points I hope you will take away from my testimony first stable coins are
▶ 0:33:26a national imperative to Modern the US Financial system and preserve the Dollar's dominance second to achieve this the US must set Global standards that enable broad Financial adoption and interoperability third we strongly support the stable act and with some enhancements it will be truly enduring since testifying in 2021 blockchain technology has evolved dramatically from the periphery to the mainstream today the United States stands at a critical juncture the question is no longer whether financial markets will evolve
▶ 0:33:56they already have but whether America will lead this transformation or be left behind the stakes could not be higher our economic competitiveness National Security and the Dollar's role as the world's Reserve currency hanging in the balance however one constant remains unchanged everyone in the world wants US dollars when we export dollars we export American values free markets the rule of law and financial transparency history teaches us that dominance is not Eternal for the dollar to
▶ 0:34:26remain the Undisputed Reserve currency it must adapt to an always on internet-based and AI enabled global economy stable coins represent the next evolution of money management the global economy today demands secure programmable payments that move instantly 247 at near zero cost this is not science fiction it exists today thanks to blockchain our financial system already accommodates various forms of dollars Central Bank cash in your wallet Bank liabilities and electronic
▶ 0:34:57account money market funds on exchanges or balances held in PayPal each operates on different rails a stable coin is just a dollar that operates on a blockchain rail this is a new and more efficient way to distribute Dollars around the world to Consumers the benefits of stable coins are profound while bank accounts have existed for hundreds of years nearly 20% of Americans are underbanked and 30% of the world is unbanked yet in 15 years nearly 85% of the global population have smartphones
▶ 0:35:27at virtually no cost anyone with only an internet connection and smartphone can now use blockchain dollars revolutionizing payments I believe the private sector is the source of financial Innovation and I see no need for a us cbdc at this time the most important Innovations have been and will continue to be driven by the private sector I want to thank chair Hill and representative style personally for developing the stable act it represents a historic opportunity to cement America's leadership in finance we strongly support report
▶ 0:35:57the clear distinction between stable coin issuance and traditional banking issuers like paxos do not take deposits and we do not make loans we facilitate payments and transfers designating the OCC as the federal regulator for non-bank issuers is the right choice we also endorse the Bill's reserve requirements that mandate one toone backing prohibit rehypothecation enforce redemptions and require audits these standards mirror the high bar pactos already meets we appreciate that the stable act requires issuers to adhere the same
▶ 0:36:28AML kic and BSA standards as banks no carve outs no exceptions as a globally regulated issue wor firsthand experienced navigating markets I urge the committee to consider two enhancements to make the stable act enduring firstly we recommend strengthening International reciprocity by requiring the treasury to designate compatible jurisdictions this approach Fosters a race to the top encouraging International Partners to align with us standards secondly State regulated entity like paxos
▶ 0:36:58must meet standards equivalent to those imposed by the OCC if they do these credential licensed issuers should be permitted to serve customers Nationwide providing a register report in customer States primary oversight should remain with their hom State regulator avoiding redundant regulatory burdens in closing Congress has the opportunity to act decisively if we fail to act other nations will fill the void dictating the future of money on their terms not ours passing clear balanced
▶ 0:37:29legislation now is not just an opportunity it is an imperative the stable act with these refinements will secure the Dollar's Global Reserve status and reinforce our economic leadership thank you for the time and I look forward to your questions thank you sir Mr kson you're recognized for five minutes chairman Hill uh ranking member Waters uh and distinguished members of the committee uh thank you very much for inviting me to testify about the future of our digital payments ecosystem
▶ 0:37:59and uh if you'll forgive the sentimentality um being here is a is a big deal for me uh I grew up in rural Ireland a couple of miles away from uh from Miss Butler I was fortunate uh enough to uh to move to the US for college uh this country has extended immense opportunity to me and I want to start out by simply saying how grateful I am uh this is an amazing country my dad is actually sitting here uh in attendance so um I'm going to be on my best behavior
▶ 0:38:31um my introduction to technology was uh was taking my first communion money and uh buying a computer but in our rural Irish Community getting a decent internet connection was uh was very difficult and so both the promise of global connectivity but also you know frustration with technology that didn't quite live up to it were ingrained from an early age I started stripe with my brother uh in 2010 in that leral dorm room and at the time we were merely trying to solve what we thought was a simple problem
▶ 0:39:01making it easier for businesses to accept payments online and this was an undertaking that we'd found surprisingly difficult when I starting a previous business today businesses running on stripe move over $1.4 trillion annually we're proud to serve businesses from small family shops to Fortune 500 Enterprises across the United States we help power more than 10,000 companies in every congressional district represented here today we build infrastructure you know the out of
▶ 0:39:31sight mechanics of making payments and money movement easier uh we support card payments a wire transfers and over a 100 global payment methods and our goal is to connect businesses both to established uh Financial rails and also to emerging payments Technologies we see this work as part of a much larger Journey throughout history Improvement in how money moves and expanded economic uh opportunity from coins to banknotes uh from gold to fiat currency and from paper
▶ 0:40:01to digital payments uh each transition has made Commerce more efficient and more inclusive and so it's from this vantage point that we see the promise of stable coins so this is why we recently acquired Bridge the world's leading platform for developers and businesses building with stable coins Bridge enables businesses to move money quickly and more cheaply across borders which in turn helps them compete more effectively in the global Marketplace and the bridge acquisition reflects our conviction that stable coins represent a fundamental
▶ 0:40:31innovation in how money moves now importantly uh this belief is grounded specifically in what the businesses themselves tell us this is not speculative they say that stable coins deliver real utility today we see businesses finding better ways to manage corporate treasury to handle International transfers and to access dollars overseas so that is to say that stable stable coins are creating Economic Opportunity for American businesses at this moment now beyond the usability and the efficiency improvements
▶ 0:41:02uh for businesses stable coins also strengthen America's position in the Global Financial system despite you know regulatory uncertainty approximately 99% of stable coin balances today are US dollar based and I often find that Americans you know it's easy sitting here to underestimate how much demand exists globally for dollar denominated assets and you know this matters tremendously when approximately 1.3 billion people live in countries with average inflation rates exceeding 10%
▶ 0:41:32and as such stable coins are enhancing the dollars status as the world's Reserve currency and lowering American borrowing costs strip now supports millions of businesses of all sizes and we're acutely conscious of the attendant responsibilities that come with that position we believe that a trusted Financial ecosystem requires clear and effective uh regulation and thoughtfully constructed Frameworks for for stable coins will bring certainty stability and safety for businesses and consumers
▶ 0:42:02and that's why I appreciate this committee's consideration under an appropriate Federal framework I respectfully suggest that any legislation uh be based on five essential principles one regulatory Clarity two flexibility and support for Innovation three neutrality and interoperability with existing systems four robust consumer protection with a heavy focus on transparency and five an outcome based framework for ensuring system integrity and preventing illicit activity
▶ 0:42:32overall stable coins benefit American consumers American businesses the American government and the global economy at large because of these benefits stable coins are seeing incredible adoption with use more than doubling over the past year I commend congress's recognition of the fact that stable coins are an an an innovation of unusual import I'm very grateful for the opportunity to share these perspectives I look forward to your questions thank you sir Mr Gwen you're recognized for five minutes thank you chairman Hill ranking member
▶ 0:43:03Waters and the other distinguished members of this committee uh it's very difficult to follow that great opening statement but um as he explains stable coins are a modern digital version of of private money if a payment stable coin issuer has a properly calibrated uh reserve of high quality liquid assets the property Cali calibrated Capital buffer and no material amount of other liabilities it St payment stable coin should be as safe as insured deposits or even
▶ 0:43:33central bank money while a substantial portion of the US money supply consists of public money in the form of coins paper money and demand deposit claims against a Federal Reserve Bank the vast majority of us money of the US money supply consists of private money this includes demand deposit claims against commercial Banks uh amount standing to the credit of a person's account with non-bank payment companies like venmo or PayPal and stable coins a central bank digital currency or cbdc
▶ 0:44:04would be a new digital form of public money that would compete with private money including stable coins the stable act would create a regulatory framework for stable coins modeled on the framework that applies to the Dual banking system that model has not changed fundamentally since the 1930s it's well understood and it's worked well as a result it makes sense to base the regulatory framework for payment stable coins on the on the framework for the Dual banking system let me make four points about the stable ACT
▶ 0:44:34first the 100% reserve requirement together with a properly calibrated Capital requirement and the activities restrictions in the stable act should make payment stable coins issued by permitted payment stable coin issuers as safe as insured deposits or Central Bank money these features should reduce any run risk against a payment stable coin issuer to a negligible or or even infinitesimal amount second the current list of qualified Reserve assets however important it is is too
▶ 0:45:04restrictive the government should allow us government securities to have an original maturity of up to one year The Regulators can limit the interest rate risk and the overall portfolio by capping the average duration of the portfolio at six months or less or some other figure third there is a trade-off between the average duration of the reserve portfolio and the capital buffer for example if the average duration of the portfolio is 1 month the capital buffer should be calibrated at a much lower level
▶ 0:45:35than if the average duration is six months or more fourth the Federal Reserve should not be permitted to issue a cbdc unless two conditions are satisfied first it should be required to show that the alleged benefits of a cbdc would could not be produced by private money in the form of payment stable coins or demand deposit claims against commercial Banks and second it should be required to show that the benefits of a cbdc clearly outweighs its considerable risks in terms of threats to
▶ 0:46:05financial privacy core freedom and financial stability thank you and I'd be happy to answer any of your questions thank you sir Miss house you're now recognized for five minutes thank you chairman Hill ranking member Waters and distinguished members of the committee for holding this hearing and the honor of the invitation to testify on the digital payments ecosystem I'm Carol House a senior fellow at the Atlantic Council having recently Departed the White House for my second Tour on the National Security Council I have served at the intersection of National Security and emerging Technologies
▶ 0:46:35and finance my whole career as an army officer a regulator a delegate to International standards bodies and also a national security and strategic Tech expert I'm very glad now to see the level of support within Congress for elevating stable coin legislation to a priority this year and applaud the efforts to to date by many here today including chair Hill and ranking member waters for helping to paint a clear pathway we must ensure that our regulatory Frameworks create a foundation for providing trustworthy and affordable access to financial services
▶ 0:47:05for consumers while also reinforcing the centrality of the US in the financial system and as the home for responsible cuttingedge innovation in emerging Tech and payments that includes the critical need for timely progress on a comprehensive stable coin framework that supports these objectives as well as driving broader experimentation and competitiveness in digital payments these Frameworks must also be comprehensive of the real and present risks as well as opportunities that we have observed in the digital asset ecosystem for
▶ 0:47:35example with proper protections stable coins have the potential to improve delivery and efficiency of financial products and services to dismantle barriers to access and inclusion and to promote us leadership and payments but let's also be realistic that most of those use cases still are in a nent form and stage and still have um have time that's needed to bear out the the benefits that are purported there because most of the use cases really have been in settlement of trading activity we also see in the wake of serious
▶ 0:48:05National Security threats like billion dollar hacks by Rogue Nations growing integration of cryptocurrency including stable coins as a tool for transnational organized crime Market abuses and frauds that can threaten system stability and integrity as well as pressure from adversarial Nations that can that are leveraging alternative Payment Systems to weaken and circumvent the dollar it is clear that strong safeguards including for us competitiveness are needed this framework also demands that we ensure policy and enforcement approaches both domestically and internationally create a Level Playing Field for us firms
▶ 0:48:36often the most compliant firms in the world to be able to compete fairly a policy that isn't enforced does nothing to benefit consumers nor us firms with stronger compliance that have been operating at higher costs and less competitive advantages than many foreign operating firms this framework is achievable able to build on years of bipartisan efforts working across the aisle to construct a truly comprehensive approach we need strong credential consumer protections and regulations to ensure that stable coins are truly stable we need to be able to shift the burden
▶ 0:49:06from consumers doing their own research to assess which stable coin is truly stable in this way a clear regulatory framework that Fosters trust can actually help set conditions to drive broader adoptions and competition we also need to have strong AML Protections in place for stable coin ecosystems and we need to ensure that cyber and AML vulnerabilities that are being exploited by hackers like in the recent $ 1.5 billion bybit hack by North Korea are closed in this ecosystem I'm pleased to see many elements in the stable act that I support and are
▶ 0:49:36critical safeguards such as highquality reserves on at least a one toone basis and vision roles for state and federal regulators and restrictions on hypothecating Federal Reserve assets excuse me as well as stable coin issuer activities these are critical safeguards but there are also several key elements that are missing from this proposed legislation and that have been previously negotiated if not addressed we we risk this framework not being comprehensive and needing to be patched and fixed later in the future so I propose some areas for consideration like we must ensure Federal line of
▶ 0:50:06sight to support supervision on on issues of systemic importance I support the state Charter in the Dual system in banking um and we must preserve that option but not by denying critical visibility for agencies like the Federal Reserve to be able to to to fulfill their mission on overseeing financial stability and conduct monit policy the legislation should also broaden to include a greater scope of risk coverage like credit and counterparty risk Market risk and concentration risks there's also no clear articulation of an enforcement
▶ 0:50:37mechanism affiliate controls or bankruptcy resolution to protect consumers in the wake of a failure there's also not clear enough Direction on AML sanctions and extr territorial application US dollar stable coins have been exploited by cartels and sanction evaders and terrorism financers we need to message that that is unacceptable and make clear that US dollar stable coins must comply with sanctions including freezing and Recovery capabilities so the most important message here on innovating in digital payments is that we need to do so responsibly and invest in the building blocks that
▶ 0:51:07will allow for us to make this system more secure and inclusive thank you very much I look forward to your questions thank you so much we'll now turn to member questions and the chair recognizes himself for five minutes as I started out in my uh opening remarks it's our job as members of Congress to establish a legislative framework for payment stable coins that balances is growth and Innovation with strong consumer protections and I think all of us on both sides of the aisle have that as a Cornerstone crafting a durable
▶ 0:51:37regulatory framework that achieves achieves this balance is iterative and requires extensive stakeholder feedback and engagement today we'll use this hearing to further strengthen the stable act incorporating the expert testimony of our witnesses to refine our bills consumer protections and solidify the federal and state Pathways for both Banks and non-banks let me start and talk about uh banking engagement in October 2020 and January 2021 the OCC under the Trump Administration
▶ 0:52:07clarified that Banks can both issue stable coins and hold stable reserves but then just a few months later in November of 2021 the OCC the com control of the currency office under the Biden Administration stated that these activities could only be conducted by Banks if they received a non-objection letter finally just this past Friday the comol of the currency has issued a statement indicating that Banks under its supervision will no longer need permission to engage in certain digital assets
▶ 0:52:37related activities certainly my point of view why we need a regulatory framework so that we don't do this bouncing around but Miss Butler you work at b&y melon you're a descendant of Alexander Hamilton can you explain how the stable act addresses this inconsistency by changing Administration and Alters this rules on bank's ability to engage here thank you very much chairman for your question the stable act gives us the clarity and certainty to know what what
▶ 0:53:07we can actually perform in terms of activities for our clients and that is absolutely incredibly important in addition the consistency of of applying those same standards across the ecosystem so once we need the clarity as a bank to understand what perform or what activities we can perform we need to know that the ecosystem we're performing those activities in is all players are meeting the same set of standards and that's going to be very important to ensure that there is a system of trust with regulatory oversight
▶ 0:53:38to ensure that we can protect the safety and soundness of financial markets so you you believe that same kind of service deserves the same kind of regulatory treatment whether it's a bank or a non-bank is that right 100% same service same risk same regulation okay thank you very much let me turn to the topic of a state State pathway which has been a big issue over the last couple of years that we've talked about this throughout the 118th Congress we took testimony on this including from superintendent Harris of the New York Department of Financial
▶ 0:54:08Services about that balance between state and federal oversight any framework for payment stable coin should build on the wellestablished Dual banking system that many of you have talked about Mr Gwen can you describe some of the benefits that the Dual banking system has brought the US Financial system and explain how our framework attempts to replicate that for stable coins certainly um so I think the Dual banking system has allowed Banks to function as 50 Laboratories
▶ 0:54:38for Innovation I think that's the most important function they've played the federal government has often set minimum standards for banking but they haven't they haven't created a comprehensive Federal framework that the banks so the banks are regulated both by federal and state uh laws um uh the regulatory framework for the in the stable Act is virtually identical to the framework for the Dual banking system uh with two exceptions first the stable act establishes a single federal regulatory framework in 4A
▶ 0:55:09that applies to all federal qualified and state qualified uh payment uh payment stable coin issures and the alternative state level framework has to meet the St standards would be stronger than the standards in 4A so that so it's different in the sense that it actually creates a comprehensive a federal floor so you you would say that that prohibits that some have argued this is a race to the bottom and you believe that Federal floor would prevent that is that your view yeah I don't see how there could be a race to the bottom because
▶ 0:55:39any state regulator who's applying the stable act would have to either comply with the standard the federal standards in 4A or standards that meet or exceed those standards and Mr cascarilla I mean you've dealt with this for years because of your work in New York would you say that the stable Act is somehow light touch regulation or do you think it strikes the balance that's important to have a high standard but you preserve your right to work in the state of New York for example well
▶ 0:56:09I today we're the only uh prudentially regulated issue of stable coins or at least New York sorry I should say New York state is the only place where you can potentially issue stable coins and I think that's important to preserve it creates a laboratory for Innovation as Randy was pointing out but also um uh having a federal flooor is actually going to create a consistency across the entire country and I think actually on a global basis I think it' be actually a race to the top of meeting the same set of Standards which is the right way to operate and if everyone meets those standards you're in
▶ 0:56:39the right thanks so much and thank our panel and and now call on my friend the ranking member for five minutes of questions uh thank you very much Mr chairman uh Miss house in the 117th Congress I reached across the aisle to work with a then ranking member of my black Henry and led years of negotiations with treasury the Federal Reserve and other stakeholders to establish the first of its kind bipartisan bipartisan stable coin legislation unlike the Republican bill posted
▶ 0:57:09for this hearing our bill creates a strong regulatory framework that supports the responsible Innovation with Federal oversight along with the role for States my bill includes appropriate supervision Authority including for third party Enders along with civil and criminal penalties uh for violations language to address overseas threats like from tether and a ban on convicted individuals like Sam bankman
▶ 0:57:40freed um in testimony uh you said in the wake of serious National Security threats like billion dollar hacks by Rogue Nations growing integration of cryptocurrency as a tool for transnational organized crime Market manipulation and fraud that can threaten system integrity and stability as well as pressure from adversarial Nations seeking to develop and leverage alternative Payment Systems to weaken and circumvent the dollar it is
▶ 0:58:10clear that strong safeguards including for us competitors are needed do you stand by that why is why is what you're telling us so important ma'am it's um it's entirely necessary I think we we we all would find it totally acceptable for the nation's greatest threats to us which often are um are on the other end of of our sanctions uh to be able to leverage to leverage the US dollar and to get access to the US system yet that is happening in US dollar denominated stable coins so many of the protections like what you just mentioned on extr territorial application
▶ 0:58:41um are are needed in order for us to make sure that our our adversaries are not exploiting our system uh thank you very much uh I think enough is going to be said here today to see the difference between uh What U Mr McKenry and I was to do and what this bill does not do but I want to jump over uh to something a little Beyond stable coins uh when Trump first issued his M coin three days before his inauguration I express my deep concern
▶ 0:59:11I warned that this raised major conflicts of interest National Security risk for the country and left consumers vulnerable to rug pools Market man manipulation and more unfortunately that has happened can you quickly tell everybody what a rug pull is and how it works sure um so and um with with limited time just basically when people are trying to Hype up and get people to invest in in an asset and making a broader promise and then ultimately um pulling out uh your investments
▶ 0:59:41in the assets and ultimately that ends up normally crashing the market value well uh I express my deep concern and I warn that this raised major conflicts of interest National Security risk for the country and left consumer was vulnerable to these rad pools Market manipulation and more unfortunately that's just what happened president Trump's insiders reportedly earned a staggering 350 million from sales and fees in the three weeks after
▶ 1:00:12his M coin was launched while Trump ran away with his money reports show that a far larger number of investors lost more than2 billion dollar after the Mimi coin crashed meanwhile a republican LED SEC has conveniently stated that meing coins are not subject to their regulatory oversight and so with that I just want to just say to this committee and to everybody else whenever you see
▶ 1:00:42this side and that side get together to work on something that's significant and that's important and you cannot just erase the fact that Mr McHenry and I put together stable coins with the kind of guard rails that would avoid consumers from being ripped off now I can't understand why anybody on either side of the aisle would ignore all of this and a new SEC head by someone who does not believe in guard rails would continue
▶ 1:01:12to go down this road we're not just talking about uh what you have advised us about we're talking about the way that these Mimi coins are put together and the rug pulls and those ins iders who know what they're doing invest all of that money up front and then after it grows they pull it out and the stupid people who thought they were investing in something lose everything why don't everybody just understand that well I yield back the balance of my time
▶ 1:01:43ranking member yields back uh chair recognizes the gentleman from Oklahoma Mr Lucas the chair of the task force on monetary policy for five minutes thank you Mr chairman and thank you to our Witnesses for testifying to today I want to First focus on Central Bank digital currencies as one of the few remaining members of Congress who was on the dod Frank conference committee I'm especially sensitive to expanding the authorities and reach of the Federal Reserve we've seen the way partisan politics creeps into
▶ 1:02:13the supervision and regulation of our financial systems when we allow unaccountable agencies to look over our shoulder as chairman of the task force on monetary policy treasury market resilience and economic prosperity I've spent a lot of time talking about the Federal Reserve System becoming more partisan and I expect to continue that dialogue through our work on the task force my view is to maintain the fed's independence on monetary policy we must hold the FED accountable when they overreach on the regulatory proposals
▶ 1:02:43Mr Gwen do you think a us cbdc would lead to further polarization of the fed and how could increased Authority like the issuing of a US C BDC be abused by political partisans thank you um so I wish I could answer no to your question but operation choke point one and two has taught me that unfortunately I must say yes there is a possibility that would increase the politization of
▶ 1:03:13the uh Federal Reserve uh with the a cbdc would give the Federal Reserve staff a direct window into virtually every transaction every person in America makes and at least one of them won't be able to resist the temptation to use that information to promote what they consider to be worthy political goals um I think I think the real dangers have been outlined before uh by Norbert Michelle of ko Institute which is there's a real threat to Potential
▶ 1:03:43Threat to uh Financial privacy to core freedom and actually to financial stability because if you have a cbdc in times of stress uh and it's available to retail investors then it will uh they'll have a temptation to pull money out of the banking system and move into cbdc we pride ourselves here in the United States and rightfully so on our Global Leadership and technological advances but in the case of
▶ 1:04:13stable coins and digital assets Congress has failure to put together a workable legal framework and Regulatory environment is putting our financial firms and consumers at a tremendous disadvantage M Butler why is it so important for us to catch up to the other jurisdictions on this and what happens when we fall behind the United Kingdom and the European Union here thank you very much Congressman for your question as a global bank we serve many different clients across over a hundred markets and it's
▶ 1:04:44imperative that we're able to use the latest and greatest Technologies to meet the needs of our clients in the US US has been the world's economic leader and leader in Innovation and it's imperative to be able to take the new technologies and apply them to the needs that are in the market it's very important to protect the US dollar US dollar is the largest dollar our largest currency for trade and the uh stable coin is just a representation of that Dollar
▶ 1:05:14on a blockchain but the blockchain enables the dollar to be used more because of the benefits the blockchain can yield around the world we can see cbdcs being used by central banks and we can't let that happen here at home that's why I'm a proud co-sponsor of Mr Emmer's cbdc anti-surveillance State act Mr cerella Mr Emmer's bill would prevent the federal government from surveying and restricting American spending habits through a cbdc
▶ 1:05:45in your view what is the risk of failing to pass a bill with these protections the um I think the key point with the CBD is that it's creating a competitor to uh the private sector and um right now we're at a stage of the market where you need to have as much Innovation as possible and we need to have stable coins become as broadly adopted as possible for the benefit of the United States and for um uh the US people in my remaining
▶ 1:06:15time Mr Cullison could you discuss the potential impacts of stable coins on financial Innovation and why it's important for consumers in my district to have access to these stable coins make money movement uh faster cheaper um and more programmable creating entirely new kinds of uh Financial applications and we've been very Struck from our stripe vantage point about how this uh adoption is already occurring I it's important to emphasize
▶ 1:06:45it's not speculative we see it today my time's expired you back Mr chairman thank you sir the chair recognizes Mr Basque as the ranking member of the small business committee for five minutes thank you Mr chairman and let me start off by thanking you for holding this very important hearing we need to have a serious discussion about the future of stable coins and the use of digital Assets in our country and I think to do that we need to discuss the broader context
▶ 1:07:16and environment in which we're holding this hearing since being sorning as president president Trump has sought to hand to hand control of our financial system to the richest men in the world and Men Who spend millions of dollars to get Republicans elected Elon MOS and do have sought to destroy the csbb gain access to the treasures Department's payment system and Frozen rule makings litigation and enforcement
▶ 1:07:46actions not to mention firing or laying off thousands of other employees many of whom perform critical oversight roles in The Regulators we are discussing here today now Elon musque is working to transform x.com into a virtual wallet and payment system and according to median reports Ambitions to create his own stable coin so miss house as we sit here today
▶ 1:08:16discussing the merits of stable coin legislation and what is likely to be a broader discussion on digit digital asset legis ation later this Congress do you think it is important for us to keep this broader context in mind yes absolutely congresswoman um when when we have the privilege and honor of serving in office and for the government we we have a sacred duty to maintain the public trust and to ensure that our activities are there it's why there's so many clear protections
▶ 1:08:47uh like things of conflicts of interest so it makes sense to keep that context certainly in mind thank you and Miss how cdbc are offici official government issued stable coins that operate with all the protections and rules of their traditional counterpart private stable coin issuers don't like them because they are a threat to their issuances they hide this fact by arguing behind things like government control and infringement
▶ 1:09:17on individuals right to privacy ironically one of the bills we are discussing here this morning B cdbc experiment mentation in the name of privacy yet as you correctly pointed out the bill does nothing to address privacy issues presented by private crypto companies can you explain your statement what privacy concerns do you think need to be further addressed in this proposal thank you congresswoman for the question
▶ 1:09:47and I I appreciate this point since I um all I wanted to underscore that the US Treasury the Federal Reserve uh the prior White House and then it looks like this Congress have all agreed in fact that the Federal Reserve does not have the authority to issue a cbdc so the the legal necessity of of the legislation on Banning issuance of a retail cbdc remains in in question to me but um thank you for highlighting the broader issues on privacy there's there's no reference to broader issues of privacy um just generally privacy legislation
▶ 1:10:17that's still needed um as well as what the Privacy um implications are certainly for publishing transactions on a public unobscured Ledger that present risks to Consumers thank you Miss Boulder in your testimony you highlight that bny performs custody services for stable Con issuers in accordance in accordance with regulations guidance at both the state and federal level how does the current participation of banks in stable coin Arrangements
▶ 1:10:47facilitate broader trust and reduce risk in the financial system particularly compared to nonbank participants thank you very much for that question congresswoman so we do indeed custody the reserve assets and we do so in accordance to our long-standing custody practice we've been uh providing custody for decades um 52 trillion dollar worth of custody and we apply the same customer and asset protections to the reserve
▶ 1:11:17uh custodian work that we do that we do to the traditional side so it's effectively the same custody we provide and we take all of the um protections and apply it as well what's very important for the um ecosystem is to make sure that with banks that are providing custody there is implicit trust and confidence in the ecosystem that clients assets are indeed protected and protected according to Federal legislation and regulation thank you and
▶ 1:11:47a yield back Mr sh gentleman Ys back the gentleman from Michigan the vice chairman of the house Financial Services committee Mr he it recognized for five minutes thank you chairman Hill and good to see many of you again and uh um I I uh I do want to not Mr cison I know your dad is back there and I'm sure he's very proud I had a chance actually to be at your headquarters uh out in San Francisco a number of years ago pre-co uh met with your brother John in his opulent office for those that haven't been there he's laughing
▶ 1:12:18because he knows what I mean if you haven't been there it's a cafeteria uh that's their opulent office space uh and but it was great uh My Tribe happens to hail from Cork a little further down I think the coast from uh from the two of you and with a Dutch name it throws everybody off but uh it's uh it is the season to see some good Irish men around so um Mr chairman as you know and as everybody knows uh stable coins hold immense potential I think you've seen a little bit of that getting talked
▶ 1:12:48down on the other side by some um but uh as as you all have uh have demonstrated uh the capacity to simplify our payment system is going to be huge I've been bouncing back and forth I also sit on the Foreign Affairs committee where I am uh doing a review of bis and where chips are and where AI is going it terrifies me and fascinates me every time I get a briefing um and but this is the where the rubber is hitting the road and I just applaud you all
▶ 1:13:18um obviously we've seen president Trump's actions uh secretary bessent the cryptar Mr Sach and and others there's I think there is a moment for us here in Congress now to act and as legislators it's ultimately up to to us to provide the regulatory Clarity needed to ensure that the US dollar Remains the dominant Reserve currency and I believe stable coins uh can do that but I want to start by just setting the stage and this question is for all of the witnesses very briefly and Miss Butler let's
▶ 1:13:49start with you please highlight one aspect of the proposals that you have seen that uh that that you think hits the mark thank you very much for your question um I would say asset segregation this is the foundational principle of custody and it needs to be preserved at all times never co-mingling client assets with firm assets we need to make sure that that is preserved in the uh digital ecosystem as well as the traditional ecosystem Mr
▶ 1:14:19cascarella I agree I think the most important thing is to make sure that a dollar is always a dollar and the way you can do that is by having legal protections for how the assets are held which is why holding Assets in a trust and a custodian are important and secondly is making sure the assets can't fluctuate in price which is about having uh a very clear set of guidelines of what is investable and that allows a dollar to be a dollar and um really therefore gives everyone confidence to use this in everyday Commerce all over the world Mr carison my answer
▶ 1:14:49would have been the same as uh as these two witnesses but for the sake of variety I'm good with a good theme that's all right but yeah let give us a little spice having a having a viable state-based framework um as the laborat laboratory excuse me for Innovation I think is very helpful you said State base yes as well it be in addition yep Mr Gwyn so I I think the goal to become truly accept as money stable coins need to become no questions asked money that's sort of the standard that economists have developed recently and I think there are three aspects of
▶ 1:15:20stable act that actually should help it help stable coins achieve that the 100% % reserve requirement the properly calibrated Capital requirement and the restriction on uh activities that would prevent it from having any material amount of other liabilities other than stable coin liabilities Miss how what do you think is hitting the mark great um I I I totally agree that on the measures that are in there the ones like the one to one Reserve requirement um and the restriction on reapo of assets is absolutely fundamental um as a cyber nerd I'll say the reference to cyber security
▶ 1:15:50protection is also very much appreciated okay uh and the discussion draft of the stable Act payment stable coin issuers are permitted to issue stable coins through a subsidiary Mr gwy is what are the pros and cons real quickly requiring issuance of that subsid subsidiary yeah so so they're mostly Pros but I think the most important thing is it's very easy to match up the reserve with the stable coin liabilities if you actually were to issue stable coins out of an entity that's engaged in a whole variety of activities it'd be very
▶ 1:16:20difficult particularly if the issuer were an insured depositor institution because there are restrict rest there are depositor preference rules that give depositors preference over say a stable coin holder and there are also restrictions on securing liabilities of an insured deposit ins okay my last few seconds I'd love to have more time but uh yes or no from each one of you um MAA is now the law of the land in EU countries uh should we be following their lead Miss Butler we should be following the lead in the sense
▶ 1:16:50of giving clear um clear guidelines as to structure um we should engage the um private space like we're doing um and ensure that we take the best of the rules that are in m and apply them here okay well I've run out of time that was a very good political answer but I will follow up in writings with everyone so thank you very much we invite everybody to answer the question in writing and now we'll turn to the gentleman from California Mr Sherman the ranking member of the capital market subcommittee for five minutes Article 1
▶ 1:17:20Section 10 Clause one of the United States Constitution Congress shall have the power to coin money and regulate the value thereof so the Constitution says coining money is supposed to be done by the federal government now the private sector gets in and comes before Congress and says isn't it outrageous that the federal government is competing with us and we've got to hamstrung them and make sure they can't compete with us
▶ 1:17:53effectively this would be like saying that and now you can say that the federal government is supposed to coin money so it can't be electronic that would be like saying that the Federal Government Can Only build roads designed for po horses and Buggies and that we should have private toll roads for automobiles uh Mr Gwyn uh I think you made the point very well you said it's unfair to have a cdbg because it's too
▶ 1:18:23reliable it's too secure and in times of stress that's where people will put their money then we're told oh but we're going to have privacy yes Sam bankman freed and Elon Musk is going to know every damn trade every transaction I engage in then they're going to sell that information to anybody who wants it and we're not and we're then we're going to pass some loophole written law to say they can't do it they'll just do it overseas
▶ 1:18:54so they the idea that you're going to have privacy by giving the Crypt Bros all the information and letting them sell it to anybody they want there's only one advantage of the coins we're talking about stable coins and that is the Crypt Bros can make money from it and the goal of this hearing is to make sure that we don't have uh any uh that we uh any competition from section 10 of tic uh of article
▶ 1:19:24one um this is about the 400th hearing we've had on promoting cryptocurrency we haven't had a single witness come and tell us and and make the case that we should simply shouldn't have the cryptocurrency we're told if you invest in America and build jobs by investing in Common Stocks your broker will send a form 1099a and you'll have to pay taxes on your gains and then this Congress says invest in crypto create no jobs except the jobs move
▶ 1:19:54money around in crypto not a single manufacturing job and you pay no taxes uh is house uh zel is an electronic system unfortunately for some people it's not really good for tax evaders or people trying to uh hide their money from their former spouse it's free our other witness has a system that's similar they charge 2.9% at stripe uh why would other than concealing assets
▶ 1:20:25from the government and former spouses why would somebody uh go with uh a 2.9% fee um rather than a zel which is free so um and not knowing some of the specifics of zel since I'm not I'm I'm not a user I think that there's um there's interest in some of the broader like Marketplace applications where stable coin is honestly since most stable coin activity is happening in trading that's really where it's zel isn't settling trading activity on crypto exchang I've got I've I've got to make just
▶ 1:20:55one other point uh Mr Cella uh tells us that people have iPhones and they're unbanked and we're going to get them banked so the best way to get them banked is to have a cdbg you want to prohibit that then it's talking as if cdbg would be mandatory why not just have one more competitor some people will want Elon Musk to know about their transactions and we'll trust him and some will want the trust the federal government uh but we want to deny them the choice
▶ 1:21:26because anything that prevents Elon from making a profit anything that prevents the crypto World from making a profit must be snuffed out no matter how useful it is to uh to uh okay um what could go wrong I think Sam bman freed Illustrated that to us uh Miss house you have uh laid out in your testimony the protections
▶ 1:21:56we could have for know your customer and anti-money laundering and I guarantee that the industry will block ver all of those that are effective because this industry can't compete against the dollar unless it has an advantage and that Advantage is not that it's electronic uh because even zel's electronic they're trying to Snuff out a cdbg which be electronic they can only compete for the tax evasion and spouse
▶ 1:22:27uh uh avoidance the gentleman's time has gentleman from Kentucky Mr bar the chairman of the financial institution subcommittee is recognized for five minutes Mr Goan Goan um let's just start with um Mr Sherman's um concern that the stable act might be inconsistent with the congress's power to coin money can you set the record straight about why the stable Act is consistent with Article 1 Section 8 and section 10 of
▶ 1:22:58Constitution well for over 250 years or so close to 250 years states have chartered Banks to issue private money in the form first of uh paper money and secondly as demand deposit claims so in fact there's and in fact as I mentioned earlier in my testimony that private money accounts for anywhere between 80 and 90% of the US money money supply the coins the paper money the claims against the Fed actually only account for a small fraction of it yeah thank you for for setting the record straight
▶ 1:23:28there and um I totally agree with Mr casilla's point that stable coins are a national security imperative uh for the United States not only to modernize our financial system but ensure the maintenance of the Dollar's dominance um not just against Bitcoins or digital currencies cryptocurrencies but also cbdcs that are competitors potentially to the dollar uh the digital Yuan for um I do care about Banks and I care about the growth
▶ 1:23:58that the economic growth that uh are sourced from our banks and I think of Community Banks in Kentucky and the deposit base that's used to then extend loans some of the bankers uh the community Bankers out there uh Express concern about cbdcs and maybe even payment stable coins in terms of the risk to eroding the deposit base U Miss Butler how might uh stable coins issued under the stable act be different than a central bank digital currency
▶ 1:24:29in terms of eroding or the potential to erode the deposit base thank you very much Congressman for that question I think there's there's a couple of reasons first there's consistency of applying the same set of standards across the ecosystem so whether you are banks or non-banks or the size of a bank you can actually participate in the ecosystem with Clarity of what you can and cannot do that's super important secondly the asset protection rules that are proposed in the legislation are very important
▶ 1:24:59to protect that safety and soundness of the ecosystem including the customer Pro protections AML BSA and making sure and we're committed to making sure that those are always protected at all times carrying over what we do in the traditional um Financial system into the digital Financial ecosystem and then finally allowing Innovation to grow with a competitiveness at the backbone right that's how markets Thrive when you have competive Solutions coming to the market and so what role do you see Miss Butler uh what role
▶ 1:25:29do you see Banks actually playing in the payment stable coin ecosystem under the stable act thank you very much we we see ourselves performing a very similar role to what we do today providing trust and confidence in the ecosystem and enabling um our client needs to be met by a variety of different payment rails today we offer a variety of payment rails this is a new mechanism for payment and we'll continue to um evolve payment rails as Technologies evolve uh Mr gwy another
▶ 1:25:59question for you last Friday the OCC rescinded OC interpretive letter 1179 which required OCC chartered Banks to receive supervisory non-objection before engaging and digital asset related activities including pay payment stable coins in addition the OCC withdrew from two inter agency statements as they appli to National Banks and Federal Savings associations The Joint statement on crypto asset risks to banking organizations and the joint statement on liquidity risks to banking organizations resulting from crypto asset
▶ 1:26:29Market vulnerabilities Mr Gwyn what do these actions mean for the banking system this means that the banks can now without uh uncertainty act as custodians ask act as service providers act as issuers of stable coins which I think is a good thing it never in my view it never should have been put on hold uh and it's a good thing and it's a good experiment ation the OCC is a perfectly competent regulator to uh to manage and supervise
▶ 1:27:00the risks of that those activities what other actions could both Regulators or congress take to ensure that banks have the clarity necessary to engage with the digital asset ecosystem while maintaining compliance with other bank related laws so I think they could do something very simple they could issue a regulation that says that acting as an agent or principle with respect to digital assets including stable coins is Financial in nature for purposes of the bank holding company act well as you see from my questions
▶ 1:27:30I I think that the stable Act is a is a very important step in the right direction and I think banks can participate in the stablecoin ecosystem in a way that um Fosters Innovation and includes banks in this process so with that I yield gentleman yields the gentleman from New York Mr Meeks the ranking member on the house Foreign Affairs committee is recognized for five minutes thank you Mr chairman let me start out with Miss Butler you know there's been a lot of concern about debank crypto companies uh with mixed messaging from the federal Regulators
▶ 1:28:00on how traditional Finance can integrate with and provide uh essential services to the crypto industry Bank of New York is a New York state charted bank that has been actively working with crypto companies and this has been facilitated by clear guidance to Banks from the New York's uh Department of Financial Services and has led to a vibrant crypto ecosystem in New York for crypto CTO companies and traditional financial institutions New York's leadership here demonstrates the importance of a strong
▶ 1:28:30State pathway for stable corn regulation can you talk about the importance of working with the new New York's DFS in building a strong well-regulated crypto ecosystem in New York thank you very much Congressman for your question we work very closely with the New York DFS and with all our regulators and given the evolving nature of this space it's it's very important to that have that very engaged Dialogue on a continuous basis to ensure that again we know the clarity
▶ 1:29:01that we can operate in and as these rules evolve and as the ecosystem evolve we can make sure that there's a two-way communication but clear and consistent um framework across the entire ecosystem needs to be upheld at all times and it needs to not be whether you choose a state pathway or whether you choose a federal pathway we need to have consistency at the federal level for our regulations and our legislation so that we can ensure the Integrity of the entire ecosystem and all players are meeting that high standard thank you for that
▶ 1:29:31and let me go to Mr uh cascarella uh you spoke about Poo's history with the New York State DFS in your testimony what do you see as the advantages of State regulation as a stable coin issuer thank you Congressman for the question um the New York DFS was the first regulator uh in the world to to approve the issuance of a regulated stable coin and I think that underscores the importance of having a state pathway that allows
▶ 1:30:01Innovation to happen and continue to happen in fact the regulations and the framework that the DFS has uh constructed has been I think the Cornerstone for a number of regulators around the world as they have built their Frameworks I think that really shows how important it is for the states to be able to lead if we didn't have New York leading today there wouldn't be a potentially regulated stable coin issued from the United States now I like many of my colleagues have concerns about the use of stable coins and other digital assets by illicit
▶ 1:30:31actors and I appreciate that you and I have had the opportunity to discuss the importance of including strong illicit financing Protections in any stable corn bill that becomes lower what is your perspective on what where the greatest risks are and how should we think about addressing them uh I think it's very important to make sure that there are Bank standards which today paxos adheres to for AML kyc and BSA the last thing we want
▶ 1:31:01is anybody using these products illegally I think also this new technology creates new tools so there has to be new Frameworks there has to be new ways to be able to understand how uh assets are being utilized and in in the one hand we'll create new ways for people to have access to this which is important on the other hand it could create new ways for people to use it illegally and with the right types of uh protections as the right types of uh bank-like standards for knowing your customer I think you can have a framework that allows you to marry
▶ 1:31:31both the risks and the rewards in the right way thank let me also the time I have left to go to Mr cison uh we talk a lot about stable comms here in a the in a theoretical sense but the Practical real world applications for everyday people are often overlooked in my opinion from your perspective how can stable coin broaden access to essential financial services for communities both domestically and internationally particularly in underserved
▶ 1:32:02regions and in countries experien severe currency VI volatility yeah so I think there are um extensive applications uh here in the US uh where many forms of payment are slow and expensive Dan AI um a professor uh Colombia described the US's payment system as the most expensive uh in the uh in the G 20 but even more importantly uh internationally uh precisely as you point out um a very large fraction of the world's population
▶ 1:32:33uh lives in a country with a significantly unstable or inflationary currency and providing those people with access to one a stable Reserve currency that is to say the dollar but then secondly the ability to engage in on a Level Playing Field with the world's uh in the world financial system is a is a huge deal for them thank you time has expired gentleman Ys back chairman of the small business committee Mr Williams of Texas is recognized for five minutes thank you Mr chairman and Chinese
▶ 1:33:03involvement in digital assets and the blockchain could raise serious National Security concerns for the United States and blockchain technology has been the potential to revolutionize various Industries like Finance Supply chains and infrastructure and if China gains a competitive advantage over the US it could have leverage over economic National Security interests through surveillance and cyber attacks it is key to maintain us dominance and keep Bad actors from jeopardizing our national security so Mr cascarilla
▶ 1:33:34uh would you describe the consequences of stable coins being primarily denominated in the Chinese Y and not the US dollar I think fortunately right now 98% of transactions that are happening in the crypto related space are happening against US Dollars uh of course that doesn't always need to be the case in the future and if uh the US has not set a set a clear framework that does open up the possibility for other nations and
▶ 1:34:04other types of currencies to gain not just a foothold but even a predominance which of course would be problematic for the United States all right uh stable coins are becom extremely popular in the payments Network and are operating on the decentralized network gives users a degree of Financial Freedom whereas a central bank digital currency gives the government more control over private citizens transactions and can lead to increased consequences with privacy supervision overall Financial Freedom we must allow for more innovation
▶ 1:34:34in the digital payments world not constructing growth with a central bank for digital currency so Mr Collison uh does Stripe have any examples of customers using Stripes stable coin orchestration platform to break from free from auth authoritarian governments or deflationary National currencies thanks for the question um we see many examples of this uh you know I I think um I
▶ 1:35:05think of the comparison to the uh to the Petro dollar system uh where you know starting back in the 70s uh you know the series of agreements with Gulf States created an enormous new source of secular demand for dollars um we're seeing the same thing happening today in Emerging Markets uh where people are taking enthusiastic advantage of this new Liberty and this new capability where they can hold dollars and they can again uh get direct access to uh the world's
▶ 1:35:35preeminent Reserve currency uh I think this is a uh a really big deal for uh for Global Liberty and for Global Prosperity uh quickly uh this committee feels strongly that the interact of a federal regime for stable coin issuers will ultimately inhabit China's ability to control this space we've seen countries around the world take action to establish National regimes for stable coins EU Japan UK Singapore have all taken steps to establish the regulatory framework for stable coins recognize potential
▶ 1:36:05to modernize payments and enhanced Financial so Mr Callison again quickly as a Global Payments company could you elaborate on how important it is for the US to establish a federal framework to maintain us competitiveness I think this is important for two reasons one they're the Practical example excuse me uh benefits for American consumers and for American business today and I think it's uh it's you know simply on those merits worth putting forth a formalized federal framework uh that uh that
▶ 1:36:36uh enables the stable coin ecosystem here in the country but then I think there's a second reason I think this is what you're getting at that while it is the case uh that an overwhelming majority of transactions today are in fact denominated in dollars and that's enormously to the US's benefit um there is a risk that if the US adopts a posture of discouraging and inhibiting stable coin adoption that the rest of the market will respond and adapt and perhaps we're here in five years and the preeminent
▶ 1:37:06stable coin currency is Euros or rem andb or some other Global Currency and I think that would be to the US's detriment Mr chairman I you my time back gentleman Ys back chair recognized the gentleman from Georgia Mr Scott for five minutes thank you very much uh Mr chairman first of all let me say I totally agree with Miss Waters she gave a brilliant
▶ 1:37:36opening statement and I hope everybody heard that it was plain it was clear first of all I did a little research stable coins are often promoted as safe but they're not for example the stable com bean stock suffered a heist in which attackers manipulated governance mechanisms and they stole
▶ 1:38:08million in crypto assets another Bridge hack resulted in a theft of million you think that's safety and here's another one in 2023 curve Finance which is a major platform with exposure to multiple stable conss fell victim to a that
▶ 1:38:39led to tens of millions of dollars in losses due to an exploit in its smart contract do you all know this now uh missiles am I scoring some points here how in the world can we say they're safe when we're losing all of the millions of
▶ 1:39:10dollars so my first question is given vulnerabilities what regulatory Frameworks can be applied to protect consumers and Financial stability in the face of ongoing stable corn Heist losing millions of dollars in our economy yes Congressman thank you for the question um and this this was a critical issue in priority certainly at the National Security Council also seeing
▶ 1:39:40hundreds of millions and billions being stolen by elicit actors and in some cases nation states uh who were fueling their proliferation activities with these heists um the one of the most critical things that's being exploited specifically in the these heists is poor cyber security many of these heists are being exploited because of poor key management and basically just basic information security practices not being put in place in some cases and there's not been enough of a focus an organization around standards and security so the prent the Prudential protections
▶ 1:40:10largely the ones that I outlined earlier and which are present in the McKenry Waters bill um in a more folsome way I think that I think will help to reinforce some of the secur some of the security measures and protections that need to get put in place to defend against uh against these exploits and let me ask you this should the United States consider requiring staple coin issuers to hold fully audited Reserves at insured
▶ 1:40:40Banks to prevent castigating risk in the event of a breach Roger yes Congressman I do believe that that the full Reser Reserve Holdings is critical and I'm glad to see that um being reflected across several pieces of proposed legislation and and how can federal agencies ensure that stable coin issuers adopt industry's best practices in cyber
▶ 1:41:11security and risk mitigation great the uh the first would be ensuring that federal agencies have a line of sight for oversight on especially systemically important and very large stable coin actors that will serve as very high value targets and have the responsibility to custody many of these assets so making sure that at least on some of those critical components that there is the federal arm of oversight beyond that I do think that work like standards um there is an absence uh to a certain extent of Standards
▶ 1:41:41um decentralized communities have have a have a tougher time organizing so I think that some some prompting and encouragement from the government side to help to identify where certain vulnerabilities are being exploited um and also to create new standards that are bespoke and unique to the blockchain space well let us hope uh you're right and uh thank you for your excellent testimony thank you very much chman Ys back chair recognizes the distinguished Republican whip
▶ 1:42:11of the house Mr emmer of Minnesota who is also the author of the anti- cbdc surveillance act he's recognized for five minutes thank you uh Mr chairman thanks for holding for those words and for holding this uh important hearing today to St study the promises of stable coin technology to unlock economic efficiencies and the risks of Central Bank digital currencies to our privacy and freedom I appreciate the committee's efforts to incorporate my feedback into the stablecoin bill
▶ 1:42:41over the past several congresses and I'm grateful to this committee for noticing my bill the anti- cbdc surveillance State act uh in this hearing today the bill is simple it halts the effort of unelected bureaucrats from ever issuing a central bank digital currency that could upend the American way of life this bill has the support of over a 100 members of Congress in groups ranging from the Independent Community Bankers Association and the American Bankers Association to Club for Growth Heritage action and the blockchain
▶ 1:43:11association cbdc technology is inherently unamerican and I'm grateful to president Trump for understanding this and signing an executive order Banning cbdcs as one of his first actions as president my bill would codify the executive order into law and prevent a future Administration from creating such an obvious tool for financial surveillance against its own citizens uh Chad great to see you Mr cascarilla proponents of the United States Central Bank digital
▶ 1:43:42currency often cite Global competition in the race to extend the dollar status as the world's Reserve currency as Promises of a cbdc do you think there's anything potential United States cbdc could accomplish that a privately issued stable Co coin could not thank you for the uh question Congressman Emer I don't think so I think um uh historically innovation in the United States in both technology and in the financial services landscape has come from the private sector
▶ 1:44:12and I think that is what we should continue to embrace and I think that's what uh the bill would enable well speaking of stable coins section 15 of the stable act requires the proposed legislation requires Federal Regulators to create and Implement reciprocal agreements between the United States jurisdic and jurisdictions with substantially similar regulatory Frameworks for dollar back stable payment stable coins can you explain the impact this section will have and extending the status of
▶ 1:44:42the dollar as the world's Reserve currency thank you yes I think the important point is that everybody wants a dollar the US is of course the home of the dollar doar where when we're exporting dollars we're exporting American values we want to make sure we have the same set of rules in the us as we have around the world so that there isn't some Arbitrage uh that's possible to issue from another jurisdiction and by having that same set of rules that everyone has to meet in order to access the US market it will actually create a race to the top not a race to
▶ 1:45:12the bottom thank you Mr Cas gorilla cbdcs introduce significant privacy risks and are fundamentally the antithesis of American values on the other hand this stable coin bill can bring traditional VII Finance onchain at a global scale while preserving privacy individual sovereignty and free market competitiveness this underscores why we must prioritize Pro stable coin legislation alongside anti- cbdc
▶ 1:45:43legislation I want to thank chairman Hill again I and especially for working with me on the anti- CBD cbdc surveillance State Act uh both in this Congress now and in the last Congress and I'd like to applaud the efforts of Representative Warren Davidson uh representative Andy ogles and a former representative and a good friend of the chair and myself a representative Alex Mooney for their contributions to this text and for helping make it a stronger
▶ 1:46:14legislative proposal I yield back the rest of my time thank the gentlemen gentleman Ys back gentleman from Massachusetts Mr Lynch the ranking member of the digital assets Financial technology and artificial intelligence subcommittees recognized for 5 minutes thank you Mr chairman uh Miss house uh currently just a couple of stable coins have have about 90% of the market is that correct yes sir yeah Congressman so so this Market is susceptible to concentration
▶ 1:46:45it does yes Congressman so so we're looking at meta meta's got 3.9 billion uh subscribers across all its platforms Instagram and and uh WhatsApp as well as Facebook and apple probably has a billion monthly paid monthly subscribers uh what what would be the impact if both those firms came in and just established
▶ 1:47:15stable coins what would happen to the competitiveness of of uh of of the the market here in stable coins um it's a it's an interesting exercise um I I think first off uh it depends on if there's a regulatory framework uh that would help to enable competition um and enabl protection for some small smaller players to come in but without without protections uh against it I think that the potential for them to come in and leverage very very large market shares with with their devices and applications and others um it's possible that they could take over
▶ 1:47:46um of course without protections they're still very major uh players especially foreign operating ones that um that have currently been operating with without much transparency or consumer protection also that they'll be coming up against and if if they are able to operate uh in a fashion well stable coins operate a lot like deposits so that would that would break down the separation between Banking and commerce would it not yes absolutely that that's also a major risk um if you start to conflate those and you don't have the kinds of protections that we do in the banking system
▶ 1:48:16for good reason to divorce and separate um Banking and commerce then that would present those major challenges as well Mr Jen is is that I don't want to pronounce your name wrong sorry it's Gwyn Gwyn I'm sorry I'm sorry first of all thank you for for your testimony to all all the panelists you you mentioned a couple of times that uh stable coins should be as as safe and as secure as FDIC insured deposits but in the past several years you know I I sit up here and I I see the collapses so we've
▶ 1:48:46had at least 20 stable coins just collapse we've had every single major stable coin in the world World deeg from the dollar so we we've watched as the Federal Reserve FDIC had to go in and rescue uh Silicon Valley Bank I mean did that not happen it certainly did and I think I just because this the first time any of you have said that that happened we look the idea of of scientific meth scientific
▶ 1:49:16method is when you try something and it doesn't work and it blows up and it causes people damage you you adjust and you you you develop improvements but we keep doing the same thing over and over with stable coins they keep blowing up and now now we want to my time now we want to just expand that we just want and and it just seems like it's it's inviting a disaster I I guarantee you if so
▶ 1:49:46I I read the genius act o you know over in the over in the Senate you know I'm I'm a little weary about it anything called genius coming out of the United States Senate but but there were so many problems with that and I'm hopeful hopeful that my colleagues uh on Mr Hill and and uh and others will will amend amend that vigorously because it it had huge huge problems but um you know the the other piece of this is
▶ 1:50:17stable coins especially if they offer interest do do you do you do you support stable coins that that offer interest that are actual deposits are you asking me that question yeah yeah um I think I think if they have yes or no it's pretty pretty clear interest bearing stable coins I think it's yes if they have appropriate calibrated Capital that's what I was fearful of so so instead of instead of Traditional Bank here's here's the difference stable coins you know
▶ 1:50:47it it's going to take deposits and it's going to use those deposits as reserves right that's how this thing is going to work a normal bank and and it's going to have to hold those for protection a normal Bank Traditional Bank would take those deposits and lend them out lend them out to small businesses mortgages and and that type of activity I'm I'm afraid it's going to siphon off a lot of the credit market and and we'll be using those deposits to to back
▶ 1:51:17the stable coins to prevent disaster instead of putting that money to work um Miss house is that a legitimate concern I I I think the concerns are founded and and why bipartisan legislation on a good regulatory framework is critical thank you I yield back thank you gentleman yields back the gentleman from Georgia Mr ludder Monk Is recognized thank you Mr chairman thank you all for being here this is a a very timely discussion we're having in fact while um you guys were given your statement I was
▶ 1:51:48uh meeting with some middle school students talking about financial markets which obviously these students as I was zooming into them were their eyes were glazed over um until I got to the point about digital assets that's when they perked up and listened why because this is their age this is the techn technological Revolution they're growing up with and either we fall way behind in technology as we have in previous decades or we try to keep up with it
▶ 1:52:18and we make the inevitable part of a viable uh uh free market system and and uh our economy um I'd like to kind of follow up on the previous questions Mr Gwen um both stablecoin dep pegging events and the 2008 reserve primary fund crisis involveed the loss of confidence in an asset that is supposed to maintain a stable value when the primary Reserve fund broke the buck it
▶ 1:52:48led to investor panic in liquidity crisis in money markets similarly similarly when a stablecoin deegs such as what we saw in Tera USD investors rush to redeem potentially destabilizing the markets Mr Gwen can you compare and contrast the risk posed by these two events in terms of systemic impact and Redemption Dynamics yes definitely so the reserve primary fund is a money market fund they're not required to have Capital requirements
▶ 1:53:18and so when their assets fell below uh parity they they were they were basically you know they had less than what they needed to to redeem all the interest Terra USD is an algorithmic stable coin issuer and so it did not have a 100% Reserve with safe assets like would be required here so they would not have that would not have been a payment stable coin here in contrast um the entities would have 100% reserve requirements they'd have a properly calibrated
▶ 1:53:49Capital requirement and they'd have restrictions on their non-stable coin activities those three things make them fundly fundamentally different from the reserve primary fund ter USD and the um stable coins that he was talking about earlier okay thank you that's why I want to give you some time to actually respond uh to the question uh followup while the types of assets that can be used to back stable coins in the stable act are recognized as highly liquid cash equivalent it seems like there could be slight variations in the
▶ 1:54:19liquidity of these assets at times at a high level how would different asset mixes affect Redemption mechanics during a mass Redemption event and how can we avoid liquidity mismatches yeah so I think I think the permitted Assets Now are very shortterm in fact as I said in my opening statement I think they're overly restrictive but I do think that they they need to be have a duration of something like you know six months or something like that on an average basis they need to be shortterm so they can be liquidated
▶ 1:54:50so that even if interest went up and their value went down they could be liquidated pretty much at par close to par and then to the extent they're not exactly at par instead of having the situation with the reserve the uh the uh Reserve primary fund they would have a capital buffer that would allow them to make up the difference okay um last question the stable act requires stable coin issuers to periodically publish information on the reserves backing as backing a stable coin can you explain how this might mitigate risk related
▶ 1:55:20to mass Redemption events yeah that that public disclosure is critically important to that and also to distinguish uh a payment stable coin issued under this act and other stable coins as I said earlier the um the goal to uh structure payment stable coins so that they are what economists call no questions asked money so you can have absolute confidence in them and uh so I think that you know that's
▶ 1:55:50that's what needs to be done I think that the um the stable act you know should accomplish that okay thank you Miss Butler um for the few moments I have remaining on Friday treasury secretary Scott bent said that Sable coins would help ensure that the US dollar Remains the world's Reserve currency how would the demand for treasuries created by the new stable coin collateralization requirements affect the demand for US Dollars and US dollar foreign exchange rates globally thank you very much for the question
▶ 1:56:20given the US um treasuries are actually one of the non-cash assets held in the reserve it would stand to reason that as the demand for US dollar represented on chain I.E a stable coin grows that you would see that underlying Reserve grow as well and that backbone of the um global economy today in terms of trust and security being the US Treasury um would continue to be there in the form of a US stable coin okay thank you I yield back the gentleman yields
▶ 1:56:51back the gentleman from Missouri Mr Cleaver the ranking member of the housing and insurance subcommittee is recognized for five minutes thank you Mr chairman um is there anyone here who does not believe that in 2008 the central focus of the uh economic collapse in our country um had nothing to do with
▶ 1:57:23do do does there is there anyone who believes that housing was the central fact I I think it was housing combined with uh very leveraged investments in okay everybody else agree thank you um from the ranking member Max and ERS and all the way down
▶ 1:57:53to me we were uh on the day that uh the Secretary of Treasury came in and told us that we were in a position where we had to act very quickly some uh we might have a depression and uh I have come to believe over my career in life that experiences the uh very best teacher and the the worst experience teaches us
▶ 1:58:24the best and uh that causes me to have great concern there was a uh pro-public uh public uh uh article uh that uh came out recently and uh over at HUD there were two officials who uh believe that uh HUD uh needs
▶ 1:58:54to start using cryptocurrency uh and that was actually a meeting and uh they went into great detail on how this would would function uh and it would be a trial run but wouldn't this be just another unregulated security into the housing
▶ 1:59:25anybody I'll just briefly say that um I think the dynamic your highlighting um is actually relates to one of the reasons uh to be enthusiastic about stable coins because of and I think um Mr Gwyn makes the points very clearly and well because of the extremely tight controls about how stable coin deposits um can be uh can be managed I think some of the duration mismatch and other fractional Reserve related risks in the financial
▶ 1:59:55system can be significantly mitigated okay so H now wants to wants to start doing their funding through cryptocurrency I don't know anything at the HUD specific Dynamics well they are I mean uh you know that that's kind of a a fact um and uh and so I'm concerned just because of experience that uh unregulated security and when you look at this shot you can't see
▶ 2:00:25it I don't think um but this is Congressional intergovernmental relations staff uh right now uh Miss house there there's a a move to shut down the cfpb as as I think everybody in the world knows um and uh their only job is protecting consumers and if Pro publica didn't just make this up and that HUD is planning on trying to uh respond to funding by giving them the funding
▶ 2:00:56through crypto uh and we have all of these positions with with HUD uh un unfilled uh Deputy secret assistant secretary for Congressional intergovernmental relations Congressional Relations Specialist Congressional relations uh specialist 1048 Congressional Relations Specialist at 10148 and uh we're we're talking about cryptocurrency we don't have a staff they're trying to shut down
▶ 2:01:26uh the uh whole operation of cfpb I mean don't you uh don't you think somebody's having a nerv nervous breakdown I mean what I mean I don't know you don't have to tell me who who's having the nervous break down but yeah I would um just to to to reinforce some of the the issues that you've been highlighting about this um the need for us to make sure that we have strong consumer protections and especially in a space like with stable coins and other Digital Services we're getting more and more Reliant and interconnected
▶ 2:01:56on these Digital Services with with even more data and more access and reach and ultimately what that demands is a stronger capacity to be able to protect consumers so ultimately um I don't think that it's wise to make arbitrary decisions to shut down things that are protecting consumers um if they want to drive more like Effectiveness and efficiencies there gentlemen's time has expired apologies the gentleman's time is expired the gentleman from Ohio Mr Davidson shair of the National Security elicit finance and international financial institutions subcommittee has recognized
▶ 2:02:27for 5 minutes uh thank the chairman thank our Witnesses uh for your testimony and frankly your work in the marketplace it's inspiring and I'm glad we're finally here today to talk about important legislation uh protecting frankly the ability to transact in the United States and let's just begin with first principles um you know in a state of nature people can transact the government isn't The Giver of the right right to transact does anyone believe that does do we believe permission to conduct a transaction
▶ 2:02:57is given to us by government okay no takers so it's a private sector right it's a natural right and uh and in our country that's kind of the way our country was founded that we recognized our rights are come from a creator that among them are life liberty and the pursuit of happiness and the Constitution protects them and and we're in a period where a lot of the debate about the regulation is you know how much control should the government have over the transactions and the market has moved on
▶ 2:03:27stable coins are a thing they're not as big as we think they should be because they're less than 10% of all the market capitalization of All Digital assets right now but they hold a lot of promise and for that reason we're trying to get regulatory Clarity beyond the state of New York uh and here Across the Nation and frankly with uh International agreements Mr casarella I appreciate your recognition of how it is to add the ability to uh recognize jurisdictions that do get it right but
▶ 2:03:57when we think first let me just start about cash because cash has been around for a long time and you physically possess it in a permissionless way you don't need permission from a government or even your bank to get it now it's almost illegal to get your own cash but not entirely right and uh financial institutions have an interest in preserving your C preserving the deposits they want all the stuff deposited but at the end of the day so do the consumers they want to deposit some portion they protect and I think that's why self- custody is important and Miss Butler
▶ 2:04:27you've done a lot of work in custody of All Sorts um how important is it uh for a permissionless transaction to be able to happen that we protect self custody thank you very much Congressman for your question I think self- custody is a very interesting topic and I think there's two things that need to be considered the asset underlying it's um the custody and the protections of of asset safety so if you can apply the asset safety Protections in terms of segregation in terms of AML
▶ 2:04:58and and BSA so you can protect the assets then it's it's a customer choice right and I think customer choice is always going to be important when there's a variety of different options in the market yeah thank you uh you know Mr cson you guys are facilitating a a large number of transactions and certainly consumers and you know vendors want to use your platform to do transactions but some portion of that in the digital if if you read the Bitcoin white paper you don't have to go very far the goal was to facilitate permissionless transactions
▶ 2:05:29not entirely permissioned how do you how do you uh see self- custody fitting in that framework um appreciate your uh your you know highlighting this um I think the uh the self- custodial aspects of cryptocurrencies are um I think they're an important Liberty but also something that creates real challenges with respect to illicit activity and fraud and AML and so forth um with
▶ 2:05:59respect to stable coins in particular something that I think is helpful and I think has been you know highlighted here is that because of the onramp off-ramp Dynamic you have these natural points where some degree of uh of you know system Integrity can be ensured and BSA and other requirements uh can be applied but I think to your point there is a separate question as to how this should work with uh with you know traditional cryptocurrency yeah thank you for that and frankly you have kyc responsibilities for your customers and once they off-ramp it just
▶ 2:06:29like cash you might have some obligation to report that they did but then you're not responsible for the entire network of money uh because you know whatever US dollar coins used for by anyone well you're only responsible for your customers and we want to safeguard that the nice thing to the point about what is it backed we're here talking about stable coins and stable coins are backed you know frankly they're more than Bank deposits there's no fractional Reserve lending against the deposits it's one to one in a case of a dollar and you don't have any liquidity or
▶ 2:06:59time period Horizon six- month T Bills versus repo markets reverse repo markets uh with with commodity back stable coins like gold uh it's a Redemption of 1 ounce of gold claim and so it's a very secure uh you're essentially by self- custody ownership um last thing I definitely want to associate myself with uh with Mr Emmer's remarks on Central Bank digital currency we don't want them to design it develop it implement it or impose it
▶ 2:07:29uh it is the polar opposite of the system it is a system for surveillance coercion and control we certainly don't want that form of money anywhere and I yield jenman yields back Miss B8 the ranking member of the National Security listed finance and international institution subcommittee from Ohio is recognized for five minutes thank you Mr chairman and ranking member uh first all the witnesses thank you for being uh here today Miss house uh like you I care about economic and technological security
▶ 2:08:00I take very seriously the National Security concerns posed by emerging technology and the unknowns that exists within the digital asset ecosystem the existence of the digital Market is not going to change and the public appetite for it is not waning anytime soon it appears like you I agree that we need to establish mechanisms for victim resources and ways to track illicit funds and Patch security vulnerabilities in
▶ 2:08:31smart contracts it's clear that the current Administration is going all in on crypto the president and the first lady made over a billion dollars on a trump and millania coin defrauding his supporters on their hard earn money and allowing him to make more money than he's ever in his past fail businesses Eric Trump Trump has also used his social media pages to promote coins and he's invested in under the guise of good investment to me
▶ 2:09:01this is a direct example of fraud Market manipulation and conflict of interest now miss house you noted in your testimony that pump and dump schemes endanger uh Market Integrity so my question how can we ensure the stable coins uphold their Integrity through regulation when uh the surrounding ecosystem is the wow wow West great thank you congresswoman for the question
▶ 2:09:31and ultimately it's uh really the purpose of this hearing putting in place um as timely as possible the credential framework that we need that we need quickly for for stable coins to make sure that we have the necessary protections for consumers to ensure to ensure the Integrity of the asset that means things like bankruptcy and resolution capabilities it does mean things like when like on toone reserves um and also prevention of and the prohibition on rehypothecation of assets so many of the protections that are outlined some of them in the stable act um and more holistically in the waters
▶ 2:10:02McHenry Bill okay well while I have you as the chairman mentioned in introducing me I serve as the ranking member on the subcommittee of National Security elicit funds and international financial institutions and as we know cryptocurrency is the favorite payment method for Bad actors in Criminal criminals engaging in cyber crime money laundering sanctions of evasions bribery embezzlement and I could go on and on with that the stable coin
▶ 2:10:32legislation that was negotiated between our ranking member and former chairman McKenry included critical protections for anti-money laundering and counter Financial terrorism that we stripped in this Republican l in Republican L bills that we're considering today he can you discuss the provisions in which the AML CF uh T protections should in should be included in any stable
▶ 2:11:03coin framework absolutely congresswoman something I care very much about um when I led crypto policy at fin Center AML regulator so I think what we need is certainly very clear guidance and expectation on the holistic uh on the holistic framework for countering elicit Finance so that's both AML CFT and on sanctions applicability so looking to things like extr territorial application that ultimately is critical including for rewarding the good actors many of which have been us firms that have long been operating more compliantly versus others
▶ 2:11:33um we need to make sure that anyone who is purporting to be administering a US dollar back stable coin does not allow for US dollars to get to become accessible to the greatest threats to our national security so strengthening those Provisions making sure that we're clear about who is implementing those regulations and controls and uring that they are that they're as as strong or on parity and equivalent to things like um like our banking requirements and then also making sure that freeze and Recovery capability is in place which will help AML and
▶ 2:12:03also um fraud and consumer um recovery and recourse thank you as an expert that certainly uh helps me and for me it confirms or reconfirms that the waters McKenry uh critical protections that they were putting in their proposed legislation is something we really need so hopefully um Mr chairman you all would consider going back to what former chair McKenry had proposed with ranking member uh
▶ 2:12:33Waters uh thank you and Mr chairman I yield back the rest of my time the gentlewoman yields back the gentleman from Tennessee Mr Ros is recognized for five minutes thank you to Chairman heill and ranking member waters for holding this hearing and and thank you to our Witnesses for taking time from your schedules to join us today the stable act for is a path forward based on both Innovation and accountability while we have heard a lot regarding the Innovation that this bill would unlock I also think it is important to highlight the accountability
▶ 2:13:03that this brings to the stable Corin industry the stable act would require reports regarding the stable coin issuers Reserve composition to be publicly disclosed audited and attested to by the issuers executives Mr Gwen how will these requirements hold the stable coin issuers accountable to the Bill's reserve requirements well first of all the market will be looking at these disclosures quite intensely because they're required
▶ 2:13:34monthly so the market in many ways will impose a certain discipline on them also uh the certifications if they are Mis if they're willfully or no no knowingly misleading uh they're subject to criminal penalty so I think that would deter any CEO or CFO from making misleading certifications I'm glad you asked that question because I kind of left off an important thing to one of the other questions on the disclosure it's very important in the disclosure to be able to distinguish a payment stable coin as being a very
▶ 2:14:04safe instrument that complies with this law as opposed to something that might have the label stable coin on it that may not actually be subject to the same standards thank you Mr gy you spoke about the success and Clarity of the US dual banking system under the stable Act issuers licensed by a state regulator must respect the sovereignty of other states who may choose to harmonize their requirements do you think this is the correct approach to a true State pathway
▶ 2:14:34and what potential issues could arise if a state is able to preempt another State's laws so I actually think uh the scenario painting is probably very difficult because at least the way the ACT is written now there is a baseline of federal standards that are actually quite comprehensive and to the extent there's a state level uh uh regime it it's required to uh equal or exceed the standards in the federal so I think it' be very difficult for instance it'd be very
▶ 2:15:04difficult for one state to say I'm going to attract a bunch of stable coin issues by having a LAX uh regulatory framework they just can't do it consistent with this with the stable act thank you that's I appreciate the insights while blockchainbased Solutions like stable corns offer compelling new capabilities traditional dollar payments will in my opinion at least remain dominant for the foreseeable future likely accounting for the vast majority of transactions for years to come however our current system lacks many
▶ 2:15:34features that are being contemplated by the stable act and could be available with proper Regulatory modernization and right sizing Mr Collison what do you think Congress should focus on when aiming to modernize the payments world uh thank you for the question uh so with respect to stable coins I think simply putting in place a clear framework with uh with prudent rules for the road uh will do uh a tremendous amount of uh of good more broadly on payments
▶ 2:16:05to your question uh stripe strongly supports the concept of some sort of federal payments Charter um there is no single clear framework for a payments companies like stripe today um uh and we think that the federal government has a uh a significant interest in ensuring that across our ecosystem uh effective standards are upheld and we also think that uh with uh with access to things like the um the the fed's payment system we can provide better
▶ 2:16:35Services uh to businesses uh and consumers so I think uh Federal Regulation of the payment system uh could be very beneficial and so when you say a federal payments Charter you mean chartering institutions for that purpose correct payments today are primarily not solely but primarily regulated at the state level and that is a lot of benefits we don't think that should go away we think in addition to that there should also be a federal framework okay thank you the next decade will bring significant innovation in financial services and products these Innovations will require
▶ 2:17:05regulatory Clarity and appropriate risk-based supervision matching how payments work in a digital economy Mr cison the same way that a stable coin Charter will jump start stable coin Innovation what would a payments framework do for the mod economy uh there are um there are analogues to the uh the payments Charter uh in other jurisdictions like Europe Canada other places as well we can see that this works well in practice and
▶ 2:17:36it in in places like Europe they've been an incredible stimulus for you know vibrant innovation in Consumer Financial Services broadly and I think it I recognize that the time is about to expire here uh but I think there are many ways in which this would be helpful in the US thank you if you'd like to expand on that off the Record I'd appreciate it Mr chairman yield back gentleman yields back the gentleman from Illinois Mr casson's recognized for five minutes thank you uh appreciate you all being here um I want to start a little wonky there's been some academic discussion sort of linking stable coins to Euro
▶ 2:18:06dollars as you know something that uh you know exists outside of the normal payment system and Miss Butler I just want to start with you um do you agree that the the US correspondent banking system as it sits right now um has sufficient guard rails to make it difficult for illicit actors to access the global dollar system thank you very much for your question Congressman I do believe that the rules that we operate today in the traditional banking services including corresponding banking
▶ 2:18:36are applying the right safety guards and rules okay and I and I agree with you I I rais that because stable coins as they're structured right now do not have that same sort of Nexus of control right they can they can hop across the the river if you will um they can be transferred on public blockchain networks there's no Central operator no entity miss how I think you had alluded to some of this in your testimony and I wonder if you could just share with us how you think Congress should address that Gap in our sanctions and anti-money laundering networks so that stable coins don't just become a back door for the
▶ 2:19:06Bad actors to get into the US dollar system thank you Congressman for the question um I think that the most you're right that I started on the the earlier answer um but basically the most important Provisions I think uh that are necessary are making sure that the issuer and the administrator of the stable coin is implementing some AML requirements and especially for sanctions requirements making sure that they are not we're not facilitating transactions in denominated in US dollars to sanction jurisdictions and sanctioned wallets which is happening right now um so making sure that freeze um and Recovery
▶ 2:19:37capabilities are in place and then making sure that that the US dollars are not being made accessible to the greatest threats to this country um and and Mr Gwyn you you had youd alluded earlier to saying that you know when some of the algori stable coin that had broken The Buck if you will unless I missed it you didn't mention the fact that the most recent breaking of stable coins was when SBB and Signature Bank runs happened and you had a bunch of stable coins that were sitting there in uninsured deposits is it your position that any liquidity that's in cash deposits should be absolutely
▶ 2:20:07100% insured so it's interesting I I do think I'm just looking for a yes or no because I want to get through a couple things I don't know that I have a yes or no to that I think that I think that one has to be more careful with uninsured deposits in the svb svb had 95% of its deposit uninsured so it was well if if we have liquid liquidity under underpinning these things like stable coins need to be boring to work um we don't want fractional Banking and blow this thing up and Miss house correct me if I'm wrong dollars deposited in European
▶ 2:20:37accounts are not insured by the correct um I I want to turn now to the fact that we just witnessed the largest cryptocurrency heist in history when North Korean hackers um stole $ 1.5 billion from biit Mr cascarilla I I understand maybe you can just share what is pao's policy for freezing funds um that have been used for elicit activity uh so we have a couple different uh guard rails in place the first is we have terms and condition that set forth how we
▶ 2:21:07could freeze and then seize funds which we have done in the past we also have this overseen by our credential regulator when we receive a subpoena from a lawful jurisdiction we can uh freeze the funds and when that's adjudicated we can seize them so so does your policy that you will you will freeze them only if a regulator directs you to or will you take proactive action to seize them as well if if you detect elicit activity we will contact a regulator when we've seen elicit activity an example would be our our Pax gold product when we saw it moving after the FTX collapse we contacted our regulator I
▶ 2:21:37think it was the doj actually but so but I just want to understand because we're all Americans here if if if you knew that North Koreans were laundering money to finance their nuclear program and the regulator had not yet said to stop would you shut it down immediately or would you wait for someone to call you we have these conversations in real time with the regulator so we would of course talk to them and make sure that we're doing it appropriately um okay well all of us if we're participating in the banking system um or want to participate in the banking system need to address that um given the speed at which some of these
▶ 2:22:08people go through particularly right because it's one thing to say we're having real-time conversations but I mean these things can cop through in an instant running through mixers running through D5 protocols chain hopping Miss Miss house does Congress need to consider requirements to at a minimum make sure that stable coin issuers have the technological capabilities to freeze These funds um and that stable coin issuers are compelled to act proactively not just after the the horse is out of the barn absolutely yes sir and to a
▶ 2:22:38certain extent I think that they already are obligated to do that um sanctions carry strict liability and AML programs require um a reasonable program to uh detect and prevent money laundering through their systems um but those things need to be enforced need to be clearly articulated and implemented okay I'm about out of time but I just want to say to the whole committee stable coins a have to be stable B have to be structured not in ways that would destabilize the Global Financial system and C should not provide a back door to money laundering and I hope that any legislation stays true to those three principles y back gentlemen yields back I
▶ 2:23:08know I recognize myself for five minutes uh for the purpose of asking questions I thank all of our Witnesses for being here uh it's exciting we're in the Golden Age of digital assets and we have a huge opportunity uh to move forward on two really important pieces of legis ation in this committee and to see them ultimately sign in a law in particular stable coin uh in Market structure I want to dive in a little bit on on the stable coin legislation uh and I'll start with you if I can Mr Callison um I believe that stable coins in particular give us a real opportunity to maintain dollar dominance
▶ 2:23:38uh across the globe we've talked a little bit about use cases uh and as a policy maker in general uh I might not uh be concerned about the way that someone uh in Mexico Panama Peru Nigeria or another location uh is engaged in transactions uh but what we actually see uh is when stripe has a NE Bank in Mexico uh or um bridge is used to distribute payments to workers across Latin America um that actually strengthens the US dollar would you agree can you comment
▶ 2:24:08on that briefly yes um I think it strengthens the US in two ways one many of the companies engag the activity you're describing are themselves American businesses and so they become stronger but secondly and I think this is what your question is getting at um it increases dollar demand increases the demand for us treasuries and it in turn uh lowers us borrowing costs thank you very much I'm going to come over to you if I can Miss Butler um sometimes you'll hear people say that the banks don't like stable coin stable coins don't like the bank you could all get this back and forth uh but bny melon is very engaged uh in the stable
▶ 2:24:39coin space could you uh just put a little color as to what the value proposition is to your customers uh your bank thank you very much Congressman um yes indeed there there is a number of different things so first the value proposition um in the kind of near term is providing trust and security to stable coin issuers as the reserve custodian we also manage many different types of payment Vehicles so whether it is the instant payment Vehicles provided through the fed and a variety of different options for our clients
▶ 2:25:09we want to be able to participate in the new and evolving options and mechanisms stable coins and blockchain Technology just being an example of that so that we can continue to meet the evolving needs of the markets and our clients thank you very much I want to come to you Mr cascarilla if I can to talk about how do we make stable coins stable uh in the updated uh draft that chairman french hill uh and I introduced uh we were tweaking the language of what uh can be held by a stable coin to to back it um could you provide
▶ 2:25:39uh a little bit of uh color based on your experience about stability liquidity investor confidence uh in the Pax dollar uh and what you're backing that with and what we should be looking at yeah we've uh We've issued a number of different regulated dollar tokens uh they all have the same exact Reserve parameters uh and generally having a maturity of less than 20 days uh having overnight liquidity available through overnight repos that are over collateralized by treasuries uh plus having a t bills and minimizing the amount that's held in Bank cash
▶ 2:26:09and where possible buying private insurance to supplementing uh FDIC insurance and when you do that you basically have I think the safest Dollar in the world it's safer than a dollar in a money market fund it's c safer than a dollar that is above an FDIC limit in a bank and I think that creates the confidence to be able to use a stable coin as if it's cash in your pocket and that's the whole point thank thank you very much I want to use the remaining time that I have I want just touch base here with you miss house uh if I can uh you were commenting earlier about the importance of AML B
▶ 2:26:39BSA AML um could not agree more with the importance of it I think the question then is what policies we put in place uh to get this right uh and I think in part U my big concern concern here is that we let Perfection be the enemy of the good what I mean by that uh is across the globe people can engage uh in elicit Behavior Uh regardless of what technology is being used and so if we think about uh when the Obama Administration in 2016 um sent literal pallets of
▶ 2:27:09cash to Iran uh the first shipment I think had $400 million in pallets of actual cash uh went to the Iranian regime and an amazing and disastrous policy decision in my personal opinion but remove the commentary let's just analyze the cash what controls were in place to track that cash once it left us custody and entered the custody uh of Iran any um H I wouldn't be familiar with that I was I was in the AR Jenner you're familiar with cash would there be any tracking mechanism in place is
▶ 2:27:39that cash floated around very it'd be very difficult it be really really difficult right so if Iran was taking literally those pallets of cash provided by the Obama Administration and was doing something illicit like funding terrorism we know Iran uh is one of the or probably is the number one fun of illicit Finance um that's a really bad scenario so although we could pick and choose uh and critique uh other legislation we know actually that stable coins is a major step forward uh from cash transactions and
▶ 2:28:10I think we need to make sure that we don't allow Perfection to be the enemy of the good recognizing the time I yield back uh I will now recognize the gentoman from Michigan Miss TB for five minutes for questions thank you so much uh Mr chair uh can everybody on the panel do you all agree that market manipulation is bad raise your hand if you agree Market manipulation is bad oh great okay I want to get to conflict of interests um and Miss house I don't know if you um know about this but I want to talk about a a billionaire crypto entrepreneur
▶ 2:28:40Justin son in March of two 2023 the SEC charged sun with Market manipulation last year Sun began investigating millions of dollars um in uh he started investing millions of dollars in the Trump family crypto business they call it World Liberty Financial are you familiar with Trump's crypto business yes so he starts putting money into that and then in total I think Sun's investment have put more than $50 million not one million not two $50
▶ 2:29:11million in Trump's pocket then just last month SEC announced that it was dropping his charges against Sun so miss house how is this not a conflict of interest do you think those who are regulated by in in some cases investigated by federal regular should be able to invest uh um Ventures uh directly benefiting the president of the United States um on on the second question on whether they should be able to and if that's conflict of interest it definitely sounds like it and that there should be protections there and
▶ 2:29:41I encourage those responsible from forcing them to look into it um and then on on the first question about it I would say I would go back to my earlier comment that when when we are in government we hold a sacred duty to uphold public trust and that we need to make sure that um we're held to a higher standard and we need to make sure that we uphold yeah I mean we have The Monuments cause you would think that the president would have no idea that it's in the Constitution and that he's violating it so then there's the mem coin just days before he sworn in the president uh he issues his own meme coin while
▶ 2:30:11investors suffered more than two billion in losses Trump and his Partners made aund million on trading fees alone now the SEC has declared that the mem coin is not subject to oversight it's now dropping crypto cases and investigations left and right even where check this out even where the CEO already pleaded guilty they dropped the charges on them so Trump and musk have also gutted the cfpb as you know M
▶ 2:30:41Miss and the cftc has announced that they're meeting directly with crypto CEOs to further reduce regulations of crypto so miss house or no does the president um Trump stand in benefit when none of the Regulators are providing rigorous oversight of the crypto Market he benefits personally right um it it sounds like the financial interests May um if although I will say that there have been instances where more regulation and Clarity have benefited have benefited the market also so president United States has no oversight
▶ 2:31:11over this meme coin all this investment right now none does the fact that foreign Nationals Mish housee have invested in Trump's meme coin and other crypto businesses businesses have National Security implications foreign have invested in the mem coin there's certainly I I think I think sorry I'm I'm not an attorney so I recognize that there's legal implications there but I would say that there's definitely some Hallmarks of concerns
▶ 2:31:42about influence and where um it makes sense for those with with the authority like those in this room um to to look into this um in a bipartisan way during the the last election the crypto industry spent over $130 million backing Trump and others it took like that it it looks like that investment is paying off to me I mean $130 Million last week president Trump issued an executive order creating AIC uhic reserve for of cryptocurrencies Miss house given that President Trump has a personal stake in the success uh
▶ 2:32:12and the perceived legitimacy of crypto industry is not is is this not a conflict of interest I mean he's in the industry and he just did an executive order Roger I um it definitely sounds like that like there may be conflicts of interest and again would um I I hope that the the offices with the Authority for oversight like office of government ethics and Congress consider looking at that um I know obviously like you know I had a bank account and we still regulated Banks so there are other places but ultimately for for an industry that is highly speculative
▶ 2:32:43there's a lot of questions um there's a lot of questions Miss how's given that interest of the president in the crypto industry are so closely aligned how can investors trust that their interests are prioritized by Regulators I think the trust there needs to demonstrate that Regulators need to demonstrate dispassionate um putting in place of the guard rails that will protect them that will protect consumers and that are going to benefit the American public and and not appear to serve uh to to serve only public
▶ 2:33:13officials or those who are in I think that I think that there's a great opportunity here with stable coin regulation to do both thank you IU gentleman yields back the gentleman from Indiana Mr stutzman's recognized for five minutes all right thank you Mr chairman and thank you to the panel for being here uh Mr cison I'd like to come to you you built quite a family business congratulations and to have your dad with you uh is pretty neat I come from a family business background as well and work with my family and um some days it's great and some days they're my family um but uh I
▶ 2:33:43wanted to go to your testimony because I see uh as you wrote in your testimony back in 2014 that you put a pause uh on supporting the Bitcoin and your um uh you saw limited demand and but then you kind of relaunched it again with stripe uh you did the stable coin pay inss in April of 2024 and that you saw more volume in stablecoin payments over the first week than you saw in Bitcoin over a year and a half can you talk a little bit about that like what what do you think
▶ 2:34:13that was and why yeah it was um wasn't very popular in the Bitcoin Community when we we uh when we sort of removed support from stripe but that wasn't because of Any ideological principle uh or position uh we're very responsive to what our customers want and what we observe user behavior um as uh as trending towards and we saw declining usage of Bitcoin again back in 2014 it was a very different time and so we've obviously been um paying close attention to the ecosystem um and
▶ 2:34:43the world is becoming more densely connected and globalized the crypto ecosystem has matured substantially and we've been very struck as you mentioned um as we've you know gradually uh over the past two years or so rolled out uh new support for stable coins that there's a there's very real usage there's very real appetite and again we're seeing we're seeing use cases outside of what one might traditionally consider the crypto industry and it's really um you know uh expanding into the economy as a whole I also want to touch
▶ 2:35:13on your uh down later in your testimony you say that uh you stable coins enable faster cheaper money transfers for international workers you touch on that a little bit are you seeing Global activity like in Emerging Markets I mean Africa is a you know a place that I believe that you know the world is looking at for stability and opportunity what are you seeing within your company and the activity around the world yeah so I I understand that exhibits are discouraged so I'll just note that I have a little chart of the naira USD uh exchange
▶ 2:35:43rate here and over the last 15 years you know the the Nigerian naira has uh depreciated uh by a um by uh about 90% against the US dollar there's a lot of people in Nigeria and they very understandably want you know access and and recourse to stable savings um and uh some secure way to uh to uh store their hard earned money and so we're seeing substantial adoption uh across jurisdictions like this where people are uh seeking to improve their lives and their livelihoods
▶ 2:36:14with what stable coins make possible yeah and I a little bit further um you talk about fighting crime and online fraud which obviously we're all very very concerned about that and you mentioned that we see other countries uh especially in Europe already putting their legal framework into motion to regulate stable coins can you touch on like what are they doing that we're not well I think the most important thing is Simply Having a clear you know established um uh uh formalized framework uh and that's um you know uh uh
▶ 2:36:44by far the the most significant consideration uh and then I think the the the second aspect and you know in particular to the fraud uh and illicit activity considerations you bring up is recognizing that this is a new transport layer for money but ultimately it's still the same money uh and so we should bring and apply the same AML CFT BSA considerations and apply them co-ee equally uh here but it's um it's still money yeah very good Mr Gwen I'd like to come to you uh fortunately
▶ 2:37:14this committee is aligned with great state of Indiana and the and president Trump and its opposition to a cbdc and has taken several steps to facilitate development in private sector Alternatives in your view would a private sector driven model uh for payment stable coins Foster more Innovation and efficiency than a government issued cbdc so I think the private sector has always been the innovator in money for centuries if not longer and so I think that fostering
▶ 2:37:45private Innovation with stable coins is is very important and critical do would you have any concern of Monopoly at all um I don't see any now I think it is best for Americans for there to be a lot of competition among stable coin issuers so I think having a clear framework and and clear Pathways to entry is is the best policy in order to Foster competition all right thank you Mr chairman I'll you back thank you
▶ 2:38:15uh the gentleman from New York Mr Torres is now recognized for five minutes uh thank you Mr chair um no technology should be judged solely by its abuses or worst possible uses every technology has constructive uses and destructive uses in crypto is no exception take as an example the automobile which has a death tot of more than 40,000 Americans every year the proper legislative response to the automobile is not to ban it it's not to sabotage it it's to regulate it it's to make it safer
▶ 2:38:45and as far as I'm concerned the proper role of Congress is not to sabotage digital clet transactions but to make them safer to strike a careful balance between Financial stability and Innovation there is a narrative that crypto and blockchain have no use cases Beyond criminality no benefit that these Technologies are nothing more than a fraud and a grift and a scam right that's the caricature of crypto that often pervades mainstream media coverage and so I have a few questions about the use cases of crypto I'll start with stripe
▶ 2:39:16does blockchain and these are yes or no questions does block chain have the power to enable better cheaper and faster payments and remittances yes would you consider that a beneficial use case yes for paxos there are billions of people in the global South who lack access to a stable currency whose countries are plagued by hyperinflation does blockchain have the power to afford those impoverished people access to a stable currency and protection from Runaway inflation yes would you consider that a beneficial use case yes for stripe
▶ 2:39:47does blockchain have the power to exponentially expand the market for us treasuries and lower the cost of US debt that's certainly what it looks like today would you consider that a beneficial use case very much so Bank of New York does blockchain have the power to tokenize real world assets and facilitate custodial banking yes it does would you consider that a beneficial use case absolutely now Bank of New York is the Bank of Alexander Hamilton it's the oldest bank in the United States the ultimate expression of the traditional Financial system I imagine you're obsessed
▶ 2:40:17with Regulatory Compliance as the oldest bank in the world with more than $50 trillion in assets under custody and administration would the Bank of New York Waste its valuable time and resources and reputation on a technology that had no use cases Beyond criminality does that sound remotely plausible no we would not now tokenization is becoming the future of the Global Financial system and as more and more assets become tokenized and more and more financial transactions become blockchainbased does the lack of regulatory
▶ 2:40:48Clarity around block chain put the us at risk of losing its Financial competitiveness Bank of New York yes it does and if the United States had gotten internet regulation wrong do you think the United States would have gone on to dominate the internet-based financial system that eventually emerged strip very hard to say of course but quite plausibly not so I it would stand to reason if the United States gets blockchain regulation wrong do you think the us will go on to
▶ 2:41:18dominate a blockchain chain based Financial system that might ultimately emerge no I don't think it will and uh we've already seen you know some evidence that if the US doesn't move here you know the the Nexus of activity will move elsewhere so as far as I'm concerned in order for the United States to remain the superpower of the world we must Embrace emerging Technologies we must harness the power of emerging Technologies to make America more productive at home and more competitive abroad
▶ 2:41:48and any policy that has a chilling effect on experimentation with new technology could erode American competitiveness I had a special hatred for Sab 121 because it essentially had the effect of prohibiting an institution like Bank of New York from even experimenting with blockchain technology and I feel we in Congress should have the intellectual humility to recognize that digital assets will develop use cases that none of us can foresee
▶ 2:42:19and since there are limits to what we can know about the future it's incumbent upon us as policy makers to foster a flexible and Nimble regulatory environment that allows for the development of a new technology and allows for experimentation with an emerging technology telling an institution like Bank of New York that you cannot even experiment with blockchain technology is the worst thing we can do for American competitiveness what are your thoughts I appreciate
▶ 2:42:49the the point and I think it's important that we continue to innovate within the safety and soundness of the financial system we need to do both right we need to innovate and we need to protect the system and absolutely we should have the clear CL or the clarity of rules to enable us to do that and we should welcome competition right that competition drives our economy and enables the right types of outcomes for all consumers in the marketplace I see my time has expired thank you I now recognize myself for five minutes
▶ 2:43:20first I to thank the witnesses for being with us today I also want to align myself with the comments from my friend from New York Mr Torres it is fantastic that this has become such a bipartisan issue um with multiple executive orders in last weekend's discussions at the White House crypto Summit it is clear that President Trump is making regulatory Clarity in the digital asset space a top priority now Congress must follow through by passing legislation that cement this framework into law ensuring that years from now neither uh Rogue Senators nor power Hungary SEC Commissioners
▶ 2:43:50can stifle American innovation as president Trump and many on this panel have emphasized maintaining us leadership and digital assets from stable coins to tokenization to the future of blockchain it's critical to our economic success in our future a strong legislative framework will give entrepreneurs investors and businesses the certainty they need to innovate without fear of regulatory overreach or shifting political agendas without clear laws the digital asset industry remains vulnerable to arbitrary enforcement actions that stifle growth and
▶ 2:44:20push Talent overseas now is the time to act before regulatory uncertainty drives the next wave of groundbreaking technology to other countries Mr cascarella how would clear and favorable stable coin legislation affect the US position in the global digit digital asset Market particularly in competition with regions like the EU and Asia I think the most important thing to remember is everybody wants a US dollar all around the world and the dollar is a product in a sense and in order for the product to continue
▶ 2:44:51to be usable in an internet-based economy you have to make it work on internet-based Rails which is why blockchain is so important and if the US doesn't do that then other countries will other currencies will and if you have the right Frameworks to create trust and more ubiquity of adoption then inevitably they could uh gain the reserve status that the US has now and that's I think something the US should want to avoid I couldn't agree with you more um one followup for you what are the most promising real world applications where stable coins are already being used in favor of
▶ 2:45:21traditional banking functions and how can these models be scaled to include those who have been left out of traditional Finance well uh right now all you need to have is a wallet on your smartphone in order to be able to hold a blockchainbased dollar or a stable coin and that means that people all over the world who don't have access to traditional Financial system who don't have access to a bank account which by the way is billions of people can now have access to the US dollar and they want the dollar because most of those people who are unbanked or underbanked are potentially and very significantly
▶ 2:45:51in countries that have depreciated currencies as Patrick was pointing out I'm going to follow up on that so I kind of see this future where autocracies that use controlling their banking system as a means of controlling their population um as being challenged by this future and uh the future of digital assets do you agree that that's something that authoritarian governments are going to have as a challenge in the future once this becomes more common place uh absolutely and that's why I think it's so important to recognize that you're not just
▶ 2:46:21exporting dollars we're exporting American values and everyone wants a dollar they also want America they want to be able to have access to our financial system and to our assets and we should take advantage of that by beinging sure that we can give it to them in a way that actually has true utility for the where the economy is going in addition to digital assets challenging authoritarian governments I do believe that starlink has potential to disrupt authoritarian government's control of information so I I I think uh the future that these
▶ 2:46:51Technologies can provide us has the potential to really reshape global politics for the better um Mr cson how do we ensure that payment companies like yours are able to serve all types of businesses no matter the uncertainty in Washington um I think that uh so long as there are clear regulatory Frameworks in place and that those Frameworks are stable uh I think that the financial ecosystem as a whole is uh going to focus its efforts on serving American consumers and businesses thank
▶ 2:47:21you for that in my view this committee's most important role in the defi space is to create stability and consistency in the market for stable coins and tokenized real world assets for years the digital asset sector has suffered from the constant swings of the political pendulum this uncertainty only harms American innovators and weakens the US economy in Marketplace as Congress we must use stable coins to set clear precedent regulatory Clarity is coming for the digital assets industry president Trump has made this a priority and we must follow through to ensure that blockchain innovation has a
▶ 2:47:51strong Foundation here in the United States by taking decisive action now we can solidify America's leadership and the global digital economy for years to come with that I yield back and uh the gentoman from Texas uh Miss Garcia is now recognized for five minutes thank you and uh thank you to all the witnesses uh here today especially the two from Ireland will remember you next week uh and uh Mr chairman I think we should have had him here on St Patrick's Day right than today it would have been more fun um
▶ 2:48:21as you know cryptocurrencies have the cap capacity to expand Financial inclusion and bring digital assets to historically marginalized communities uh much like those in my district despite this for the average American Consumer all this is seen as very overwhelming and some of them quite don't understand what the crypto stuff is all about it feels like there's especially when there's a new stable coin or cryptocurrency created it seems like almost every day the market continues to
▶ 2:48:51be unregulated vulnerable to stable coin runs and hacks aside from the structural and operational risk most stable coins do not offer enough consumer protection I think Mr uh CIS and you mentioned that the need for transparency and consumer protection as so has um Miss house uh so miss house if an issue fails and there's no protection what happens what what are we dealing with uh in with people's hard-earned
▶ 2:49:22dollars I'm not talking about Investors I'm not talking about the millionaires or billionaires are investing I'm talking about the average American uh why why is strong regulation and enforcement Authority critical uh in the stable uh stable coin legislation to protect them it's uh thank you congresswoman for the question um it's it's entirely critical to protect everyday Americans um especially the the the people that that the crypto industry wants to provide democratized access to financial services to
▶ 2:49:52in order for them to do that safely and securely they need to have a way other than do your own homework to know that a stable coin is in fact stable um and they also need to be able to trust that they're going to have recourse if they get defrauded or if they get stolen from and to to be able to believe that there's going to be um this means for redress which isn't possible without a comprehensive regulatory framework in place enforced and that we do the same with our International Partners given the global reach you know I keep hearing and and one of the things that they've always used
▶ 2:50:22uh as a reason to really you know explore this this this whole option is um replacement of remittances and as a coming again from a 77% Latino District that does use remittances and and uh uh other other forms of of ways to transmit money to to their um family members you know is that really real I mean I just don't see you know someone in my neighborhood uh
▶ 2:50:52going somewhere to get get a a uh uh use crypto or to you to transmit uh not knowing what's going to happen at the other end because just quite frankly as as there's risk in the banking system in many countries there will also be risk in the crypto industry Roger I I think that the point that you're you're speaking to is really why we're seeing most stable coin use happening in settling trading on platforms rather than facilitating these these remittances we haven't created the ecosystem for that trust if a regulatory
▶ 2:51:22framework allows for that trust and for the people in your neighborhood uh to believe that if they send these remittances of their hard-earned uh funds overseas that that money wasn't going to be you know like isn't going to be defrauded or it's not going to be stolen from that if they trust this ecosystem then they may start using it but that business case has yet to prove out I think that the regulatory framework is actually a precondition to allow for that mass adoption right we saw in the 2008 financial crisis that extra territorial reach was needed to help regulate the impact that foreign institutions
▶ 2:51:52may have on domestic markets two out of the three proposed stable coin bills lack extr territorial reach and fail to address National Security concerns given the noal uh Global nature of stable coins in this sector the question is whether to regulate cryptocurrencies on the state or federal level in my view the federal level has to be involved um I support the the state level happening and there being kind of a partnership again reflective of the McKenry Waters bill that made
▶ 2:52:23room for there being partnership and the role for federal agencies and creating the standards but given the global reach and given allowing for Global instant access payments and specifically reporting that these assets are a dollar substitute or representing a dollar it makes sense that Federal Regulators would want to have oversight into these assets um especially when they reach potentially systemic risk levels do you think that we can really get to that balance of of having again the broad uh Federal Regulation then still allow states to
▶ 2:52:53to do some of the things that you know some of our state Banks do yes ma'am I do believe so you do um I've got seven seconds quickly in your opinion who should oversee stable coin issuers of less than 10 billion um I the federal level should have oversight um uh should have oversight but it makes sense for states to run the charters just um with some conditions for when the federal agency um oversight comes to what about for non-bank insurers of less than 10 billion um I I think State Charters
▶ 2:53:24and licenses would be appropriate time is expired time has expired thank you the gentleman from Pennsylvania Mr Muer is now recognized for five minutes thank chairman thank you to you all very much for being here it's a very worthwhile hearing and um really important so stable coins when properly regulated can provide fast and more efficient payment options and help keep the US dollar at the Forefront Global Financial system systems uh they can accomplish these goals without the privacy and free market concerns associated with the Central
▶ 2:53:54Bank digital currency whip emmer as we know has introduced the anti- cbdc surveillance data act that protects Americans privacy by preventing the direct issuance of a cbdc which I did co-sponsor as well states have taken different approaches to regulating digital assets this Patchwork however has gotten stable coin ecosystem to where it is today but if we want to see the benefits of payment uh stable coins nationally Congress needs to act we need to enact a federal framework uh for stable coin
▶ 2:54:24issuing so um U uh Miss Butler um bny is one of the oldest and largest custodians in the world can you describe how custody and the traditional Financial system differs from custody in this in the payment stable coin ecosystem thank you very much Congressman for your question um it doesn't differ because the custody that we provide for the reserve assets of a stable coin for example taking cash deposits and then taking non-cash Securities into our custody
▶ 2:54:54applying asset safety and segregation rules is the exact same that we would do for the traditional custody that we provide all right great uh bny melon of course holds Reserve assets for major stable coin issuers like Circle uh how did bny melan and circle decide to form this partnership and what custody standards were agreed upon to ensure that circle's reserves were securely so again our custody standards were the same long-standing standards that we have for all custody that we provide globally
▶ 2:55:25around the world um in terms of deciding to take on the custody reserves for Circle we followed our practices of business and risk framework we looked at the client their legal permissibility um their regulatory coverage we looked at the activities that they were performing and were those activities legal and permitted and we looked at the assets VES and in this case given the assets are very traditional assets so again cash and cash equivalence that fit right into the standard custody
▶ 2:55:55that we provide great so clearly you believe it is important for banks and non-banks to have the same custody rules for stable coin reserves we do yes okay great thank you very much Mr cascarilla uh many argue some anyway a us uh less than majority shall I say the cbdc could strengthen the dollar globally uh but they of course raise concerns about privacy and free market competition how does a payment St how does a payment stable coin approach these concerns
▶ 2:56:27differently I think the important point with the payment stable coin issued uh by private issuers is that you're creating the Innovation to respond to the market in a very timely manner and we're still at a very early stage of the market uh where there's a lot of innovation that is still needed uh I think that there have been some examples of attempt for cbdcs to be issued by other countries and they've been perceived as surveillance coins and have not been widely adopted as of yet and I think that could uh potentially be a limitation to the us being able to successfully issue of cbdc
▶ 2:56:57can payment stable coin strike a better balance between preserving indiv individual privacy rights and maintaining the dollar status as a leading Global Currency I agree with that you agree we could find a better balance I think that the right balance is to make sure that uh the private sector is leading and being able to create the Innovation and being able to make sure that uh it's responding to the market as fast as possible and I think that's going to be done from the private sector do you think the protections are then enough within the stable act and F
▶ 2:57:2721 for that matter I do think that they are um fit for purpose I think that uh they have the right BSA AML rules as as well as the right uh reserving requirements and the right uh International reciprocity can be put into place to make sure that the US is setting the standards that everyone follows okay thank you Mr Gwyn and States like Pennsylvania for for instance uh digital asset regulation is limited money transmitter licensing State Regulators often want Federal guidance on emerging Technologies but also prefer to maintain their own
▶ 2:57:57authority how does the federal floor Concept in the stable act ensure consistent national standards for stable coins while still respecting each State's ability to regulate according to local needs yeah so so I would say that the states have more flexibility in the Dual banking system to have alternative regulatory Frameworks there are there are federal minimum standards in the banking but it's they only cover a small part of the activity here it's pretty comprehensive I think it would be very difficult for a state to do much other than
▶ 2:58:28increase standards if if they wanted to do so okay great thanks very much Mr chairman I yield back thank you the gentleman from California Mr lucardo is now recognized for five minutes thank you very much I uh appreciate um the progress in the political discourse over stable coin I represent a district in includes half a Silicon Valley and uh obviously we have a different view from from many about certainly the importance this technology
▶ 2:58:58and and I appreciate much of the testimony I've heard so far I also appreciate we've moved from discussing whether to regulate to how to regulate that's an important progression uh and I I want to thank my colleagues on both sides of the aisle uh for their hard work uh and I think as we look at for example in the stable act we have protections that uh would require issuers to abide by standards relating to AML uh to bank secrecy act mandate one toone backing
▶ 2:59:29cash and cash equivalents enforcing transparent redemptions and audo disclosures those are all very important requirements um but my concern is we're in a world where we know issuers are out of the country in fact tether the largest I understand for for US dollar linked stable coin is in El Salvador uh and I'm trying to understand why we wouldn't want those protections globally uh given that the US dollar of course
▶ 2:59:59is going to be linked to much of the stable coin um and you know particularly I appreciate your comments Mr Carlson and and your testimony and the written testimony says the US should move quickly and sees the opportunity to lead on global standards of stable coin and payments regulation reinforcing dollar dominance ensuring American companies remain at the Forefront of financial Innovation and typically that includes s that our regulatory uh structures will also be
▶ 3:00:29the leading leaders as they have been in financial regulation globally and so I guess I wanted to go to you first Mr cson and by the way I appreciate uh I think you were born inair County where my grandmother was born also um she also um managed to make it to San Francisco uh so you're you're on a well trod path I was I was far from the first Irishman in San Francisco yes that's what I that's what I noticed uh my my question is wouldn't your customers want to know
▶ 3:01:00that there is territorial uh enforcement and the capacity for the United States to be able to enforce Beyond its borders I think I think on the margins they would prefer that uh for all the reasons that you're saying um I think in practice they're so enthusiastic uh about the quotidian benefits they can realize they're probably not going to you know block on that but if you if you run a survey of them yes I think so could you help me understand I know you don't speak
▶ 3:01:30for the whole industry by any stretch why wouldn't we want to have extra territorial enforcement well I I think there's probably some degree of devil in the details right as to you know what precisely the nature of that uh framework uh and enforcement uh would be uh and you know to the um to the analogy of States being the Laboratories for various forms of innovation uh in the US there probably some degree to which we don't want an excess of global cohesion precisely because there should be some
▶ 3:02:00degree of uh of variation uh permitted um but I think it's the case that any stable coin failures anywhere um and by the way I think it's helpful just in the conversation generally to separate to some extent crypto from stable coins they're of course related but I think there are important differences but I think all stable coin and and again even crypto failures in any part of the world you know they're they don't look great uh for for the for the sector and so in as much as Global Frameworks can uh can you know inhibit that and make it less lightly
▶ 3:02:30I think that's beneficial for everyone yeah I appreciate your your your cander I you know my concern is I know this is a concern that's shared on both sides of the aisle we want to make sure that American sanctions are abided by and that US dollar linked stable coin is not used to evade sanctions we want to ensure that anti-money laundering uh Provisions are enforced globally we want to ensure that terrorism isn't funded uh through stablecoin we know it can be funded
▶ 3:03:00by any currency as well certainly this is not unique to stable coin uh but I hope that um we can work across the aisle to ensure that uh this bill could be improved with extr territorial Provisions um thank you very much I yield my time thank you the gentoman from California Miss Kim is now recognized for five minutes thank you chairman I appreciate the witnesses for joining us today uh let me ask my first question to Mr Collison
▶ 3:03:31uh according to strip's own annual letter and your testimony here today your company processed $1.4 trillion dollar of payment volume just last year 2024 that represents roughly 1.3% of global GDP and that's significant um so as we explore emerging Technologies like stable coins the vast majority of the economy still relies on dollar payments uh this is an industry that is currently regulated
▶ 3:04:02by the state byst state Patchwork that is designed by uh that's designed for pre- interet era and that creates unnecessary friction and costs that ultimately affect American consumers and businesses so can you talk to us about how Congress can think about solutions to those issues thank you for the question um I think that providing a clear framework uh for stable coins that enable us businesses uh and US consumers to
▶ 3:04:32realize uh some of the benefits of cheaper and faster and more efficient and even more Innovative uh transaction technology uh will be I think that'll be extremely beneficial and I really appreciate uh congress's um curiosity uh in in exploring this issue and the kind of bipartisan uh nature uh of this discussion uh beyond that uh I think that looking at the payment system more holistically and broadly possibly uh up to and including uh a federal payments Charter construct uh would be
▶ 3:05:02a very helpful either complement or maybe um you know um succeeding action uh to uh to stable coin legislation um but I'm really glad that the proposals under consideration here today um also talk about some of the challenges that this will bring to the uh industry the which that the the some of the challenge that this approach that you're talking about oh the that the patchwork brings I see um so I think the um you know I think a
▶ 3:05:33one of the most uh inhibitory forces uh in the uh in the financial services industry is um is ambiguity and a lack of clarity uh in that if something is clearly permitted you know that's great if it's clearly forbidden and prescribed you know that that that that's also you know it's clear one can you know build a business and one can plan around that I think the current Patchwork that's you know um not not not not very cohesive makes it difficult for businesses to know how seriously they should uh they should invest and I mean
▶ 3:06:03I think it's very admirable that bny melon has built such a successful practice here uh but I think it um you know I think it should be easier for others uh to uh to you know do do the same thing um let me ask my question to miss uh Mr cascara uh my home state of California is a leader in issuing remittance payments and in 2022 californ uh sent over $18 million in remittance payments to Latin
▶ 3:06:33America uh however our modern day system of payments can make dollar transfers abroad costly and timec consuming and it can let the appropriate legal oversight um so that is why obviously we're talking about stable coins that can offer so much uh promise and Studies have estimated that stable coins could reduce remittance cost by as much as 80% right so can you talk to us about what makes the traditional payment rail so costly
▶ 3:07:03and time consuming for crossb payments and how would stable coins solve those problems and reduce the costs I think what's important to think about um the way the dollar moves today is really analog it's it's almost moving like the post office it takes 2 3 5 days in some cases for money to move from one point to another especially when there's International jurisdictions and of course uh there's high cost and fees with the stable coin it will move instantaneously 247 almost for no cost at all and in by some
▶ 3:07:33estimates right now as much as 30% of remittances are using a stable coin rail uh in which the uh end user might not even realize it because ultimately a blockchain is just a rail you don't have to use it as a stable coin in as some something that you know yet at the same time have it move in a way that is utilizing the technology and that's the the real promise here thank you I want to let me ask one more question to Mr Collison I know that there is a concern that these funds are being sent to or from
▶ 3:08:04Bad actors so how do Innovative payment companies work to keep Bad actors from existing funds from untrustworthy uh sources I think it's important that uh we recognize stable coins are another transport layer for money they're the same money but moved in a different way and we should bring across the exact same Frameworks BSA AML CFT and so forth and apply them uh apply them equally thank you my time up I yeld
▶ 3:08:34back thank you the gentleman from Illinois Mr Foster the ranking member of the financial institutions subcommittee is now recognized for five minutes yeah thank you Mr chair and to our Witnesses uh Mr caser paxos has the ability to block freeze and recover fraudulent or mistaken transactions um could you explain how this works technically both for hosted and un-hosted wallets um and um you know for example could this be used to stop the use of stable coins for ransomware and other illicit
▶ 3:09:04activities um thank you for the question I think this is an important point and as the issuer of uh various regulated stable coins uh about five of them right now uh we have the ability as the issuer we because we control the smart contract and this is an important point we control the smart contract we are able to decide if an address should be frozen or if funds should be seized all right so for example if someone's screen locks up with ransomware and it says transfer money into this wallet you know this much of
▶ 3:09:34one of your stable coins to this wallet that the person who has that screen can go and contact you and say freeze that wallet and it's done that we have a process for that but correct yes correct so you have the ability to to put a crowbar in for example ransomware or other now that's if if you could get sort of some technical information sort of at at the level of congress's actual blockchain programmer to so I'd be very interested in how that is implemented you know how that's obviously you have huge cyber security issues on your end because someone gets
▶ 3:10:05a hold of the ability to throw that crowbar into your whole payment ecosystem that you know could wreck the all holders of their um of their um asset could be you know wiped out um it's also my understanding that the Senate which has a bipartisan the genius act that was I guess introduced yesterday on a bipartisan basis has a mandate for that and if you could comment on how that compares to what your practices are and what the pros and cons of putting that mandate
▶ 3:10:35so um in I'd appreciate I'm not asking you for something you know since it was issued yesterday if you've had a look at it I'm interested I think it be nice for our uh staff to come back and that's fine for the record you know please respond on that um now many of you U mentioned Financial inclusion as a and low transaction cost is really the desirable things that you're going for now among the G20 India is by far the leader in that essentially 100% of households have you know our bank in India if you um more than a billion
▶ 3:11:05people and the only uh group that's not banked are women whose husbands don't want them to have a bank account which is not exactly a financial problem um but in India if you want to give a popper three rupees you both get out your cell phones you do your biometric login you authenticate your bank account you transfer three rupees zero cost and essentially 100% penetration um could you explain what the advantages of a blockchain system are over the system that exists for a billion people in India
▶ 3:11:36uh in terms of of just everything you know it's also my understanding that the the system in place in India based on bank accounts is not usable for ransomware it is not usable for a. half billion dollar hacks and I was just wondering if you could contrast that and and particularly describe how a blockchain system would have advantages over that system yeah sure is that a question for me sure sure I think the main advantage is that uh sure well either one yeah Mr cison why you about
▶ 3:12:06swing at that one um I think that I think what India has done with UPI is is extremely impressive and actually we're starting to see similar systems emerge in other countries yeah they're selling the open source software to other giving it to other countries which are adopting it at which point you'll have zero cost payment rails across borders which is another use case for stable coins today these systems are not globally interoperable and I think the the most fundamental Advantage um uh
▶ 3:12:36that stable coins confer is is This Global universality and This Global ubiquity and you don't need to wait on a country bycount basis for them to roll it out get adoption is that is that do you regard that as a feature or a bug you know you're trying to prevent fentanyl payments to for payments for fentanyl precursors it's nice to have a you know a measuring point at the border oh I so you know you you could I was just wondering if you regard that that an absolute cross border zero surveillance regime is really the end point we should head for I think
▶ 3:13:06Global access is a huge Advantage but I think to your you know prior questions I think the ability for stable coin issuers to ensure that uh that you know uh proper controls are applied um and that uh system Integrity is maintained is also important um Mr Gwyn um during the um 2008 financial crisis how long did it take AAA rated Mor mortgage back security tranches to become toxic assets and how does that compared to the monthly uh reporting
▶ 3:13:37requirement contemplated in this bill sorry it took a lot longer than were than the monthly reporting but those assets are very different from the reserve assets here those were not us treasuries those were uh cdos or CDO squared very illiquid assets the gentleman's times expired and uh I now recognize the gentleman from Wisconsin Mr fitgerald um for five minutes uh thanks all the witnesses I know it's a long morning afternoon uh thanks for
▶ 3:14:07being here we've seen countries like Brazil allow payments not just from digital wallets or payment apps uh but as was discussed a couple times this morning also Direct ly to and from bank accounts as well as instantly between digital wallets from different different non-bank providers um as you know stable coins the lower fees more payment provider competition wider accessibility uh and because stable coins reduce the cost of the transactions to nearly zero I think there's a lot of members
▶ 3:14:37that are trying to wrap their minds around this um and and you know they can uh it just frees up retail businesses right with the frictionless lowcost Alternatives so um U Mr cison can you just discuss I I know you've touched on this already but can you discuss how providing kind of the regulatory clarity through the stable act could increase or will increase consumer adoption absolutely uh so I think in financial
▶ 3:15:07services uh ambiguity is the is the greatest inhibitor to to adoption you know things that are clearly permitted or clearly prescribed you know that that's that's clear uh uh and I think we've seen in stable coins is a lot of enthusiasm a lot of excitement but also significant hesitation because uh because you know well it's uh it's uh it's not clear how the ecosystem is going to unfold within the US um I think the single most uh uh you know the single best way to ensure that US
▶ 3:15:37dollar stable coins are broadly adapted around the world is for Congress to provide that regulatory Clarity right and a regulatory framework will also give business is more incentive to use the stable coins for operational transactions right when you agree some stable coin I know that some are the issuers are establishing kind of strategic Partnerships I guess you'd call them um and trying to link up with traditional payment companies so uh Mr cascarilla
▶ 3:16:08can you discuss some of paxis Partnerships and explain how these kinds of uh relationships that you guys have been able to develop uh helps with the Integrations and the incentivizing the adoption of all this technology right well I think um one of the interesting components about a stable coin is that the interest is being kept by the issuer um and is a general matter uh in our case we are setting up Partnerships where the interest is
▶ 3:16:38being returned to the distributor whoever might be controlling the end user as a payment company or otherwise right and that's an opportunity then to eventually maybe pass that on further through rewards to the end user so you create an ability not just to democratize access to Dollars which is I think what stable coins do but you could even start democratizing access to the risf free rate and that's a really important way of changing how uh the financial system works and how individuals are able to access it D so let me um let me go back Mr Collison
▶ 3:17:08so there's been some confusion as to the difference between cbdc stable coin and the FED now system right I mean it's um again I I hate to uh pick on the financial services committee but I think it'd be hard pressed to get somebody to come up with the definition for all three what would you describe the differences between the three and the issues that they're seeking to resolve in the US payment system how do you view those three topics or headings I guess I think fed now provides a valuable
▶ 3:17:39service for making a interbank transfers within the us more streamlined and that's very helpful um it doesn't provide the same degree of global access that uh that stable coins or in principle uh uh cbdcs could with respect to stable coins cbdcs I think that the US gets basically all of the benefits of a notional cbdc without some of the attendant downsides that have been discussed here today and so my view is that there's you know very little downside
▶ 3:18:09uh and tremendous you know uh degree of benefit uh to formalizing stable coins along the lines of what's proposed and beyond that I I don't really see how a cbdc would help and you know to again some of the points made I think it could easily inadvertently uh inhibit Innovation thank you very much thank you all and I yield back chairman uh thank the gentlemen the gentleman from New Jersey Mr gahimer is now recognized for five minutes thank you Mr chairman uh Mr Gwen if I can start with you
▶ 3:18:39um you've emphasized the importance of legislation in the stable coin industry I've been a a supporter of the legislation stable coin legislation a long time introducing one of the original piece of legislation and being supportive of the payment stable coins act in this committee last year could you explain to us what your experience has been with the current status quo what would happen if there was a further delay in congressional action I think the problem is is that we risk until we bring stable coins into the regulatory perimeter
▶ 3:19:10we risk having stable coins that are not structured appropriately the way this this bill would do it and other and for instance your bill would have done it um and I think that the real benefit is having a regular regulatory structure that sets minimum that anyone who is identified as a licensed stable coin uh issuer would be adhering to are there any specific oversight measures you think should be included in that comprehensive framework well I think I think the framework now has it allocates the oversight
▶ 3:19:40to either State Regulators or one of the federal Regulators with um a federal uh framework that really is the the um anchor for it there can be alternative state regulatory Frameworks but they have to satisfy the same standard so I do think that there is there is a good anchor there and there's seems like there's just much oversight in this framework as there is in the Dual banking system and would you support um requirements for regular Audits and transparent Reserve reporting which I
▶ 3:20:10believe help prevent banking failures like we saw in 23 yeah I think I think those are absolutely critical not only for preventing that but also just um publicizing in some ways to the public who who wants to to use this as to which are the safe stable GRS and which W they can look at the disclosure make and make informed decisions thank you uh Mr cascarilla as someone heavily involved in the international payment system you're familiar with threats of the Dollar's role as the global Reserve currency China is heavily promoting
▶ 3:20:40digital payment systems from alipe and 10cent in countries that are involved in the belt and Road initiative they're also as you know seeking to make Hong Kong into a major player in global crypto markets how might a clear us regulatory framework for stable coins affect international adoption and strengthen the Dollar's Global position well I think it'll be a a very significant boost because it'll create a um level of trust in the usage of stable coins that right now um still uh does not exist and if you look around the
▶ 3:21:10traditional Financial system and the desire to be able to use stable coins it's very significant and until you have this regulatory clarity uh traditional financial institutions as well as more widespread consumer adoption is just going to be limited and that of course creates opportunity because uh other nations and other currencies can take advantage of that thank you so much Miss Butler uh you discussed bny stable coin activities out of its New York State Chartered Bank State chartered Banks play a critical role in New Jersey where I'm from and the economic opportunities that stable coins offer are continuing to grow do you believe the
▶ 3:21:41proposed dual federal state structure in the stable bill is sufficient for both bank and non-bank stable coin issures so we we support um Federal consistency no matter what pathway you choose whether it's state or federal but we need to have Federal standards applied consistently to all thank you um if if I can move quickly to um uh Mr cison one of my primary concerns is that without proper guard rails more crypto companies will flee overseas
▶ 3:22:11to jurisdictions like Bermuda the Bahamas or France who already have comprehensive regulatory systems in place um and I I worry that giving them first mover Advantage will allow them to potential will we're allowing potentially adversarial jurisdictions to set the playing field on a global scale what specific competitive advantages are other countries gaining in the digital asset space and what does the US need to do to maintain its Financial leadership well most importantly um I concur um I think that's a risk uh and I think by far the most important thing that uh the US can do and the Congress can do
▶ 3:22:41is to provide a clear and effective framework uh for for stable coins here in the country uh and I think in in in Broad strr you know Das which is under discussion today uh that thankk you so much and I yield back thank you I thank the gentleman uh the gentleman from Nebraska and also the chairman of the housing and insurance subcommittee Mr flood is now recognized for five minutes thank you chairman my interest in stable coins goes back to the work I did in the Nebraska unit camera legislature on this very issue
▶ 3:23:11after my bill entitled the Nebraska Financial Innovation Act passed Nebraska became the second State uh to have a regulatory structure for a new kind of state Chartered Bank called a digital asset depository institution a Nebraska digital asset depository institution can issue stable coins which puts my state in a unique position as it relates to the broader debate about a state pathway within this bill due to the laws in our state I'm interested in the state pathway specifically as it relates to State Chartered Bank
▶ 3:23:42issuers my hope is that any federal stable coin legislation will work hand in glove with our Nebraska Department of banking and finance and the work they are already taking on these very issues and I appreciate the continued dialogue we've had with chairman Hill and his team on ensuring that we strike just the right balance Mr Gwyn can you please walk through your understanding of how the stable act would regulate a state Chartered Bank subsidiary that issues a stable coin pursuant to the bill State pathway
▶ 3:24:13um so as I understand it there would be there's sort of two possible regulatory Frameworks one is 4A which sets Federal standards and then 4B that would allow a state to have an alternative regulatory regime that would satisfy or exceed those standards so it's a little bit more restrictive than the Dual banking system where states have a little bit more freedom because the federal standards simply it's not that they don't apply it's that they cover a much narrower field of of applicability whereas here the standards are pretty comprehensive
▶ 3:24:43good answer because you answered my second question about how it compares to the dual banking system so thank you um I'd like to emphasize a few things about the state pathway before moving on to my next question uh one is that state regulars must get a certification approved by the treasury as you've said showing that their state regime is in line with the Bill's Federal requirements or exceeding the federal requirements in addition there is an exent circumstances provision in the bill that would allow a federal regulator to step in over a state regulator and enforce directly on state issuers in
▶ 3:25:13certain circumstances and quite honestly this has concerned me just what is an exigent circumstance but in other words even the state pathway has a very extensive Federal involvement with that caveat I'd like to highlight a line in uh Mr uh casilla's testimony which said the following as it related to crossborder regulation of State chartered stable coin issuers and I quote primary oversight should remain with State chartered issuers home state regulator avoiding
▶ 3:25:43redundant regulatory burdens end quote Mr cascarilla if a state pathway for insurance doesn't include some form of regulatory Primacy for the rules of their hom State regulator would State issuers juggling several state regulatory laws be at a disadvantage relative to issuers that receive a federal Charter uh yes they would and I think that is the exact point uh which is today as a state issuer you have to juggle a number of different uh State approvals
▶ 3:26:13and and exams and uh that is a conflicting process that takes up a lot of resources and could certainly snowball in a situation like this and I appreciate that answer and let me just say this does anybody in this room not think that the New York DFS could handle this I mean we have to respect the rights of states to have their own regulatory regime Mr Gwen can you comment on the same question uh you know juggling all these different Regulators does it put the state chartered issuers at a disadvantage so look we we get this question all the time from
▶ 3:26:44State assures as a law firm there's always a choice and and but but but having a choice between a state and a federal regulatory Authority is a good choice to have and so it may well be that a particular institution decides I have more freedom to innovate if I'm if I'm regulated by a state even if I have to go through the headache of looking at all these different state laws whereas if I if I go with a national uh regulatory then then it will be preempted um so totally agree and let's remember what
▶ 3:27:14makes America the best financial Market in the world what makes us so successful is we have diversity in our banking we have the GBS we have the regional Banks we have the Community Banks we have the federal chartered we have the state chartered and we have Innovation when you control all of that you get Europe with a couple of Banks and a couple board of directors that are making the decisions for every consumer in on the continent and so um let's celebrate what makes America strong by encouraging diversity
▶ 3:27:44uh relying on states to to manage and regulate uh state issuers of stable coins with appropriate safeguards I want to compliment chairman hill Brian style Mr Davidson uh Allison and and all of the work that the staff has done we are in a good place because of the hard work of this committee and I'm excited to see this bill pass with that I yield back uh thank the gentleman uh the gentleman from Texas Mr Green was also the ranking member on the oversite and investigation subcommittee is now recognized for five minutes
▶ 3:28:15thank you Mr I thank the ranking member as well and I'm grateful to the witnesses for today um I would like um an expression of whether or not it is beneficial for us to be concerned with the use of cryptocurrency in certain areas more specifically uh is it beneficial to use cryptocurrency of some type
▶ 3:28:45in money la in Terrorist activities ransomware attacks illegal trafficking of drugs sex weapons illegal gambling and evasion of taxes Miss house let's start with you is it is it beneficial for us to be concerned about the use of some sort of cryptocurrency with this type of criminality it's beneficial for us to be concerned about it if that's what you mean on if it's beneficial
▶ 3:29:15for us for it use in that way no it's not um it's only beneficial to those who are currently exploiting it um it's not inevitable to stay that way but the current state of compliance across the ecosystem makes it attractive for those users explain what you mean by the state of compliance uh yes sir uh so basically we've I was the the head delegate to the FFF the kind of the UN for anti-money laundering if you're not familiar with it we created the first International standards uh for for virtual assets in anti-money laundering the standards
▶ 3:29:45exist policy exists it just hasn't been implemented internationally if we had if we had widescale cross cross Global implementation of our requirements to detect and prevent elicit activity and to stop use of like let's say sanctioned actors in North Korea's use of crypto currency and that that successful ability to launder we wouldn't be in this current position unfortunately it hasn't been implemented internationally does the bill in question uh prevent this type of illicit activity
▶ 3:30:16I don't feel that the anti-money laundering measures in it are strong enough it makes a reference to them being regulated uh under under the bank secrecy act um but there isn't Clarity on who's reporting the regulations or how strong they need to be and as a result would um we still have exposure to the criminality that I call to your attention I fear that if we don't strengthen the measures that that that that could be an outcome especially the extr territoriality provision
▶ 3:30:46is there a rush to judgment here meaning a rush to I shouldn't say judgment a rush to get this done such that we we don't have the time to carefully craft legislation that will help us uh prevent this type of criminality I I would hope that even with the exigency of the issue that given the years of bipartisan work that have been done by many members of this committee and those sitting in this room
▶ 3:31:16we'd be able to leverage that work I feel that the that the the outcome of that work was more reflected in the Henry mcwaters I'm sorry the McHenry Waters bill um which had a more holistic coverage of these protections um I'm not certain why why the new legislation doesn't doesn't integrate some of those stronger stronger Provisions which I think would would be beneficial would implementing those stronger Provisions somehow weaken that legislation this new legislation I it feels so I think it would
▶ 3:31:46strengthen it and make it truly comprehensive and um do you think that the McKenry Waters legislation uh had other redeeming value absolutely I think that it had a really it had a much more fullsome like holistic list of different of different measures there were there were some good overlap too things like one to one uh capital reserve requirements um and uh and a restriction on rehypothecation and and investment of um of
▶ 3:32:17depositor assets basically but unfortunately I feel that the stable Act is missing some of the um the most important Provisions also that are outlined in the McKenry Waters bill when this elicit activity takes place and there's a transfer of money uh in an illegal fashion um for illegal purposes more um who who who benefits from that in the system currently the elicit actors benefit
▶ 3:32:47from it um I think that no one no responsible actor wants to be a platform for money laundering or for North Korean sanctions evation and proliferation financing so really it's just it's the illicit actors that are benefiting from blacks controls quickly to my last question so when this occurs the um person the people who are purveyors of the currency the person with the system do they get punished in way there should be enforcement actions um that can be
▶ 3:33:17taken if uh if they fail to meet compliance obligations thank you Mr chairman i y back uh thank the gentlemen the gentleman from Montana Mr Downing is now recognized for five minutes thank you uh Mr chairman and thank you to the witnesses uh you know I came out of Technology uh and uh my formative years uh I was part of a company that built really one of the world's first massively scalable computer systems it was a exciting Innovative time and I've always said that the United States of America needs to be must must be the hot bed
▶ 3:33:47of innovation and we cannot seed leadership over emerging Technologies to other countries and that starts with Congress passing clear laws uh governing cryptocurrencies and I applaud chairman style for his leadership on the stable act which continues to receive industry feedback uh I'm going to start Mr Collison one notable change in the discussion draft of the stable act from the 118th Congress is making the OCC the primary regulator and supervisor of
▶ 3:34:17non-bank payment stable coin issuers so can you discuss the benefits of allowing the OC to serve as the primary regulator and supervisor for non-bake uh stable issuers we don't really have a strong view uh on what the best primary regulator is I think the two things that are um that are uh of you greatest importance are one that's an effective state-based framework for uh you know for for experimentation um and that secondly there is simply
▶ 3:34:47a clear framework um at the at the federal level within those uh those kind of two principles and within reason I think there's probably multiple avenues that could work thank you um I want to move on to Central Bank digital currencies or cbdcs uh which represent one of the greatest threats to civil liberties In Our Lifetime you know the American people expect our payment system to operate efficiently without offering the federal government a window into their day-to-day transactions and look no further than the authoritarian countries
▶ 3:35:18pursuing uh cbdcs which will not be are not being used for Innovation but for surveillance for stopping descent like China and Russia you know I don't trust the government the federal government with any of my data let alone financial data uh I once got a letter from the uh from the federal government telling me you know we're sorry but you're U all your data from your security clearance has been released to a foreign actor here we give you a couple of years of credit monitoring you know you're welcome uh I I just I've got issues
▶ 3:35:48there so um I'm going to go to Mr cascarilla you know some cbdc Advocates say that issuing cbdc is the only way to improve the efficiency of our payment system because stable coins are some sort of wild west you know where crime and money laundering uh will run rampant so you know first you know is that true and then second are law enforcement officials incapable of combating bad Act in the stable coin ecosystem
▶ 3:36:19well I think that uh from studies that have been shown and done they have shown that uh the amount of illicit activity that's happening in crypto stable coins and blockchain is less than in the traditional Financial system precisely because there's an ability to be able to track movements on chain forever and uh that is an important way to create a new set of tools um as just as well as being able to create a new set of products uh to be able to track what's happening and then um you know there really isn't a an analog to the government
▶ 3:36:49offering something to the end user aside from physical cash it doesn't do it through it doesn't run its own banking system it doesn't offer mutual funds uh money market funds Etc and in the same way I don't think that uh we're going to promote Innovation by having the central uh Bank issued digital currency uh compete with private issuers well well thank you so would the Federal Reserves issuing cbdc discourage or crowd out digital asset innovation in the United States
▶ 3:37:20uh I think that it will actually crowd out Innovation and slow the adoption on a global basis of using the dollar precisely because I think some of your fears would also be shared by others outside the United States uh let me go back to uh stable coin regulations the the prior Administration was no fan of digital assets and payment stable coins the SEC under Gary gendler tried to retreat uh tried to treat all cryptocurrencies the same as as a despite many cryptocurrencies clearly serving different purposes
▶ 3:37:50you know section 14 of the stable uh act clarifies that payment stable coins are not Securities so I'm going to go to Mr Gwyn can you explain why regulating payment stable coins as Securities is Impractical so so the whole goal with payment stable coins is for it to be accepted as a no questions act asked payment instrument just like a bank deposit if it is treated as a security you'll be subject to all kinds of disclosure requirements which is completely inconsistent with that the disclosure here are the disclosure
▶ 3:38:20requirements in the stable Act and the structure saying the stable coin has to be 100% backed by safe assets and things like that so actually having it be a security would actually undermine the ability of achieving and no questions asked money standers well thank you unfortunately my time's expired so I yield I thank the gentleman the gentleman from New York Mr Lawler is now recognized for five minutes thank you Mr chairman as a New Yorker I'm interested in gaining some insight into uh New York Department of Financial Services who's been on
▶ 3:38:50the Leading Edge in the reality of how their processes are working in practice uh Mr uh cascarilla since paxos received the first limited purpose trust Charter for digital assets from the uh New York Department of Financial Services in 2015 can you tell us a bit about how uh pax's experience working with them has been well uh we were the first trust that was approved uh really in the country and it was by New York
▶ 3:39:21and the idea had been at the time that as an infrastructure provider uh this would be a a um very strong way to be able to hold client assets uh not just for dollars we also have a gold stable coin and others and we have been able to successfully uh create some of the most Innovative products in uh the financial system and in the crypto space because of the oversight of the New York Services What specifically would you attribute as
▶ 3:39:51working well and what do you think could be improved well I think um you know when you launch a new product there are many different concerns you have to take into account around customer protections around safety and soundness around uh the ability to operate and New York has put in a place a framework uh for issuing stable coins that has now been the basis for uh really the Frameworks that have been adopted in a number of other jurisdictions
▶ 3:40:21we also issue stable coins out of both the UAE and Singapore and they are very substantially similar to what New York pioneered so I know in your opening statement you touched on your support for reciprocity with other jurisdictions globally that have strong Frameworks uh do you think uh the New York Department of Financial Services should be looking at approving stable coins that are already approved by other jurisdictions with high standards yes I think that creating
▶ 3:40:51a common level of reciprocity for uh tokens that are issued at the same type of um uh safety and soundness level is just critical um you don't want to balkanize the market you balkanize the market I think you then create opportunities for uh other currencies and other um types of um countries to take advantage of it now one of the stories that we've uh consistently heard from opponents of digital assets is
▶ 3:41:21how it provides a significant source of financing for terrorist groups and other illicit activities and while we must ensure we're combating malign actors according to recent reports illicit activity is down uh with analysts estimating that crypto transaction volume associated with illicit activity is only 34% um Mr cascarella you already detailed a bit of the work you're doing on due diligence with Mr Casten um but can you
▶ 3:41:52describe and Mr cson can you describe some of the issues that are considered when institutions are working through these uh kyc AML uh requirements uh and how to company's like coinbase approach these requirements in in our case uh we are uh approving customers through uh bank-like standards were regulated in New York under banking law it's AML kyc and BSA rules similar to any other financial
▶ 3:42:22institution uh and that's important we want to make sure we know our customers we want to make sure that uh we're doing our best to stop illegal or illicit activity from happening um through our products and uh so far I think we've been able to show that to uh a number of large Enterprises that use us as infrastructure and uh the importance of making sure that you have those right types of controls in place is what then gives the world the confidence to use these products on a broader basis Mr Carson um
▶ 3:42:52we uh you know we have a a very strong incentive uh to uh not only you know clear the bar of complying with the law um but to do everything possible to uh reduce and to eliminate fraud in our ecosystem because it's actually one of the main reasons that customers come to us customers come to us if they're implementing some platform or some you know little uh you know product Suite H they often find you know the fraud that they experience online themselves to be unmanageable
▶ 3:43:23and they come to us uh for for for assistance so we try to lead the industry uh in this respect and uh just like Mr casca said we apply the exact same BSA AML kyc cftd Etc standards um for uh for our for our sector great thank you I yield back uh I thank the gentleman the other gentleman from New York Mr Garbarino is now recognized for 5 minutes thank you chairman thank you all to the witnesses for being here today Miss Butler New York
▶ 3:43:53was the first state regulator to come out with guidance related to stable coin issuers I know you've chatted with Mr Muer on this topic before however as a New York regulated Bank could you please discuss how you comply with sound custody and disclosure practices thank you very much for the question so we comply with sound custody practices by ensuring that there's asset segregation we apply AML BSA and kyc practices we have robust uh risk and control infrastructure around recordkeeping as example
▶ 3:44:24sounds like you do quite a quite a bit yes um and in January 2023 New York DFS released additional guidance reiterating expectations for sound cussing disclosure practices for payment stable coin issuers Mr cascarilla you were just talking with my colleague about some of these uh can you discuss the released guidance in particular and highlight changes uh what changes were required for issuers well the the guidance actually didn't change anything from uh from our perspective we were already following that
▶ 3:44:54guidance uh but I think what it um set was a framework that other jurisdictions and other issuers could then follow uh so it raised the bar for other people yes I think there were a number of other stable coin issuers who weren't following the idea of backing their stable coins with cash and cash equivalence true one for one basis uh or with something that would be readily redeemable and so while it didn't change what we were doing it certainly led to other issuers changing what how they operated that's good um the recent draft of the stable
▶ 3:45:24act updates permissible reserves outlined in the previous draft released by chairman Hill and style these now include treasury bills with an issued and remaining maturity of three months or less reverse repo transactions backed by these treasury bills as collateral and money market funds invested in improved assets Mr Gwen can you explain how these reserves function as cash equivalents and ensure Sable coins are truly backed one to one yeah so first of all if you actually um in
▶ 3:45:54some ways I think that's too restrictive but if you actually had a reserve where the maximum maturity is is three months typically an issuer would actually ladder those Securities so the average maturity is probably more like something called duration is probably more like a month or month and a half um that means that if even if there's a pretty big swing in interest rates the value of those assets only goes down by a by a modest amount and so it makes it very easy then to liquidate those if you needed to to liquidate
▶ 3:46:24them to redeem stable coins and to the extent there's any drop in the value below par uh the stable act would require um at least a modest Capital buffer that would be used to you know make up the difference um our dual our dual banking system regulatory system where State and financial Regulators share supervisory and regul Authority has worked well as it utilizes the strengths of both federal and state Regulators while allowing States like New York uh to remain Laboratories for Innovation
▶ 3:46:55so Gwen uh would you comment on how a national federal framework can complement the work that is already been done at the state level so assuming that the so fora I think is consistent with the with the state regulatory framework in New York so I don't think it changes things but it would create a floor for all all States they would not the states would not be able to create regulatory Frameworks that were more relaxed than than the federal standard in section 4A of the stable act
▶ 3:47:25um what what states would be allowed to do is to have more rigorous standards or just apply things differently in a way that um allows for more Innovation is that someone you agree with setting the floor but not a ceiling yes it's a floor not a ceiling and you agree with with that um I look I think in the in the Dual banking system there's a little more leeway for the states to actually have their own regulations um I could see allowing more leeway for the states here but that's not what the bill is doing
▶ 3:47:55now okay I appreciate that um and with that I'm going to end early because I know the conference chair would like to ask questions before votes are called so Mr chairman I yeld back yeah I thank the gentleman uh the gentle woman from Michigan also the chair of the Republican conference Miss mlan is recognized for five minutes thank you Mr chair um and thank you all for being here today I appreciate it um I want to start with Mr Mr cascarilla I want to understand and in Explore More many stable coin issuers including
▶ 3:48:25paxos have set up operations in foreign jurisdictions why did you decide to make that decision to set up additional operations abroad what was the thought process behind it uh there's a number of different reasons I think the first important one is uh those jur jics had a clear set of uh rules you had the clarity the consistency and the certainty to be able to invest for a long period of time uh we have operated out of Singapore for over 10 years so we've been
▶ 3:48:56there for quite a long period of time and uh the monetary authority of Singapore is a very credible regulator uh at the same time there wasn't a federal framework to be able to operate inside the US and um as uh well intentioned as the New York Department of Financial Services has been uh it's still a state regulator and in order to be able to operate on a global basis uh you need to be able to have I think a federal framework thank you and in your view what would happen if we fail to enact a federal framework
▶ 3:49:26well I think you're uh seeding leadership uh and potentially seeding uh the position of the dollar as a world Reserve currency interesting thank you Mr Coulson how how are small businesses and entrepreneurs using stablecoin to facilitate more intern ational operations um we sometimes discuss an idea at stripe um the uh the micro multinational uh in that you know if you employ 10,000
▶ 3:49:57or 100,000 people you know it's possible to serve 100 markets uh or something like that uh but as a much smaller business or a business just getting started that's much more difficult and so I think part of the promise of stable coins is that for those businesses that are just getting off the ground it en a them to serve a global audience from day one and that can multiply their market and thus their revenue you quite significantly which is a good thing yeah Miss Butler bny is one of the world's largest
▶ 3:50:28uh custodians it is essential that it that the Reserve Bank uh backing stable coins are secure and transparent can you describe how bny melon keeps the stable coin reserves that Ma that it manages safe and that is is fully able to meet all of the Redemption requests at any time thank you very much congresswoman for your questions so we are the custodian of the reserve and as such we apply long-standing custody practices
▶ 3:50:58rent asset safety so similar to what we do for the 52 trillion of assets we have under custody we are not the reserve manager of the reserve itself that is held by the either the stable coin issuer or a reserve a separate Reserve manager okay um is there a concern on meeting Redemption requests or do you feel there's enough regulation around that and and how the system is set up so we support the proposals in the
▶ 3:51:28bill to make sure that there is the right safeguards on how you manage the reserves what assets are in the reserves how you disclose them and ensuring that there is regular audits on those reserves transparency is good then yes that's good uh Mr gun it is my understanding that stable act en establishes a federal floor right of requirements that all payment stable coin issues must meet in order um to issue in the United States so I think that floor is is extremely important
▶ 3:51:59can you explain in layman's terms why it is important to ensure that regulatory framework for payment uh stable coin establishes a baseline across state and jurisdictions sure so basically having a federal floor creates uniformity across the United States and across um different stable coin issuers and I think that's important so that it'll be easy to compare uh and say everybody is subject to the same standards um there there
▶ 3:52:29is there could be some disuniformity but only by making increasing the standards from state to state so it provides a Level Playing Field it's easier to operate to do business to figure out how to function if I'm a much easier to understand to and app yes okay thank you and um last question if I can Mr casilla is there there is a tremendous concern about the use of digital Assets in money money laundering how can stable coins be used to reduce
▶ 3:52:59illicit Financial transactions and what protections are included in the stable coin act to inhibit nefarious Financial uh actors keep out the Bad actors yeah I'll try to be fast there's there are requirements for AML kyc and BSA and then secondly because it's on a blockchain it's a forever Ledger you're always able to track movements and so you can now use different tools to be able to understand how illicit activity is happening very good with that I'm overtime thank you Mr chairman I yield
▶ 3:53:30back thank you uh the gentleman from Iowa Mr nun is now recognized for five minutes well thank you chairman Davidson and I appreciate you all being at this very important hearing we are on The Cutting Edge here stable coins offer a powerful opportunity to build a modern and efficient payment system and shape our financial future the United States won't and shouldn't sit back while countries like China and Russia try and occupy this space so I'm encouraged by this committee's thoughtful discussion and its action Mr Collinson as a leader uh both as co-founder and now CEO
▶ 3:54:00at strip you're on the Forefront when it comes to financial innovation in fact you know what technology looks like because you've been doing it over the next decade I believe we'll see a dramatic shift towards realtime data driven payments and deeper integ of the financial services canly in everyday life by passing a stable act we can unlock a wave of American leadership and digital payments all while upholding our nation's high standards of Consumer Protections could you talk to us here about how you see the p uh payments Landscaping
▶ 3:54:31evolving over the next five years and what role stable coins might play in shaping that future well I think you I think you summarized it very nicely uh uh yourself just there uh I would yoube maybe briefly add uh first I think there are am men's opportunities within the US to make things cheaper more efficient faster easier to use um the us today is one of the most expensive countries in the G20 I think the most expensive in fact uh for just basic money movement uh functionality there's also World Bank report um
▶ 3:55:01uh this year showing that not only are remittance costs quite high but they're actually increasing rather than decreasing over time so there's a there's a lot of opportunity here and then I think the second angle that's very compelling is the global access to Dollars which is going to enhance the the status of the dollar as as the world's preeminent Reserve currency uh and that has you know geopolitical benefits it also has you know straightforward fiscal benefits in lowering us lowering us borrowing costs uh and so I think the benefits are very extensive and I think an important point to drive home here is this is American
▶ 3:55:32dollar back stable coins which really help Drive the space God forbid we ever get into a Remy back stable coin or Rubble back stable coin or whatever else is going to be out there being able to help drive this as part of our economic engine here in the United States Al the security that comes with that puts us in the driver's seat for decades to come thank you Miss Butler you know you're head of digital assets at bny you operate globally you've seen a lot of this stuff take place however your experience is working in other jurisdictions particularly Europe London Singapore others compared to what we've got here in the US
▶ 3:56:02thank you very much for the question there's increasing Clarity in other jurisdictions that enable us to actually meet the needs of our clients in a more real way with Clarity coming out of the proposal here we'll be able to do the same and apply our services to US dollar stable coins not just in the traditional space that we do today but also increasingly across the whole spectrum of payment services related to uh stable coins and I would agree with you our inability to get some kind
▶ 3:56:32of a framework here has driven great innovators investors and opportunities to the Caribbean to London to Singapore and in worst case scenarios is actually pushing them into the arms of pongyang Beijing and Russia look Miss house you and I got to serve together um on a number of National Security aspects would you agree with me that lack of clarity in this area or lack of Regulation could potentially jeopardize the future of America's ability to be competitive in this space
▶ 3:57:03yes I think it already has with that the lack of opportunity I know stable act may not be exactly what you are looking at but could you talk to us about some of the things that you think the stable Act is driving and building out that framework absolutely there and there's some points of commonality with other legislation uh that I like and I know I've referenced the McKenry Waters legislation so things like the onetoone um you know high quality liquid like reserve requirements is really great the the the restriction on rehypothecation of assets is good um
▶ 3:57:33there the the reference to cyber security controls in the Wake of$ 1.5 billion doll hacks that have happened lately so I think that there's some good measures that are in there there's just some other areas that um that I think by partisan legislation that's been worked on in this committee um can actually help fill the gaps on Miss house and thank you for your work at the atantic council I do believe this is a bipartisan issue more importantly it's an American issue if America doesn't start leading in this area we have the opportunity to bleed out uh Mr Gilla you have highlighted here in our time left I want to give you a little more time to talk about
▶ 3:58:03I look at elicit financing as being a real challenge in the space how could stable act actually help us uh clamp down on elicit financers well I think uh first of all it sets a set of rules for AML kyc and BSA which does not exist today for all issuers and does not and it also I think sets this floor uh for what people will be able to uh do and how they will issue on a global basis so for international issuance as well very good thank you very
▶ 3:58:33much for the time today Mr chairman I yeld back yeah thank the gentleman the gentleman from North Carolina Mr Moore is now recognized for five minutes thank you Mr chairman uh ensuring America continues to lead and financial Innovation is not just about industry growth it's also about giving consumers better choices improving Financial access and protecting consumer privacy blockchain blockchain technology and digital assets are already transforming the way Americans and businesses transfer value that's why this week I plan to introduce the
▶ 3:59:03financial services Innovation act this bill aims to ensure the United States Remains the home of financial Innovation by establishing the financial services Innovation offices within each Financial regul and a federal sandbox for innovate for Innovative Financial products and services the regulatory sandbox approach has proven successful in States like North Carolina which launched its financial and insurance regulatory sandbox through the North Carolina Innovation Council in 2021 I just have one question uh Miss Butler in North Carolina
▶ 3:59:34our regulatory sandbox has fostered Innovative services that reduced cost for consumers they expand access to credit uh my question simply is how will at the federal level a regulatory sand blocks approach accelerate adoption while ensuring oversight thank you very much for the question I I think first and foremost we're seeing a number of sandboxes where we can actually experiment in a controlled way and that's giving us the ability to really test out the technology in addition to
▶ 4:00:04that though we really do need the rules we need to have the clarity of the rules we need to have those rules um applied consistently across all um players in the ecosystem system and I can't underscore that enough it is super important that everybody particularly that is issuing and managing and customing any part related to a US stable coin those same rules and high standards are applied and then you get to experiment within the safety of a of a Sandbox thank you and I want to thank all the witness for their testimony before the committee today
▶ 4:00:34with that Mr chairman I'll go back I thank the gentleman uh I would like to ask uh a thank all the witnesses I appreciate your testimony today and without objection and all members will have five legislative days to submit additional written questions for the witnesses to the chairman the questions will be forwarded to the witnesses for response and Witnesses when you receive them please respond no later than April 15th uh this hearing stands
▶ 4:01:42e for