▶ 0:04:10committee will come to order. Uh we welcome and thank you for joining the this today's hearing entitled the American innovation and the future of digital assets from blueprint to a functional framework. After brief opening remarks, members will receive testimony from our witnesses today and then the hearing will be open to questions. Um, I'll proceed with my opening statement. Good morning everyone and welcome again to our full committee hearing on the future of digital assets.
▶ 0:04:40Thank you to our esteemed panel of witnesses for making the time to be with us here today. This is an important and rare opportunity to discuss this committee's work to create lasting change and cement America as a global leader in innovation. For almost a decade, Congress has debated the treatment of digital assets through hearings, bills, and meetings. The House Committee on Agriculture has played a critical role in this work.
▶ 0:05:06Since our first hearing in 2018, our guiding principles have not changed. foster American innovation and bring needed customer protections to digital asset related activities and intermediaries. But we are not working alone. I want to thank financial services chairman Hill for his leadership and the entire financial services committee for their work with our committee.
▶ 0:05:31We've engaged in a remarkable partnership to examine these issues and propose solutions on a cross committee bipartisan basis. Chairman Dusty Johnson has done has been a tremendous leader in this effort and I want to thank him for everything he's done. In April, Chairman Johnson and Russ and ranking member Davis held a hearing that examined the promise digital assets hold for everyday Americans.
▶ 0:05:58But he also learned that the promise of digital assets depends on getting the right market structure legislation across the finish line. Last month, Chairman Johnson and subcommittee chairman Brian Steele of financial services held a joint roundt uh to examine digital assets with both of our committees working together.
▶ 0:06:19That round table made it clear that current federal laws and regulations do not provide adequate rules of the road for those who want to engage with these emerging technologies. That is why last week the 10 bipartisan members of the House Agriculture and Financial Services Committees introduced the Digital Asset Market Clarity Act or Clarity Act.
▶ 0:06:44The Clarity Act is a product of years of vigorous debate, stakeholder feedback, and technical assistance. I want to thank Chairman Hill for leading our effort and ranking member Craig and Ranking Member Davis for joining Chairman Johnson, me and other colleagues on both sides of the aisle in introducing the Clarity Act. I'm pleased to see the committee's longstanding tradition of leading together in a bipartisan manner continue.
▶ 0:07:10It is incumbent on us to embrace this opportunity and finally bring certainty to the users and developers of this technology. The United States is the beating heart of global finance and innovation. Let me uh thank the Trump administration for elevating this issue and recognizing the urgency of action in the digital asset space and the agencies who offered technical assistance.
▶ 0:07:36Years ago, other nations put pen to paper and created and enacted frameworks seeking to establish themselves as hubs for the development of the digital asset ecosystem. It is time that we do our work here in the United States, too, and implement a framework for trusted, reliable, and useful markets for digital assets. I look forward to the work ahead and getting the Clarity Act signed into law.
▶ 0:08:02Again, thank to each of our witnesses for their willingness to participate in today's hearing, and I look forward to our discussion. And with that, I'd like now uh like to welcome the distinguished ranking member, the gentleoman from Minnesota, Miss Craig, for any opening remarks you would like to give. Well, thank you so much, Mr. Chairman. Uh I want to first thank the witnesses for coming to Capitol Hill to share your perspectives with us here this morning.
▶ 0:08:28Um the Clarity Act is not a perfect bill and there are improvements that I hope still can be made. However, I was pleased to join with the chairman and others on this committee to put forth the legislation because at the end of the day, we need to bring consumer protection and a market structure to digital assets in our financial system. Digital assets, including cryptocurrencies, are no longer a novel financial product.
▶ 0:08:54They have become and will continue to be integrated with and in some instances completely change our financial architecture. I believe it is critical that Congress establish clear protections for consumers and retail investors as well as rules of the road for businesses dealing in digital assets.
▶ 0:09:15There are common sense regulations that the industry currently lacks, like requiring the sequestration of consumer funds for broker exchanges, ensuring consumer deposits are not misused, and that retail investors are not left holding the bag when bad actors commit fraud. I hope that these are all things that this body can agree on. If Congress does its job well with this legislation, we will hear more stories of innovation and success.
▶ 0:09:45Legitimate enterprises will innovate and thrive and consumers will be able to engage with their services and products without undue financial risk. This technology in these markets are growing rapidly and Americans are engaging at a rapid pace. We have a responsibility to be part of the solution and to protect them. But I do want to add that we cannot ignore the fact that the president of the United States is making this debate a lot more difficult.
▶ 0:10:14Under current law, members of Congress, judges, and their respective staffs, and other federal employees may not use non-public information to trade in markets overseen by the CFTC or share non-public information with others so they can trade. This bill rightly adds digital commodities to those prohibitions. Yet these limits which apply to us do not apply to the president.
▶ 0:10:39And when we have a president hawking meme coins and his family, that is a very difficult situation for this body. Our work here is critical to getting this right for retail investors and I'm glad we're here today. I again want to thank the chairman for holding this hearing and for working with us over the course of the last week to help improve the Clarity Act. I hope we can build upon this success as the bill moves through the legislative process.
▶ 0:11:07Thank you again to our witnesses and I back. Thank the gentle lady. The chair would request that other members submit their opening statements for the record so the witnesses may begin their testimony to ensure that there is adequate amp and ample time for questions. Our first witness today is Dr. Avery Ching of the CEO and co-founder of Aptose Labs. Our next witness is the honorable Michael Pivar who is currently the executive vice president of the Milin Institute.
▶ 0:11:37He is also a former commissioner and was the acting chairman of the Securities and Exchange Commission. Our third witness today is Mrs. Chelsea uh Pizzola, a partner at Wilky Far and Gallagher LLP. And our fourth and final witness today is Mr. Brian Miller, a partner at Lowenstein Sadler LLP. He's also chairs the commodities future and derivatives group and is the co-chair of the Lowenstein crypto.
▶ 0:12:06Uh thank you all for joining us today and we now look forward to your testimony. You'll each have five minutes. Uh timer in front of you will countdown to zero at which point your time is expired. Dr. Cheng, please begin when you're ready. Chairman Thompson, Ranking Member Craig, members of the committee. Thank you for the opportunity to testify today. My name is Avery Ching and I'm the CEO and co-founder of Apttos Labs, the team behind the Apttos blockchain.
▶ 0:12:33I hold a PhD in supercomputing and I've spent my career scaling technology at Yahoo, Facebook, and now Aptos. In 2021, I co-founded Apptos Labs to advance the next era of the internet, starting with a global scale and highly secure blockchain capable of transforming payments, commerce, digital identity, and beyond. Apttos labs was established and is headquartered in the US. We're proud to contribute to American innovation and job creation.
▶ 0:12:58Apttos is a high performance permissionless proof ofstake layer 1 blockchain designed to support internet scale applications and their billions of users. Like the internet, it's open infrastructure that enables anyone to build applications on top of it. Unlike centralized systems, APAs is maintained by distributed network of participants, validators, developers, and users. Digital assets or tokens are essential for these decentralized systems to function. They provide the incentive, security, and governance mechanisms that keep the network running.
▶ 0:13:27For example, AP is the native token of Aptos and is essential to the network's operation and to access the network. It plays three key roles. First, the token is used to secure the network. In order to record transactions on the blockchain, validators are selected based on the amount of AP tokens they stake or lock up as collateral. This mechanism uses AP to secure the network by preventing attacks from malicious actors. The token is also used to programmatically reward validators for truthfully recording transactions, commonly known as staking.
▶ 0:13:56Second, AP holders can propose and vote on protocol upgrades, ensuring decentralized decision-making. Third, AP is used to pay transaction fees. These fees averaging fractions of a cent are required for submitting activi activity to the blockchain. Even though they are small, these fees serve as a protective measure against spam and denial of service attacks, ensuring the network remains secure and efficient. Security, decentralization, and utility are what make blockchains like apttos capable of supporting real world applications at scale. Today, these applications are no longer theoretical.
▶ 0:14:27More than a thousand developers are building on Aptos and hundreds of live projects are delivering value across industries like finance, commerce, entertainment and infrastructure. Some of the world's largest financial institutions including backloan temple and Apollo have launched regulated tokenized money markets and other funds on Aptos. Doing so increases transparency, enables real-time peer-to-peer transfers and boosts efficiency. The PAC protocol is a blockchain based platform for licensed lenders in emerging markets.
▶ 0:14:55The platform allows these lenders to originate and service loans on the blockchain, offering transparency and efficiency to lenders and borrowers alike. Over 1 billion in loans have been issued through pact, helping small businesses access faster capital, enabling them to buy equipment, open shops, or invest in clean energy. Apps also powers new forms of engagement in entertainment and commerce. Projects use APAs to issue tokenized tickets, cutting out intermediaries, reducing costs, and offering collectible digital ticket stubs that drive loyalty and fan engagement.
▶ 0:15:24Aptus has a multi-year collaboration with NBC Universal to re imagine the fan experience through blockchain enabled real world experiences, loyalty programs, and interactive games. Brands like Jellybean use apps to link physical products with blockchain verified records, enabling immersive customer experiences and greater consumer trust through traceable authenticated products and supply chain data. The loose cases we see on OBS today are only the first step of a sweeping transformation.
▶ 0:15:48Just as the internet rewired everyday life, decentralized networks will form the core infrastructure of the coming digital economy, delivering systems that are transparent, interoperable, and designed for innovation and will define how we engage with the world around us. Tokens serve a vital role in every application built on a blockchain. For blockchain innovation to grow responsibly in the US, developers need clear regulatory guidance around token issuance and distributions. We're ready to help realize that mission, and we're grateful for this committee's leadership in making it possible.
▶ 0:16:17Market structure, legislation, and well- definfined, consistent rules around token issuance and distribution will ensure that networks like ATAS can function as designed. US builders can innovate while staying compliant and competitive, and regulators can enforce meaningful consumer protections. The infrastructure is ready. Regulatory clarity will ensure US leadership in the next era of the internet. We stand ready to work with the committee in this regard, and I'm grateful for the committee's leadership. I look forward to answering your Thank you, sir.
▶ 0:16:47Uh, Mr. Pivar, please begin when you're ready. Great. Good morning, uh, Chairman Thompson, Ranking Member Craig, and members of the committee. Thank you for inviting me to testify today. My name is Mike Peivar, and I'm the executive vice president of the Milin Institute's finance pillar and the president of our newlyannounced economic mobility alliance. The Milin Institute is committed to supporting legislation that will establish a workable framework to bring clarity to the digital asset market.
▶ 0:17:16My colleagues and I believe the Clarity Act crafts a framework that addresses regulatory gaps, jurisdictional boundaries, and pathways for responsible innovation. It reinforces the US financial systems growth, competitiveness, and resilience. As you consider next steps in the legislative process, we look forward to continuing to work on this bipartisan issue with this committee and the House Financial Services Committee.
▶ 0:17:42Prior to joining the institute, I served as commissioner and acting chairman of the Securities and Exchange Commission. In those roles, I saw firsthand how the US capital markets are the envy of the world. They are the world's deepest, most liquid, and most They are the most efficient at allocating capital from investors seeking lifetime financial security to job creating entrepreneurs like Avery.
▶ 0:18:07I saw how the historical success of our capital markets has led to jobs, economic growth, and competitiveness and increased standard of living for everyday Americans. And I saw how much of that success can be attributed to the SEC's long history of focusing on its three-fold mission. Protecting investors, maintaining fair, orderly, and efficient markets, and promoting capital formation.
▶ 0:18:30During my tenure, I worked to incorporate dozens of rulemakings required by the DoddFrank Act and the Jobs Act into that mission. As we look to future innovations in capital raising activities and digital asset markets, the critical role played by the FCC will become even more important for the United States to maintain our economic competitiveness.
▶ 0:18:52My written testimony focuses on the critical role that the SEC plays in regulating our capital markets and how that how that um expertise can be applied to digital asset markets. I provide examples of how the SEC is already applying their existing authorities to do so. I also discuss how key provisions of the Clarity Act grant new authorities to the SEC that aligns its mission with the functional application to the digital asset markets.
▶ 0:19:21Finally, I offer a few recommendations as you consider next steps in the legislative process. Chairman Thompson, Ranking Member Craig, and members of the committee, thank you for your leadership in finding bipartisan and cross-committee solutions and for building biccameal consensus to create clear and workable regulatory framework for digital assets in the United States.
▶ 0:19:42And thank you for the opportunity to testify on the critical role that the SEC working with the CFTC will provide in promulgating, administering, and enforcing regulations that align with its mission and promote innovation. I'm happy to answer any questions you may have. Mr. Bevar, thank you so much. Mr. Miller, please begin when you're ready. Thank you, Chairman Thompson, Ranking Member Craig, and members of the committee.
▶ 0:20:10It's a privilege and honor to have been invited to appear at this hearing. Thank you. My name is Ryan Miller, and while I grew up in Oklahoma, I've been a financial markets lawyer in New York City for the past 15 years. I'm here to offer my voice, my support on a single message. The time to act on digital asset market structure legislation is now. I I do think that the time has come and we cannot afford further delay.
▶ 0:20:36My perspective on this comes from my experience in the financial markets and I want to share some of that with the committee. I've spent my career at the intersection of market regulation, innovation and risk. I was fortunate to have worked at the CFTC during the DoddFrank rule writing years, which is familiar to many on this committee. And since then, I've advised financial institutions, exchanges, and crypto firms on financial market regulation.
▶ 0:21:03As many of you might know, I also lived through the collapse of the FTX global cryptocurrency exchange. I was the FTX US General Counsel for a little more than one year. I want to start with a few observations about my FTX experience. The failure of FTX is often talked about as a run on the bank or a liquidity crisis. And this committee knows well that is not what happened. FTX was not a bank. It was a cryptocurrency exchange charged with protecting customer assets.
▶ 0:21:33The FTX failure was the result of a concealed fraud performed by the most senior members of the FTX founding team. As my written statement reflects in greater detail, I first learned in early November 2022 that approximately 8 billion dollars in customer assets on the FTX Global platform were simply gone. A small group of insiders at the global FTX entity had misappropriated billions of dollars and customer funds for personal use. That is not okay.
▶ 0:22:04And part of the goal of the legislation we're considering now is to address this issue. After learning of the revelation and the customer asset shortfall, I and a few others worked around the clock for four days to stop the ongoing fraud, to mitigate the bleeding, to preserve critical records, and ultimately prepare for insolveny filings. The crit the critical point of this story is this.
▶ 0:22:28Had proper federal market structure regulation been in place, the kind contemplated in the bill before you, offshore companies would have come to the United States and centered their businesses here. FTX's story could have ended very differently. Customer asset segregation, regular examination, governance requirements, and auditing would have been in place, and they would have provided guard rails to prevent the fraud.
▶ 0:22:52And that's why I'm here today, not just to tell the FTX story and to recount the past, but to support your work to shape the future. Again, I do not think we can afford more delay. The committee's draft legislation, the Clarity Act, is thoughtful. It's balanced. It's functional. And importantly, it's ready. It creates a path for registration. It draws a sensible line between the SEC and the CFTC. And it prompts coordination where appropriate.
▶ 0:23:20It protects investors while enabling responsible innovation. And it gives regulators, and this is important, the tools they need to move from enforcement to proactive supervision and regulation. Critically, it also ends the state-by-state regulatory patchwork that is pushing innovators offshore. A federal framework will restore confidence and competitives competitiveness in the US digital asset markets. Regulation enables innovation.
▶ 0:23:47And when market structure works, it creates the foundation of trust that has allowed the frequent statement to be made about America having the most deep, liquid, and resilient capital markets in the world. Crypto is capital, and if we want the digital asset markets to grow here, adopting legislation is a musto. Thank you again for the opportunity to appear today. I appreciate the work this committee has done, and I stand ready to answer any questions. Well, thank you, Mr. Miller. Uh, Mr. Pizzola, please proceed when you're ready.
▶ 0:24:18Thank you, Mr. Chairman, Chairman Thompson, Ranking Member Craig, members of the committee. It is an honor to testify before you today. Thank you for the opportunity to discuss the current draft of the Clarity Act of 2025. I previously served as the CFTC's deputy chief of staff and counsel to former chairman Heath Harbert. I've also served as head regulatory counsel to Cumberland DRW, a large participant in digital asset spot and derivatives markets.
▶ 0:24:42Currently as a partner at the law firm Wilky and Gallagher, I advise clients on CFTC and SEC regulatory matters, including matters involving digital assets. In these roles, I've seen firsthand the confusion, misallocation of resources, and barriers to innovation and competition caused by the lack of jurisdictional clarity regarding digital assets in the United States. Legislation is needed to remove permanently any jurisdictional ambiguity. Uh, as Mr.
▶ 0:25:09Miller said, "The Clarity Acts allocation of jurisdiction between the SEC and the CFTC along the line between primary and secondary markets is appropriately tailored to each agency specialized expertise, experience, and statutory remitt. The SEC is well suited to regulate primary market transactions in digital assets, which are often viewed as similar to capital raises involving traditional securities that have long been under the SEC's remmit.
▶ 0:25:33Equally, the CFTC is the natural regulator for secondary market digital asset transactions, which are widely viewed, including by multiple federal courts as transactions in commodities. Although the UTC currently does not have plenary regulatory authority over spot commodity markets, it has anti-fraud and anti-manipulation authority, and the commission intently monitors and surveills spot commodity markets given the close relationship between derivatives contracts and their underlying commodities.
▶ 0:26:00In short, the CFTC has spent the past 50 years dedicated to understanding and improving commodities markets and markets for commercial risk transfer, including in the exercise of its exclusive regulatory authority over futures, options on futures, and swaps referencing commodities. The CFTC has also had an extensive history of engagement with digital asset markets through the authorities that I've just described.
▶ 0:26:22Since 2015, it has aggressively and successfully pursued fraud and manipulation in spot and derivatives markets as well as failure to register cases involving digital asset derivatives. It worked closely with exchanges and their clearing houses to prepare for the first Bitcoin futures listings in 2017 and it did the same with Ether futures listings in 2019. Today, these markets are deep, liquid, and transparent and are well policed by the CFTC for fraud, manipulation, and trade practice violations.
▶ 0:26:50This record on digital assets is consistent with the CFTC's 50-year tenure as a pre-minent markets regulator. Today, a total of approximately 40 million futures contracts are traded on average each day on CME Group and ICE derivatives exchanges alone. And in the OTC derivatives market, total US reported notional traded in interest rate swaps alone was approximately 112.7 trillion during the third quarter of 2024.
▶ 0:27:16CFTC regulated markets and market utilities have steadily performed their risk transfer and shock absorption functions through periods of extreme volatility such as negative oil pricing and other shocks at the onset of the CO9 Finally, the CFTC is also well suited for its responsibilities under the Clarity Act by virtue of its statutory core principles-based regulatory framework for exchanges and its self-certification process for new product listings, which were specifically designed to promote responsible innovation and fair competition.
▶ 0:27:46The statutory core principles are outcomes based requirements and exchanges are given reasonable discretion in determining how to comply. This has prevented the kind of rigid one-sizefits-all regulatory environment that previously stifled innovation and competition in CFTC regulated markets prior to the Commodity Futures Modernization Act of 2000. The self-certification listing process has supported innovation and competition in in CFTC regulated markets, reducing the time to market for new products from years to days.
▶ 0:28:16These flexible, adaptable regulatory approaches are particularly well suited for the novel and constantly evolving nature of digital asset markets. The Clarity Act appropriately includes these features in its regulatory regime for digital commodity exchanges. And there is no better agency to implement such a regulatory framework in furtherance of responsible innovation than the one that has done so for the last 25 years, allowing for the markets under its jurisdiction to become the largest and the most vibrant and robust of their kind in the world.
▶ 0:28:44Finally, just returning to allocation of regulatory authority between the CFTC and the SEC. Deminimus registration exemptions in areas of overlapping jurisdiction uh and inter agency coordination and difference are valuable tools to reduce regulatory burden uh and promote regulatory efficiency. But beyond these limited exemptions and targeted difference, holistic CFTC oversight of the secondary digital commodity markets is necessary to avoid fragmentation in market regulation, monitoring and surveillance.
▶ 0:29:11Yet ultimately, exactly how the line is drawn between CFTC and SEC jurisdiction is less important than ensuring that a clear, durable line is drawn through lasting legislation. We should not allow inaction to perpetuate an environment of regulatory uncertainty. Digital asset entrepreneurs and the American people deserve better. Thank you. Thank you, Mr. Misoula.
▶ 0:29:33At this time, members will be recognized for questions in order of seniority, alternating between majority and minority members and in order of arrival for those who joined us after the hearing convene. You'll be recognized for five minutes each in order to allow us to get to as many questions as possible. And I recognize myself uh for five minutes. Mrs.
▶ 0:29:53Pizzola, in your testimony, you mentioned there's no better agency to implement a bill like the Clarity Act and further responsible uh innovation. Uh please explain why CFTC is best suited and how it is uniquely situated among federal regulators on this front. Thank you for the question, Mr. Chairman.
▶ 0:30:15Uh I believe the CFTC is best suited to regulate secondary digital commodity markets in furtherance of responsible innovation because of its experience, its expertise and its statutory remitt. It currently monitors and surveills spot commodity markets closely given you know the close relationship between uh you know derivatives contracts and their underlying commodities.
▶ 0:30:36It's engaged in that activity for 50 years and its predecessor did so before um the CFTC was established and it's spent the past um you know 10 years uh engaging productively with digital asset uh spot and derivatives markets. You know we saw this through um if its efforts to promote integrity through you know uh its very vigorous enforcement program rooting out fraud and manipulation as I said in both the spot and derivatives markets.
▶ 0:31:03We've also seen this in the CFTC's oversight of the launch of Bitcoin and Ether futures uh you know years ago now that have since become you know vibrant wellplaced markets. Uh we've seen this as Mr. Miller mentioned um you know in the FTX uh bankruptcy we saw that the um you know COTC regulated entities uh within the FTX group were the only ones that were able to you know return all customer funds without any any loss without having to go through the bankruptcy. And that again as Mr.
▶ 0:31:31Miller said is is because of sort of the diligent oversight and examinations that CFTC staff had um and engaged in uh you know regularly to to prevent the sort of you know misappropriation of funds that happened with other entities within the group. So essentially, you know, I would just sum up and say that, you know, the CFTC has 25 years of experience in implementing the kind of flexible, you know, core principles-based framework and self-certification process that here, you know, I think are key elements of the Clarity Acts regulatory regime for exchanges.
▶ 0:32:01And, you know, they've proven over time to support responsible innovation through, you know, thousands of product listings, dozens of new market entrance. And I really just think this is the right structure for digital asset markets and the CTC is the right regulator to implement that structure given its experience. Thank you, ma'am. Mr. Miller, uh, thank you for sharing your story. In the FDX collapse, the only FDX entity in the United States with federal regulatory oversight was the FDXUS derivatives, which is overseen by CFTC.
▶ 0:32:31Please describe for us how CFTC's oversight of FDXUS derivatives spared it from getting wrapped up in the activities of the FDX foreign entities. Thank you, chairman. Um, great question. FTXUS derivatives was registered with the CFTC both as a designated contract market and a derivatives clearing organization. The tools in place were very simple. Customer assets were held at a third party custodian segregated from the treasury and and company assets of FTXUS derivatives.
▶ 0:33:01Customer assets were in separate accounts. They were subject to rule and legal structures that protected them as such and they were not able to be accessed either by FTXUS derivatives or the broader enterprise. Um it's it's not more complicated than putting US customer assets in a segregated place and protecting those with law.
▶ 0:33:22Um, are you concerned something similar to the FTX debacle could occur in the United States if digital assets market structure legislation is not enacted by Congress? And how urgent is it that Congress act? I I another great question. And I started my statement with with urging prompt action.
▶ 0:33:40And I I I believe that sincerely because um what we have now is a 50-st state regulatory program that doesn't necessarily impose governance requirements, examinations, audits, and the types of standards we see at our federal markets regulators. I think the states do a great job at making sure that their standards are followed and that their registration requirements are met.
▶ 0:34:02However, we have the 25 and 50 years of experience at our federal markets regulators to bring to bear and this this statute allows that to happen. So, so how would clarity uh prevent an event like that from happening? So, the the clarity act as as drafted the most important point is that it prompts registration. The registration brings in examinations, auditing, governance requirements, independent directors, and recordkeeping.
▶ 0:34:32That tool set allows both regulators and and the governance body of any entity to ensure that what the entity says is happening is taking place. And so the registration provisions and the accompanying compliance programs in the act do clearly what we're asking for in this It's my time and recognize gentle lady from Minnesota, the ranking member, Representative Craig for five minutes. Thank you so much, Mr. Chairman.
▶ 0:35:00Um, I want to begin with a focus on consumer protection. And a key component of that of that in my mind is educating uh your customers. The better we can increase the financial literacy and risks for retail customers, the better prepared they will be to face those risks and the opportunities that these new markets present.
▶ 0:35:20In addition to establishing a regulatory framework for digital commodities that includes important basic protections for customers like segregation of funds and disclosures. The Clarity Act would also require the CFTC and the SEC to jointly study how to increase financial literacy of retail digital commodity holders and improve their coordination on customer education in this space.
▶ 0:35:46For those of you on the panel who have experience working at the CFTC or the SEC, can you talk to us a little bit about the AY's respective customer education programs? And do you have any suggestions on ways we can help improve customer education and outreach surrounding digital I'll go first. Thank you. So, u at the Securities and Exchange Commission, uh there's an office dedicated uh to this.
▶ 0:36:14is called the office of investor education uh and advocacy. Um and they engage in a number of um financial literacy or financial education uh type programs. They actually have their own website called investor.gov um that uh separate and apart from the SEC's website. And there's a number of different things that they do to try to educate folks. There's an entire page dedicated to digital assets uh and investing uh in those assets.
▶ 0:36:40Uh, also I mentioned in my uh opening testimony that um the SEC is already using its existing authority um in the digital asset space and one way they're doing that is issuing staff statements um to let people know uh various things. So for example, they've said memecoins are not securities and do not fall under the federal securities laws and so therefore you do not have the protection of the federal securities laws from that. Basically a caveat empter to letting him know uh those sorts of things.
▶ 0:37:10They've and they've and they've issued a number of other uh statements uh on other things. Proof of workstaking, proof of um uh other sorts of things that they've done too. So they they have a number of different mechanisms for doing that. Thank you. It's a critical moment in time to make sure that investors know those are not protected. Uh with respect to the CFTC, any comments there? I can start ranking member and then my colleague Mr. Miller can jump in.
▶ 0:37:35Uh yes, the COTC does have you know like the SEC uh as many here may know a a separate office of uh customer education and outreach. Uh and it has been you know in in engaged with in the past you know I believe it's almost 10 years now in in educating customers regarding digital assets. to put out, you know, virtual currency primmers explaining, you know, what is Bitcoin, what is Ether, you know, what are virtual currencies, sort of things of that nature. I believe almost 10 years ago now.
▶ 0:38:03And since then, you know, it's sort of had regular engagement events uh an annual sort of CFTC uh virtual currency or or um blockchain uh day. Sometimes that's part of a broader blockchain week that's held in Washington DC with different universities. Um and but I certainly ranking member agree that you know more could be done uh particularly in the outreach arena.
▶ 0:38:25I think um you know making sure that more customers are aware um you know sort of more customers are are sort of knowledgeable of the types of of you know fraud and and um other abuses that can take place. You know there's always more to be done in that arena but I do think the CFTC has you know engaged in um you know robust efforts in that regard. Let me just um ask two more quick questions because I'm running out of time here. Mr. Mr.
▶ 0:38:47Miller and Miss Pizzola, let me just ask you, does the CFTC in your view have the current resources uh that would be necessary to regulate this space appropriately. Mr. Miller? Um, yes or no? And maybe 10 seconds. Yeah, it it it's an agency where resources are critical and I think it's important to focus on funding the agency at the level of resources it's requested. Thank you, Miss Bazel. I I agree with that. Great ma'am. Excellent. Let me just um close with a final question to each of you.
▶ 0:39:15Um, obviously there's been a lot of activity from the president and his family in this space. I told you what I thought about that that he should also uh be added as well as the vice president to those uh folks that are included in the legislation. Um, under current law, members of Congress, judicial officers, legislative, judicial employees, etc. um are all prohibited from using non-public information that they acquire because of their position to trade in those CFTC markets.
▶ 0:39:45Um current law prohibits uh the same list from telling others such as non-public information for those uh trading on those markets. The Clarity Act rightly adds digital commodities to these prohibitions. Do you believe these prohibitions should apply in the same way for the president, Mr. Miller? So, I think what the act does is bring about transparency and disclosure requirements that apply to all participants in these markets and and I think that's appropriate. Thank you, Miss Misella.
▶ 0:40:16I couldn't agree more. I think the disclosure requirements of the act are appropriate and it's appropriate that they're broadly applied. I'm going till Mr. Chairman cuts me off here. Uh, any other? Yes. Should those prohibitions apply to the president and vice president? the meme coins are not under the jurisdiction of the SEC. So, no comment. Okay, Mr. Chang, I just ch because you're here. I agree with our colleagues that more disclosure and um the rules formed by this commission are going to really help with that in the future. Thank you.
▶ 0:40:44Not not quite the same as prohibition, but uh thank you and I yield back. Gentle lady's time is expired and I now recognize the gentleman from Oklahoma, Mr. Lucas, for five minutes. Thank you, Mr. Chairman. Uh Mr. Pivar Pivar, what are the challenges posed by the regulation by enforcement approach that the last administration took? In other words, why does Congress need to provide a comprehensive regulatory framework for digital assets? So, the SEC is not depending on after the-act enforcement.
▶ 0:41:14Yeah. Um, Congressman, I almost want to call you Mr. Chairman. Um, but Congressman, uh, thank you for that question. Um, you know, the regulation by enforcement by the last administration had a number of negative effects in the market. So, as as Mr. Miller testified, uh, it forced a lot of folks to go offshore rather than having customer assets be protected within the regulatory framework. It was not only regulation by enforcement, but there was no actual regulation going on um, in there.
▶ 0:41:41There were actually firms that were going to the SEC begging them to regulate them. Please regulate us. we want to be regulated under the framework to protect the customer assets as we're saying and so there was a lot of innovation that went offshore a lot less protections uh for consumers and one that that I think that is underrated uh negative con consequence was that it wasted SEC resources for four years there were dozens of staff members pursuing cases that were not under its jurisdiction they
▶ 0:42:11lost multiple times in court and that was resource those were resources they could have used to provide clarity in the regulator regy space and now they're catching up but that was four years wasted. Dr. Ching, as you and I discussed yesterday, the A and energy industries are often leading the change when it comes to innovation and technology advancements. Can you talk about some of the challenges our rule producers face when regulations fail to keep up with the new technology?
▶ 0:42:40There's a lot of innovation that can happen right now inside of rural American and agriculture. Um some of the examples of that we've seen in the past are in this committee's hearings have been cattle tracking data lineage and more. Blockchain is one of those great equalizing technologies. As long as you have internet uh through a phone or other device, you can access the the pure power of a decentralized network that is globally accessible.
▶ 0:43:01Um we're very excited about the work that this committee is doing to help advance these technologies and make them more um accessible to developers who can help build these technologies in agriculture and rural America. And Mr. Miller, by the way, thank you for maintaining that Oklahoma tone of voice and logic. Would you care to comment as well as a fellow Oklahoma State guy? Thank you, Congressman.
▶ 0:43:25So, access to new technology is often gated by the providers of the technology and the willingness of users to adopt it and oftentimes that's gated by legal and regulatory certainty. And given that we've just gone through, as Commissioner Puar described, four years of enforcement on every corner of the cryptocurrency and blockchain space, there's no certainty to these rural user rural users that they're allowed to engage with this technology.
▶ 0:43:52Um, the clarity act and the work of this committee will bring that clarity and allow more access to take place. Mrs. Pizzola, can you talk about the necessity of addressing the spot market gap? How does the Clarity Act provide regulatory certainty for the spot market trading of digital Thank you for the question, Congressman. Uh yes, I believe that the Clarity Act does provide uh you know, very beneficial clarity uh in the spot markets.
▶ 0:44:21You know, today we do have, as Commissioner Peivar said, you know, essentially a a sort of morass of of confusion when it comes to, you know, whether particular transactions are um you know, under the SEC's jurisdiction or um you know, are sort of uh spot commodity transactions that are not um you know, regulated other than under the CTC's anti-fraud and anti-manipulation authority.
▶ 0:44:43you know, we we did see under the prior administration, you know, case after case, you know, time wasted, um resources misallocated, um and just just general confusion and and it did really did deter market participants and entrepreneurs from participating in the space and and drove um you know uh you know well-meaning firms both entrepreneurs and and financial institutions either offshore or just out of the digital asset markets altogether.
▶ 0:45:08Uh and I think you know the clarity act really um does you know provide uh a beneficial um you know set of rules of the road that uh really draw a clear line between um you know SEC and CFTC jurisdiction and you know has the sort of registration examination auditing that Mr.
▶ 0:45:27Miller referenced as well as you know customer uh fund segregation requirements, disclosure requirements, other important uh you know aspects of a regulatory framework uh that you would need in order to um you know sort of have clear rules of the road and ensure that these markets can flourish. Thank you very much and thank you Mr. Chairman. Yield back the balance of my time. Gentleman yields back. Now recognize Miss Brown from Ohio for five minutes.
▶ 0:45:51Uh, thank you, Chairman Thompson, Ranking Member Craig for calling this hearing today, and thank you to our witnesses for being here. As the representative for Ohio's 11th Congressional District, I am proud to represent a region with a legacy of innovation rooted in service to working families. From Garrett Morgan revolutionizing traffic signals to Charles F. Brush perfecting electric lighting, my district has a history of leading innovative technology. That legacy lives on.
▶ 0:46:19Case Western Reserve University has been collaborating with Highland and Datas Swift to develop verifiable blockchain anchor digital credentials. And just down the road, our worldclass hospitals are leveraging artificial intelligence and advanced learning algorithms to protect patient privacy and improve care. This is what innovation looks like. But innovation without guard rails, guardrails invites Digital assets aren't just about cryptocurrency or speculation.
▶ 0:46:49They're about the next generation of technology, finance, and market participation. From enabling faster payments to powering digital identity, the potential is enormous, but so are the risk. Today's regulatory framework is fragmented, outdated, and insufficient. Consumers don't know who's protecting them. Companies operate in a fog of uncertainty and bad actors are exploiting the vacuum. The time to act on cryptocurrency and digital asset regulation is long overdue.
▶ 0:47:19The last few years revealed a systemic failure to protect retail investors from fraud, misconduct, and abuse. And accountability remains elusive. And the risk isn't behind us. It is still unfolding at the highest levels of government. President Trump has reportedly profited from memecoins, a clear conflict of interest. It should concern every American that someone can spend $2 million to get a literal seat at the table with the president.
▶ 0:47:44Reports indicate that the president and his family have increased their net worth by nearly $3 billion thanks to crypto investments. And 40% of the president's net worth is now tied to crypto. This isn't just about ethics. It's about oversight. We need clear, consistent, and forward-looking regulation, not just to protect consumers, but to give businesses the certainty they need to innovate and grow responsibly. Mr. Miller, you had a front row seat to the FTX collapse.
▶ 0:48:14In your view, are current regulatory frameworks capable of protecting retail investors from the kind of misconduct we saw there, and what critical protections were missing that allowed billions in customer assets to vanish? Thank you for the question, Congresswoman. I think the tools that we want to bring to bear are capital requirements, customer asset segregation, examination, and audits. And those are the tools baked into the current draft of the Clarity Act.
▶ 0:48:43When you bring that set of tools and regulatory programs into an entity that's holding customer assets, that gives regulators the ability to enforce what the law says. Thank you, Dr. Pivar.
▶ 0:48:58Even if agencies like the CFTC or SEC have rulemaking authority, they may lack tools to ensure transparency and consumer redress, should they or possibly the CFPB or another regulator be empowered to develop a national digital asset consumer protection standard? And if so, what should that include? Disclosures, recourse mechanisms, or real-time fraud monitoring? Yeah, thank you for your question.
▶ 0:49:22Uh I believe that the SEC and the CFTC uh have the tools and the necessary uh authorities um not only the existing ones but the ones uh provided in the clarity act. Um in in particular I note that the clarity act uh exempts um digital commodity issuers from traditional securities regulation. However, it applies a very tailored approach um using the SEC's expertise.
▶ 0:49:49So the so the SEC provides uh disclosures not only for public companies but also for investment companies like mutual funds, ETFs, closedend funds. Um they have the expertise and the tools to apply those that fall under their jurisdiction and I have um the confidence that the CFTC also has under theirs. Thank you. And Miss Fazola, if Congress fails to act, what do you believe the long-term consequences are for lowincome and minority consumers who already face deceptive marketing and limited financial protections? Thank you for the question, Congresswoman.
▶ 0:50:19I believe that, you know, financial institutions that may otherwise, you know, support financial inclusion, uh, for those types of Americans will continue to be deterred from participating in this space. Um, and that, you know, sort of again that types of financial inclusion mechanisms that digital assets can provide will continue to be sort of pushed offshore as we've seen for the past several years due to the regulatory fragmentation that you mentioned. Thank you.
▶ 0:50:45Discussion like today's highlight why this committee's work is so important. Through thoughtful dialogue, we can finally begin to bring digital assets out of the regulatory shadows by ensuring there are rules of the road that protect consumers, promote responsible innovation, and preserve US competitiveness. I look forward to continuing this discussion with my colleagues. And with that, Mr. Chairman, I yield back. Thank you. Gentle's time is expired. Now recognize Representative Boss for five minutes. Thank you, Mr. Chairman. Uh Mr. Mr.
▶ 0:51:13Miller, given your background uh and experience, is it important for market participants uh to proactively know which assets are subject to CFTC's oversight and which assets are subject to the SEC's oversight and if so, why? Thank you for the question.
▶ 0:51:31It is important to know who your regulator is and who your service provers's regulator is because we have long long-standing laws that govern how those assets are protected and how those assets are treated depending who the regulator is in the case in the case of insolveny or or otherwise. And so it's critical that a customer can look on look at a business and understand who its regulator is.
▶ 0:51:56So, does it enhance customers protection to provide clear lines so they know exactly where the guard rails are and and who they're dealing with? Absolutely. M. Pizzola, uh you have worked at CFTC as well uh for and as for and on behalf of several firms uh regulated by the CFTC. Can you talk about the AY's principalbased approaches and why that would serve as a good fit for digital assets?
▶ 0:52:27Congressman, thank you for the question. You know, the principles-based approach that we have under the Commodity Exchange Act, it's it's really a flexible framework. It establishes outcomes based requirements and it gives exchanges and other registered entities reasonable discretion in determining how to comply. And it's expressly designed to promote responsible innovation, which you know, we all want to see in the digital asset space. And ever since it was enacted 25 years ago, it's really allowed exchanges to tailor their compliance efforts to their unique business models.
▶ 0:52:55And I think that flexibility, you know, that approach works very well in the digital asset space because of, you know, the constant innovation, the evolving nature of the space. You know, I think we've seen that it's supported the proliferation of a variety of new entrance uh in the exchange operating space, including multiple CFTC regulated platforms that specialize in digital asset products today. And so, you know, I think it's it's a great fit for the digital asset, you know, industry because of those features.
▶ 0:53:22I just want to say that, you know, was as we're moving forward with this, you know, the first time I heard about any digital, obviously it was Bitcoin coin that everybody talked about. I was in church and there was a guy who had a a radio show program that broadcasted with 30 powerful watts, I'm pretty sure. And it was amazing to me. He came up and he said, "You got to know about this." And honest to goodness, it has been trying to get educated.
▶ 0:53:47And so adding to where early on uh the ranking member Craig went, educating people specifically on understanding how Bitcoin because you can get online and literally blow your head up trying to figure out what digital assets and how you work them and how you uh and the only thing I can compare it to is is whenever we went to the paper dollar and you no longer had gold and silver in your hand.
▶ 0:54:13And this is the same type situation and trying to get a a wraparound to protect people's literally assets that are floating out there and try to understand how to use them uh is is challenging but your help is tremendous. Thank you for your input um and look forward to where we're going with this. Thank you and I yield back. Gentleman yields back. Now, please recognize gentle lady from Oregon, Miss Selenus, for five minutes.
▶ 0:54:42Thank you, Chair Thompson and Ranking Member Craig, and thank you to our witnesses for being with us today. Throughout my public service, I've taken consumer and investor protection very seriously. Oregonians demand accountability for bad actors, and our state has a pretty proud history of standing up to companies that engage in practices that actually harm consumers.
▶ 0:55:02In fact, earlier this year, Oregon's attorney general filed suit against Coinbase for selling unvetted, unregistered digital assets to Oregonians and Coinbase users across the country. Coinbase cost investors billions of dollars. And one of these specious cryptocurrencies that issue in the lawsuit dropped in value from $700 to $72 within one month of being launched for public trading on the platform. And today, the coin is valued at around $5 per share. And this question is for the whole panel.
▶ 0:55:32How pervasive are these kinds of scam coins across large exchanges like Coinbase, Crypto.com, and Robin Hood? And have these actors or our regulating agencies made any progress to rein in their Thanks for the question, Congresswoman. I think disclosure on the cryptocurrency service providers websites about the products that are made available is critical. I think many of the companies you identified do that and they do it very well.
▶ 0:56:01Um, and I think the clarity act will encourage more of that and will provide a federal basis for those types of disclosures. I think the industry has done a good job in the United States of ensuring that customers are aware of what they're buying when they go on the websites and they're able to read the backgrounds of the projects behind the tokens. I think the current lawsuit um by the state of Oregon is is a a bit of a replay of the SEC lawsuits that have either been withdrawn or defeated in the courts.
▶ 0:56:28And so I'm hopeful that we don't we don't see a continuation of the states of the SEC enforcement path over the last four years that diverted so many resources from progress. Thank you. Would anybody else like to comment?
▶ 0:56:43just to comment at that um I note in the in the clarity act where it provides for disclosures on the projects upfront um and then also coupled with the prohibitions on certain sales by insiders um I think is a very good uh consumer protection uh it's very consistent with what the SEC requires for initial public offerings um where there's a lockup period where insiders who have inside information uh on their companies are not allowed to sell into the market until a lockup period expires and they have to disclose that.
▶ 0:57:13So I think providing the prohibitions along with the disclosures is is uh very helpful. Thank you. And in the panel's view, how have these kinds of scam coins hurt the investors perception of digital assets as legitimate investment I'll start with that. Thank you, Congresswoman.
▶ 0:57:34I think it has deterred participation um you know from uh you know financial institutions that otherwise would would feel or may feel you know particularly with increasing um regulatory clarity through the types of um SEC staff actions that Commissioner Peivar mentioned. I think they may otherwise be interested in getting into the space but are concerned about sort of scams and frauds and and um exposing their customers to that kind of activity. And then I think in general it just sort of deters market participation.
▶ 0:58:02Um you know sort of um you know has left sort of a a vacuum of of you know um sort of the kind of like professional and and um you know well- reggulated space that we would want to see for crypto assets. I think you know with the kind of disclosure and um you know customer protection, customer asset segregation requirements, registration, um reporting, things like that that we see under the draft clarity act.
▶ 0:58:30I think that that would really um you know professionalize the space and and um address many of the the concerns that you've identified. Congresswoman, thank you. So, um, to the point, I think of everything that we've talked about today with the disclosures, the segregated funds, transparency, audits, um, last Congress, this committee heard testimony from the CFTC chairman, Russ Benham, that k that that indicated the agency would need an additional $120 million of additional investment over a three-year period to meet the demands of the regulatory framework
▶ 0:59:00that was set out under the FIT 21. And this framework does closely monitor what we're talking about today under the Clarity Act. How can the CFTC and the SEC for that matter be expected to meet the expectations laid out in this legislation without being provided additional resources? And what would some of the harmful consequences of setting forth a a more regulated um market structure be that cannot be properly enforced? I'll take a short a short response.
▶ 0:59:30Thank you for the question. I think funding our our market regulators has been a great return on investment for the American people and it's been proven over the years. And so if we're going to add responsibilities, we have to add resources. Thank you. I'll just from this SEC side, I note that um the new incoming chair or the new chairman uh Paul Atkins just testified recently the appropriations committee on what he believed the level of resources are. So defer to him on that.
▶ 0:59:54I will say that um you know the SEC is already as I mentioned redeploying assets from some of their enforcement staff that have been doing some of these cases um that were that that should have been focused on um uh protecting consumers and so they they they started a new under acting chairman UEA started a new I think it was called the cyber and emerging threat unit that specifically focuses on these types of things. So I think redeploying uh resources is one way that they can do that. Thank you for indulging me Mr. Chair. I yield back. Gentle lady's time is expired.
▶ 1:00:25Now recognize the gentleman from the Buckeye State, Mr. Taylor, for five minutes. Thank you very much, Mr. Chairman, Ranking Member Craig for holding this hearing, and thank you very much to the witnesses for their insight, time, and the sacrifices you made to be here. um as representative of a large swath of Appalachin southern Ohio, one of my main priorities is to support policies that promote economic development and job creation.
▶ 1:00:54And while the digital assets industry is still in its early stages, uh many innovators are already using blockchain technology to uh improve the daily lives of Americans every day. Uh Dr. Dr. Chain, can you describe the value of a digital ass of digital assets today and their potential value in the future for small businesses and main street Americans beyond trading them on an exchange? And what I'm what I'm trying to get at is uh why should the people in southern Ohio, which is a very Appalachin district, care about what we're talking about today?
▶ 1:01:23Thank you for your question, Congressman. Um, we've heard today a little bit about how tokens be used for different kinds of purposes. I'd like to talk about the ones that I think that they're best used for. Tokens are incredibly neutral way to interact on a blockchain. They provide governance features, staking features, um, which is security as well as opportunity to do payments and represent digital identity and verification of the digital identity.
▶ 1:01:46Um, in you know, places in Ohio and across the world, we are starting to see new entrepreneurs and new ideas being picked up in these areas to support um, new applications. I think one actually we talked about in the past was actually working with Ohio State on some programs for digital assets for for athletic programs and others and games. Um I think that this innovation is very important to to support Americans bring those small businesses across all of America as well as as is going to help the global economy to make these products accessible from a from a larger standpoint.
▶ 1:02:14Um so overall we're very excited about this committee's work to help provide much more clarity around token issuance and management uh to making these innovations possible. Thank you very much. We heard testimony earlier that uh the one basic requirement for participation in in this uh technology is connection to the internet. Correct. Okay. Um by my district has a incredibly large part of it that has basically no access to the internet and I'm not the only person that has a district like that.
▶ 1:02:45Uh, so by show of hands, does anyone on the panel share my concern about the fairness of enacting a comprehensive cryptocurrency framework using the resources of all Americans before we make it accessible to all Americans? I'm nobody else concerned about that. We all are. Okay. Good, good, good. Glad to hear that. Um, sorry, I didn't think it was coming to me this fast. Mr. Mr.
▶ 1:03:10Miller, in your testimony, you described how in the absence of federal action, states have filled the vacuum for digital asset market regulation. And because we lack a federal framework, innovators are forced to navigate a complex, inconsistent patchwork of licensing regimes. As a small business owner myself, I know the last thing entrepreneurs want to think about is regulations. Uh, every minute you spend thinking about regulations is a minute that's not spent improving your business. I don't know any business owner that would want to spend more time thinking about regulations.
▶ 1:03:39So in the current regulatory environment, can you describe further the steps that a digital asset entrepreneur must take if they want to scale at a national level? Thank you for the question, Congressman. It it's a great question and one that we get often. Um there are at least 40 maybe 45 states that have clear licensing requirements for many types of digital asset businesses that involve transferring assets between customers. Um certain states it's a multi-year, it can be a multi-year process.
▶ 1:04:05the cost estimate if someone wants a 50-st state program um it can be in the millions of dollars it is it is a burden that many have faced and decide and decided to not start their business in the United thank you very much um just for clarify clarification of my previous question we're do you guys has there been an estimate of the the cost that goes into the building the the rule making framework is anybody familiar with I know that's going to be ultimately our job but is is anybody aware of what they estimate that cost to
▶ 1:04:37I have not I have not seen an overall cost but as a um both agencies are required um by law when they engage in particular rulemakings to look at the costs and benefits of each of the particular regulations that they're putting in place. So they will be coming out on an individual basis. Sure. So the point of my earlier question in case it wasn't clear is the taxpaying taxpayer money from everybody is going to be used for whatever the cost of the these two agencies big framework is going to be.
▶ 1:05:03But until we get everybody access to the internet, they won't be able to participate in it. Is that is that where we are? I I I'll I'll I'll engage this way. I I I think blockchain provides an opportunity for inclusion and access to financial services. And if if that's the promise of it, then we need to distribute it and deliver it to those who need to access it. So you're you're in favor of making sure everyone has access to the internet before we worry about this framework. I'm exceptionally pro internet and I'm also pro pro blockchain legislation.
▶ 1:05:33Fair enough. And and I want to note that the Milkin Institute, we worked on the a provision of the bipartisan infrastructure bill that has $2 billion that Department of Commerce that rural communities can apply for to get um broadband. Okay. Thank you all very much. I appreciate it. Uh yield back, Mr. Chairman. Gentleman yields uh now recognize gentleman from Alabama, Mr. Figures for 5 minutes. Thank you, Chairman Thompson, Ranking Member Craig. And I appreciate uh everyone's involvement in pulling this hearing together and to the panel.
▶ 1:06:00And I I also want to start with a special thanks to all of the committee staff and the committee members staff because this is complex stuff. Like this is this is not simple. This is um this is tough. It's tough to comprehend. It's tough to understand. It's tough to uh discuss uh in simple terms. Um it it's tough. Um, and so I want to give a special shout out and thanks to all staff on both sides of the aisle for really diving into this and becoming um the the experts that we need.
▶ 1:06:30Um, Congressman Taylor, I was with you back here. You couldn't see us, but we had our hands up, too. We we we agree with that issue. I um I represent a very rural part of of Alabama for the most part. I have Mobile and Montgomery, but I'm pretty sure those are probably the only two cities in my district that u most of you guys have heard of. we have a a a very significant rural broadband access issue.
▶ 1:06:52Um and so I too am committed and want to work with you, Congressman Taylor, to make sure that in the context of this being a future uh element, a significant and growing element of our economy that we are not leaving rural America and rural Alabama in the dust uh simply because they don't have the ability to be able to plug into uh the future. And that's a real thing.
▶ 1:07:11You can pull up to McDonald's in my district um on any school day and see it full of cars with more cars than people are inside the restaurant because that's their only access to be able to get on the internet to do homework. Um and so that's a real concern and Congressman Taylor, I want to work with you on that going forward.
▶ 1:07:28um spoke to the complexities of these issues and literacy is is enormously important here because we all hear um you know we we sit here and we look very smart and educated and informed in discussing this subject but I can guarantee you there probably less than 20% of members of Congress uh who can have deeper than a surface level conversation about this issue because it is tough and we have the benefits of staff that can get us up to speed on it. Um, but the average person doesn't.
▶ 1:07:55And so, you know, people in Alabama and Mississippi and Ohio, uh, they don't have the luxury of having somebody to be able to explain to them what cryptocurrency is. And I believe that is what contributes to a lot of the fear and misunderstanding and misinformation, um, that's out there about the industry. And so, I want to um, you know, make sure that that what we're doing um, here in regulating this is going to contribute to enhancing literacy across the spectrum of a future. um quite possibly cornerstone of the American economy.
▶ 1:08:25And so, Dr.Qing, what um what does this bill do for that in terms of financial literacy uh particularly to those highly vulnerable um um you know, groups and populations and communities across the uh the Thank you for your question, Congressman. And just uh wanted to address um as an industry on the on the product side, we are working actually really hard to support um new types of applications where the blockchain can be used without the internet.
▶ 1:08:52And so um you can imagine a world where uh even without using Bluetooth technology or other kind of like just personto person communication, you can transact in the same way and have those transactions then be um finalized on a blockchain when they do come connected with the internet at some point in time in the future. This regulation is very helpful to actually um define again the token issuance rules and having this innovation come into America.
▶ 1:09:16Uh a lot of the projects we work with in the past, ourselves included, have had trouble um understanding these rules and regulations and spend considerable resources to try to understand them and ultimately delayed our token launches or or forced us into um you know launching with a lot of uncertainty in in the past. Um other projects don't even have the resources that we have and they've had to struggle with with either moving offshore or finding other methods of of solving this challenge.
▶ 1:09:39um this clarity uh will be very very helpful in helping the American innovation to happen in places in your district uh in in other places in rural America and I think um with that uh you know that that ability and definition it'll it'll bring back a lot of that um entrepreneur spirit to these areas and then drive for technology in those areas as well. Thank you for that.
▶ 1:09:58And I am personally a believer in in innovation and the power of innovation and and believe that we need a framework that en encourages uh said innovation and and continues to put America um in the the driver's seat um in this space. Uh but the consumer protection angle of it is is obviously something that a lot of people are concerned about um and something that I think we have to be realistic about and addressing and make sure that the framework that we are adopting has sufficient protections and means to address uh scams.
▶ 1:10:27I know um the industry does not like frauds, does not like scams, does not like people abusing it. That's not good for business. It's not good for uh the image of the industry. And I know many players have called uh for regulation for a long time to root out that sort of um malfeence. And so, um I guess I'll channel this last question to you, Mr. Miller. Um in terms of consumer protection, does this bill do enough? And I'll give you a softball. Why is this bill the best way to go right now? Thank you for the question.
▶ 1:10:55I mean by by certain measures 55 million Americans own cryptocurrency. So this is a real question today and what the bill does is require examinations, customer asset protection and disclosures and an ongoing regulatory supervision by our markets regulators with the experience to do it. Um that's what the clarity bill does and it's why I've been Thank you. And I yield back, Mr. Chairman. Thank the gentleman.
▶ 1:11:19Now recognize the gentleman from South Dakota, the uh chairman of the subcommittee of jurisdiction over clarity, Mr. Johnson for 5 minutes. Thank you, Mr. Chairman, and thank you for your kind comments at the top of the hearing. And Mr. Chairman, as you know, the age of digital asset opportunity and innovation is here. Blockchain technology is going to improve and empower every industry and a lot sooner than most people realize.
▶ 1:11:47The only question that's really before us is where is that innovation going to happen? The only thing that is standing in the way of America being the home for that innovation and that investment is our regulatory uncertainty. Most everyone else has already figured this out.
▶ 1:12:04And so the clarity act uh which has been a great joint effort between myself, the chairman, the ranking member Don Davis and our colleagues in financial services is an attempt to banish that regulatory uncertainty to unlock this innovation, unlock this investment and make sure that those industries are empowered. And so Dr.
▶ 1:12:27Ching, you have spoken quite a little bit today already about how clarity is the path, the Clarity Act, our Clarity Act is the path toward unlocking that innovation. Am I being too hyperbolic in my statements? Uh, thank you for the question, Congressman. No, not at all. I I think thinking about our own journey when we we started Appus Labs in 2021 and it took us 10 months to get the launch in 2022 a lot of time and resources were spent trying to understand best practices in the space and it's very hard.
▶ 1:12:57Uh we ultimately end up launching with a lot of uncertainty and still have the uncertainty still today. Uh others are not as fortunate in this space. uh they don't have the resources we have and so for them it's been a very difficult journey to understand what is permissible what's not allowed are they following the best practices for their particular protocols their particular products is very challenging for that uh to happen today we have 118 employees in the US um and you know we are very much US-based we still see a lot of projects happening overseas we'd love to see a lot of the projects happening back in
▶ 1:13:27the US and we're here to support this committee uh and this path forward with the clarity act in making that Pizzazzola, uh, the Clarity Act in Well, let me back up. There are some instances today when we have dual registration between the CFTC and the SEC, at least a couple instances of which I'm aware. Are the agencies able to handle that? Do stakeholders and market participants, are they able to I mean, does it work? Yes, Congressman, it does work.
▶ 1:13:57Today there are uh you know numerous uh in financial institutions that are dually registered with with both agencies. You you have uh dual FCMs and broker dealers, swap dealers and securitybased swap dealers. And you know I I think the agencies while they could could certainly do more in the areas of harmonization and deference and coordination. I think there are today many sort of mechanisms already in place to try to minimize the regulatory burden and cost that come along comes along with dual registration.
▶ 1:14:26So, for example, uh we have uh capital requirements that the CFTC has that incorporate by reference SEC requirements for dual regist, you know, sort of ease the burden of of having to comply with both capital regimes. Um you know, we have uh the SEC has uh a time limited no action position for um compliance with this security based swap reporting requirements.
▶ 1:14:48if if um you know if um entity complies with CFTC's parallel requirements um you know there's portfolio margining that sort of eases the the burden for um you know entities that are engaged in in um you know offsetting positions and related products that are within um you know each agency's respective jurisdiction for example treasuries and treasury futures um and so you know there there are a lot of tools in the toolkit to try to minimize regulatory burden that exists today and I think the agencies certainly could apply similar approaches is
▶ 1:15:18um you know under a dual registration framework under the Clarity Act. Thank you, Mr. Chairman. I would note that it it seems like it's always easier to do nothing than to do something in Washington. It is really only a deadline that drives us to achieve something. And I would I would submit to my colleagues that we have a deadline before us. I believe that the next 18 months we'll see more innovation and more transformation in the blockchain uh and in the digital asset space than we've seen in the last 18 years.
▶ 1:15:49And and every other developed country in the world has gotten this right. Now is our time. We have a deadline before us. If we want to protect consumers, if we want to unlock innovation, if we want to be the home of the kind of investment that will transform these industries, now is the time for us to get this right. And I'm grateful for my colleagues on both sides of the aisle that have put serious effort into this work product. With that, I would yield back. Gentleman yields back.
▶ 1:16:15Now recognize the icon of South Chicago, the gentleman from Illinois, Representative Jackson, for five minutes. I thank you, uh, Chairman Thompson. Uh, once again, thank you our ranking member, Miss Angie Craig. Um this is such a fascinating topic and my comment specifically will be going to you Dr. Pininoir.
▶ 1:16:40Um you got a very fascinating and storied career particularly I feel as if you've been here before. Um with your great work on the DoddFrank Act and other good things. It seems to me that we're going through a bit of um bit of market hysteria. Our country says DEI is an inappropriate illegal term. Only one person has said that it's illdefined and not defined at all. There are no DEI laws.
▶ 1:17:08So you can't break a law that's not a law. It's an aspiration, diversity out of many were one, equity, equal protection, uh inclusiveness. You want to bring more people in. How can we make sure that there's greater market participation and how can we get to the depth and bring people in that are currently in the margins that would have a higher barrier to getting access to information uh to these resources to prod to be a market participant. Yeah, thank you congressman for that question. Right.
▶ 1:17:36So at the at the at the Milin Institute, as you know, uh you're very familiar with the institute, we spend a lot of time thinking about how do we improve access to capital for underserved uh populations, financial inclusion for underserved populations, and really to what end? And it's really about economic mobility. If we can provide financial inclusion for people who have not been included uh into the financial system, there's an opportunity for them to move up the economic ladder. So that's really what it's all about.
▶ 1:18:05And so we do that in a number of ways focusing on underserved entrepreneurs, underserved communities like rural communities. We've worked with the Department of Commerce on um helping to get access to federal dollars from communities that had not been able to do that. Um and also the providers uh of the capital.
▶ 1:18:22We have an H.B.CU CU fellows program uh for to put people on a pathway to career uh careers and asset management uh and a lifetime financial security program looking ex exactly what you're looking at is how do we get more investment opportunities um for folks that maybe don't have $100,000 to invest at small dollar amounts.
▶ 1:18:41And that's where a a well- reggulated system that promotes competition is the best way to do that because then you get competitors competing for everybody whether it's offering uh access to the financial system in a brickandmortar situation or on the phone or whatever it is the more competition you get and we've seen that the costs have gone down and down and down over decades. And thank you Dr. P. Another question probably a little more technical but I wish I had you for a few hours to talk to you all by myself.
▶ 1:19:09Uh but from the capital markets perspective uh efficiency and liquidity are critical drivers of innovation and growth. We accept that. Uh how do you see the current regulatory environment impacting liquidity specifically uh for the formation of the crypto markets? I'm more concerned about how they reduce the bid ask price, how they'll be the next evolution of innovation in this market. Yeah. No, it's that's a wonderful question. Um you know, given the SEC's I mentioned the three-fold mandate, right?
▶ 1:19:37And it's and it's the the key here is as you mentioned liquidity efficiency and I would add price discovery. So if we can provide a proper framework where people feel protected have the information to make informed decisions in terms of buying selling holding securities right that will create more efficient markets. you will have better price discovery, better liquidity for the investors and more efficient allocation of resources in terms of capital formation uh for the entrepreneurs like Avery here and we and and and we'll get more innovation.
▶ 1:20:07So it's a it's a it's a virtuous circle. And the last question I would ask because I'm very much concerned about uh you have to grow the market, increase liquidity, all the other good drivers in there. But considering the historical access that diversity is an initiative, equities initiative, um these things have been innovative in bringing this multi- cultural society together. I bring that up because uh diversity if we don't if we let the markets go their way with certain access to broadband and other things, it will become inefficient.
▶ 1:20:38I'm trying to figure out how do we keep that as a mandate or as a goal and aspiration to so that it enhances the market. It does not detract from the market. So most people say, "Oh, why is he saying diversity, equity, inclusion?" Because I can. And I think it's very important and it helps the capital markets. Can you respond to that, please? Yeah.
▶ 1:20:56So, one thing that I've been uh that that I mentioned when I was a commissioner at the SEC is that we we prohibit some investors from investing in certain investment And the SEC has these rules called the accredited investor definition that says, look, some things are so complex, so risky that only sophisticated investors can invest in them. And how does the SEC define sophistication? If you're rich, if you have a high net worth, you got high net income, you can invest in stuff.
▶ 1:21:24So the rich get richer and the other folks get left behind. So this is one where we can really democratize opportunities for investment by looking at the accredited investor definition and make sure that it doesn't seep into the the digital asset uh regulation as well. Thank you so much um chairman. I yield back and thank you for the extra time. Gentleman yields back. Now please recognize the gentleman uh from the duck and rice capital of the country, Mr. Crawford, for five minutes.
▶ 1:21:53I thought Lalfa might jump in there on that one. He might have some issues with that. Oh yeah, we'll talk about that later. Um, for the record though, he got that right. To follow up, Mr. Miller, in your testimony, you said running a crypto exchange in the US is hard and should be. You believe the Clarity Act would continue to make it hard to run a crypto exchange and therefore protect American consumers from something like what happened with FTX? Thank you for the question, Congressman.
▶ 1:22:22By saying it's hard, I mean there are compliance programs that need to be in place and you need the right level of expertise to get it correct and you need the right level of supervision from a regulator to continually ensure that you're getting it correct. The digital the Clarity Act by bringing registration to these businesses um introduces that structure. Um Dr. Ching, forgive me, but I'm going to ask you to describe the value of digital assets.
▶ 1:22:49Let's assume you're talking to somebody that doesn't know what crypto is. Like you met them in the elevator and they ask you what you're here to testify about today and you say crypto and they have no clue what that is. In an elevator speech, what is crypto? Thank you for the question, Congressman. Um it is actually hard to tell in an elevator speech. I just want to acknowledge that upfront.
▶ 1:23:11But um the way I would describe digital assets is just a kind of incredibly neutral um infrastructure for executing functions that are very hard in traditional world like how do you do governance? How do you do staking? How do you support uh payments in a world that um is is global and with uh open accessible verifiable um um uh capabilities. There is no other there's no other possible technology that can support this kind of use case today.
▶ 1:23:36Um, and so it's just really about a global utility, public utility, like the same way we think about electricity or water or roads in which in any any kind of application can be built on top of really a new age of the internet and tokens are really the lifeblood of that So if I heard you right, you're basically saying that crypto is an economic or a financial infrastructure. Exactly. It is a way to transfer value between any two participants.
▶ 1:24:04You want to expand on that a little bit because I mean we're I'm giving you an extra floor on this elevator ride to give me a little bit more time to understand exactly what so that the lay person knows what we're dealing with. Probably the simplest way to describe it. It is a utility token in which you can do payments, governance, staking, um transact and and have identity allin one uh on an infrastructure that is trust trustworthy uh trustless as well as globally accessible.
▶ 1:24:34So as a as a as a US citizen who is fiercely concerned about privacy and stuff like that, how do I uh feel comfortable with those kinds of transactions? Talk about the privacy issues, how those are related to this, how you address those. Um give me some make me feel better about crypto. That's an excellent question.
▶ 1:24:59Today, most blockchains support very transparent operations, which means that any transaction that occurs is going to be completely accessible to everyone to see. It's replayable, and that gives also a certain type of comfort to know that there's no way the system can undo or revert those transactions. At the same time, we're very used to having our privacy when we, you know, purchase a coffee or buy a sandwich.
▶ 1:25:21Um there is also additional blockchain functionality that's coming down the pipe though that will support that level of privacy and confidentiality uh yet be regulatory compliant that is things that labs and other uh companies are exploring already have prototypes for so I think there's a world where we have kind of the both the benefits of transparency uh where people can replay transactions but also the benefits of privacy where um things want to remain confidential can be confidential but yet regulatory compliant and then finally um What
▶ 1:25:52underlies a cryptocurrency? And in other words, what gives it intrinsic value? Why is it any different than, I don't know, say a Pokemon card? Um, in many ways, uh, it might it might be thought of as a Pokemon card. I think that's a good a good characterization to it, but it really depends on the token and what the token is, um, representing.
▶ 1:26:14Um as as far as AP which is our kind of native token to APAs it really is going to be a token uh that is uh supporting the transaction fees prevents the den service attacks on the network. It supports the staking functionality which is security in the network making sure it can't be attacked by malicious actors and then it supports the government's features so whenever there's a protocol upgrade uh people can vote on whether the upgrade wants to happen or not. Excellent. Uh thank you Mr. Chairman. I yield back. Gentleman yields back now.
▶ 1:26:41Please recognize Representative Mlan Delaney for 5 Uh thank you um chair and ranking member for having this hearing and I was listening um to you all in my and my office and found it very illuminating on multiple fronts and thank each of you as witnesses here today. Um as we all know and we discussed earlier we're in a digital revolution where values extend beyond the physical. crypto, NFTts, and tokenizing real estate are already shaping our economy.
▶ 1:27:11You know, expanding financial access and improving efficiency in places like agriculture. And I represent the sixth district of Maryland. And Maryland, we are leading the way in financial innovation and digital asset management. And I'm really excited about how digital assets can really um be utilized by the agricultural industry and by our farmers. But as you know um innovation, not opportunity comes with risk. And in 2022, FTX collapsed, wiped out billions and devastated retirees, students, and small businesses.
▶ 1:27:41And I think that is why, you know, Mr. Miller, you are so excited about making sure that there is, you know, bumpers and safeguards in in this regulatory environment. Um, so I'm eager to support digital asset innovation and countless but there are countless examples how we just do need to have these appropriate regulatory um protections.
▶ 1:28:01So um American policym and regulations it seems needs to be in line with business and the financial environment and while the enacted markets in crypto assets or mika regulation provides it seems some potential learning lessons for a unified regulatory um framework and it does seem that this bipartisan clarity act improves on last year's version. So I just want to say I do look forward to hearing from you and working with my colleagues to tackle these different risks and to make sure that we have a secure transparent environment.
▶ 1:28:31So my um first uh question is really to you uh Mr. uh P. Um I thought your earlier testimony was great. Given your former role as commissioner at the SEC, I'd love to hear your insights on the Mika framework in the EU. It seems like it establishes some clear rules for crypto asset issuers and service providers and investors and it would make sense that maybe there are certain of those structural um elements that could maybe enhance the Clarity Act effectiveness.
▶ 1:28:59One provision that I was interested in is the inclusion of measures that prevent market abuse like insider trading, market manipulation and unlawful disclosure of insider information. And there also did seem to be more of an emphasis on the traditional banks having a role um in addition to the big net uh big net uh our uh our internet platforms. Do you think that there are structural elements that we could learn for within Mika or consider with the clarity act um in uh helping its overall effectiveness?
▶ 1:29:29Yeah, thank you Congresswoman for the question. Um I'm not familiar with the very specific provisions of Mika, but what I can tell you is how uh the SEC does learn from uh what other uh regulators do. Right? So the SEC has an office uh in the of um uh international affairs that regularly works with um regulators overseas either bilaterally or multilaterally through um an organization called IASCO where we kind of learn from the mistakes of others.
▶ 1:29:59Right? So in some cases there's a second mover advantage. You kind of learn from those. I will note that you know the SEC I mentioned the crypto task force uh at the SEC. Um you know they've they're they're next week will be their fifth round table. They've put out a list of specific questions some of them on based upon some of the things that were happening in Mika. 48 specific questions around custody all kinds of stuff. They've had over a hundred meetings that they post on their website.
▶ 1:30:26And I and I see a lot of the firms that have come to see them do have experience with Mika. So they're gonna they're they're providing some of that information. So that would be very helpful. Yeah. So I just was wanted to put that up and I might add some further questions because it just seemed like it would be a good starting point. Um the second thing is just um I spent my background uh was in consumer protection and helping kids online. So I have always been concerned a little bit about consumer rights and privacy.
▶ 1:30:52I am concerned that this bill might weaken consumer protections by preempting key state safeguards and lacks clear language to preserve them. States like Maryland have strong protections. Um, and I just want to make sure that we, you know, set a regulatory ceiling instead of a floor on this. Could any of you provide examples how the Clarity Act is written will ensure that our constituents won't lose any of these consumer protections and privacy under the bill? It's a great question.
▶ 1:31:18And I I think by pushing industry participants into registration at the CFTC and the SEC, you are pushing them into mandated know your customer requirements and onboarding requirements. There's it's not Anyone else? And I will also note that uh in the securities world where there is uh preeemption, there still is a very important role for the for the state securities regulators.
▶ 1:31:42The SEC works very closely with the state securities regulators including Maryland on a number of issues uh where they can be very helpful in rooting out fraud. Thank you. Well, I just believe strong consumer protection privacies um are really important. So I thank you and I yield back and we'll submit some questions for the record. Joe yields back now. Now recognize gentleman from Kansas, Mr. Man, for five minutes. Thank you, Mr. Chairman, and thank you all for being here today.
▶ 1:32:08I represent the big first district of Kansas which is 60 primarily rural counties in the um central and and western part of the state of Kansas mostly. It's evident that both US businesses and individuals need regulatory clarity around digital assets and there are currently no well- definfined rules to allow businesses to operate legally and successfully within the United States. The Clarity Act will provide a foundation that enables innovation and ensures that the US can lead in this rapidly evolving sector.
▶ 1:32:36and I appreciate the chairman's leadership on this increasingly important issue. Without this foundation, America will continue to fall behind and risk pushing innovation abroad, which I don't believe anybody um here in Congress wants and delighted for you all being here today and being part of this conversation. Um just a handful of questions. First one is for you, Mr. Miller. Um, can you describe the different regulatory regimes uh regimes FTX.com, FTX us, and FTX derivatives were subject to?
▶ 1:33:07Sure. Thanks for the question, Congressman. FTXUS uh was a spot exchange and followed the 50-state regulatory program that we've talked a bit about today. Um, FTXUS derivatives was registered with the CFTC um and was subject to full examination by the CFTC. FTX International um operated on a patchwork of registrations and licenses globally that that were very much unclear at the time and and remain unclear certainly when compared to what you would get from the Clarity Act.
▶ 1:33:37So So of the three I guess can you or indicate kind of what you believe are the benefits or drawbacks to to each different um silo if you will? Sure. So the the business um in each in each of its verticals was a centralized exchange and the most powerful regulatory piece was clear customer asset segregation requirements and that's what you got from the CFTC's registration program for FTXUS derivatives.
▶ 1:34:05Um in beyond just customer asset segregation there's surveillance and I think market surveillance shows up in some of our state programs but not as clearly as it does at the US federal markets regulators. And so I I think those are the two important pieces. Great. Thank you. Um, next question for you. Uh, Mrs. Pizzola. Conflicts of interest have been an increasing area of concern in the digital asset markets.
▶ 1:34:30How does the CFTC address potential conflicts of interest with current registered entities and Thank you for the question, Congressman. Uh, you know, today there are a variety of uh mechanisms for addressing conflicts of interest within the commodity exchange act.
▶ 1:34:46Uh for exchanges, there are is a specific core principle that requires uh designated contract markets to um you know have uh policies and procedures or a program in place to uh mitigate and and you know a procedure to resolve conflicts of interest in the exchanges decision-making process. And then there are more prescriptive requirements for futures commission merchants uh with respect to their conflicts of interest.
▶ 1:35:12they specifically have to have policies and procedures to disclose um any material incentives or conflicts of interest to their customers with respect to those customers decisions to transact in the markets. So there is a very uh you know robust regime in place today to ensure that conflicts of interest are mitigated um or or um disclosed both uh you know at the exchange level and then at the level of the broker intermediary. Yeah, thank you. I think that's helpful clarity for people.
▶ 1:35:39Um, next question um for you again, Mrs. Pizzola. As you may know, there are no regulators who oversee the centralized spot market exchanges across all commodity markets. What is different about digital assets and other commodity markets that warrants expanded regulatory oversight? Thank you for the question.
▶ 1:35:58You know, I think one difference is that, you know, for for many commodity markets, you know, they're not sort of they don't um they're not centralized exchanges that are, you know, sort of similar to those that exist for securities and derivatives. A lot of commodities are commonly bought and sold in OTC bilateral transactions. And I think the difference here is that, you know, we do see digital assets often trading in a manner that's similar to securities and futures contracts.
▶ 1:36:22you know, both in that they're available for trading on centralized exchanges and that they're sort of more readily accessible to retail um and and more widely traded by retail. You know, it's easy for a retail market participant to just use their phone to buy um crypto assets. They couldn't do that with oil and gas in the same way. And I think as we talked about, that's not inherently a bad thing. You know, that there's financial freedom, financial inclusion that comes along with that. But then I think that also brings sort of a dynamic of you know more of a need for retail um protection perhaps than we'd see in other markets.
▶ 1:36:52I think also just finally to wrap up you know it might make more sense uh for states to regulate in the area of you know other commodities where um you know they're they're sort of those transactions uh in the spot markets are taking place at a single physical location within the state. I think here, you know, crypto assets are in sort of inherently borderless, inherently sort of in interstate commerce, as we talked about. You know, you typically need the internet in order to be able to transact in them absent sort of some of the new technologies that are coming online.
▶ 1:37:20So, I think it's just sort of inherently um, you know, sort of an interstate problem that requires sort of federal regulation in a way that other commodities, you know, perhaps do not. Thank the gentleman. Now recognize a gentle lady from Illinois, Miss Wazinski, for five minutes. Thank you, Mr. Chairman.
▶ 1:37:39I also do want to thank our ranking member Craig and also our subcommittee chair uh Johnson and ranking member Davis as well on all of our collective work on on these sets of issues um related to digital assets. Um after the release of the Clarity Act, I'm grateful for the opportunity to engage directly with stakeholders today on this important legislation. So I just want to say thank you to the panelists for being here.
▶ 1:38:02It is important to me that Congress take steps to address the lack of structure and regulatory clarity for firms, consumers, and other players in the digital asset industry. That's why I was glad to work on a bipartisan manner uh with the chairman and his team last Congress on FIT 21 and to support that as it got over the finish line in the House, especially as some of my major priorities were included in that bill.
▶ 1:38:29Um, one of my priorities sought to preserve uh consumer legal rights and flexibility to ensure that protections and ability to recoup their assets in the event of a market collapse. And the other was prior approval for products uh before entities become fully registered improving the process for customer engagement.
▶ 1:38:50Um, I'm glad to say that I see that these important provisions have been included in this updated market structure bill, the Clarity Act to safeguard consumers and their assets. Um, as I look at the Clarity Act, I do have a few questions that I think this panel is very well suited to answer. Um, Mr. Pivar, Dr. Pivotar, decent decentralized finance or DeFi can be excluded from being regulated under some provisions of this act.
▶ 1:39:19How could a regulator protect customers in a truly decentralized environment uh where this is no there is no responsible entity and no traditional um custody of assets? Yeah, great question. Couple couple response to that. One note that um you know I mentioned the SEC crypto task force is doing a number of roundt um one that they've already had and one that they're having next week are specifically dedicated to DeFi looking at trying to get those answers.
▶ 1:39:48Um, second thing I'll note is that I remember when I was at the commission and we had a lot of conversations with folks on talking about DeFi and there was no regulated entity there and I said, "Well, how do you do that?" And they and one of the responses was, "Well, smart contracts." Well, explain this to me. Well, smart contracts basically computer code. I said, "What does a computer code do?" They said, "Well, basically routes orders on the way that customers do that way they want them to do and instead of being a broker dealer." And I said, "Did you take transactionbased compensation for that?" in the code, you know, could you do that?
▶ 1:40:18Yes, that's the legal definition of a broker dealer. So, what some people claim as DeFi is not truly DeFi. And those are the thorny issues that the SEC and the CFTC actually have to get to. And to your point on what really is DeFi on that, right?
▶ 1:40:34Um I what what's what I like about the Clarity Act is there's there's a specific study in there to look at those particular issues because this there's smart smart people like Avery in here like you know way smarter than me to think about these things but I don't know the answer to that and the SEC and CFC don't either and so they're continuing to evolve and learn from folks. So great and I'm glad that conversation sounds like is continuing next week with some roundt discussions on this point. So thank you. Um uh my next question u Mrs. Pizzola.
▶ 1:41:02Um would you be able to answer I think elaborate on this on this point as well around Congresswoman, thank you. Yes. Um you know I I think it is appropriate certainly as as Dr. Vivar said to continue to study DeFi. Um you know I think it's certainly a nent area um of innovation that you know I think we don't want to see sort of quashed by sort of rushing to to regulate it in the same way as sort of centralized markets.
▶ 1:41:28But I would also agree that you know if you have sort of activities that sort of closely resemble um you know activities that are are are taking place sort of in in a more centralized market then you know I think we would sort of question whether whether it truly is is DeFi.
▶ 1:41:42Um I think one sort of unique aspect of of DeFi that sort of maybe warrants regulating it differently from um you know centralized uh finance is the fact that you know under a DeFi a truly uh decentralized uh uh setup you you sort of would have uh participants self-custody they wouldn't be sort of giving um you know control over their assets to a third party and so I think that's sort of a fundamental difference from sort of the intermediaries that are regulated under um the clarity act where you know they are taking custody
▶ 1:42:12of customer funds and so they do need we do need to make sure that no segregation and customer protection measures are in place. Okay, Mr. Miller. Yeah, maybe to share a thought on DeFi. Our our current regulators have statutes that give them the authority to do something here and and that could be a safe harbor, a pilot program, but but the benefits of those is they get to put conditions on them. And those conditions might look like the Clarity Act in certain respects, but it's a tool it's a tool we want to keep on the table. Okay, great. I'm out of time. I yield back. Thank you.
▶ 1:42:44Gentle lady yields back. Now recognize the gentle lady from Texas, Congresswoman Dela Cruz for five Thank you, Mr. Chairman, uh, for hosting this important hearing today on American innovation and the future of digital assets. I would also like to thank our uh, panel of witnesses for their time today. Mr. Miller, thank you for sharing your uh recollection around the collapse of FTX.
▶ 1:43:13Learning from that failure is an important part of why we are here today. We want to make sure that there is never another collapse like this in in the United States. In your testimony, you describe the collapse of FTX as insolveny due to fraud. How would the Clarity Act protect against this Thank you for the question, Congresswoman. Insolveny means the assets that are meant to be there are no longer there.
▶ 1:43:42And in the context of cryptocurrency businesses, we're usually talking about customer assets. The Clarity Act requires customer assets to be held in a segregated and protected way and in a way that they cannot be taken by not customers. So there are several of our farmers and ranchers listening to this hearing today and um like many Americans saying what does this have to do with a why is this important?
▶ 1:44:10Does anybody on the panel want to answer for the viewing public today on why this is so critical to the future of our farming and ranching communities? I mean I I said I was from Oklahoma so I should start. Um, I I I think it's it's about payments and and the the flow of transactional finance. Every one of the constituents you mentioned are running businesses and they want access to credit. They want access to easy and transparent payments. Um, and and they don't want to be stuck behind um a broker or an agent unnecessarily.
▶ 1:44:41So, I think that's a critical component of why it's interesting to anyone um running a business. So, to those listening today, does that mean they could get faster payments for their products? I would defer to Dr.
▶ 1:44:54chain habit is and thank you for the congress the question congresswoman uh definitely so I think you know to to our my colleagues point u payments infrastructure on blockchain is is immensely much more efficient than traditional payment methods uh today on appas you can send money around the world uh for a hundth of a cent and have it settle in under a second uh and it's globally accessible it's not something that is limited to one area or another um so I think it's a it's a crucial technology for anyone running a business as he said to be able to to support the technology
▶ 1:45:25and also build in programmable infrastructure. So not only can you have payments, you can have things that happen after those payments um maybe uh settle other accounts uh simultaneously. And so that those combinations are just going to be very powerful on anyone running a business and supporting u the newest generation of web 3. So what this really means is this is transformation for our farmers and ranchers.
▶ 1:45:46Because what I'm hearing and for the American public listening today, the everyday common person, if a farmer rancher is able to get their monies faster, that means they can buy more product faster, right? And they can um harvest faster and that means growth growth for their family farm, perhaps even future generations. Is that correct? Yes, that's correct. Also, there's no credit risk.
▶ 1:46:13Uh there's no other settlement risk uh that that comes into play. So, it's just a much more efficient financial infrastructure for everyone. So, no credit risk, no settlement risk. Uh that's a pretty good uh pretty good deal for our farmers and ranchers. So it's important that we have some type of regulatory infrastructure in place so that farmers can use these tools to grow their farms and for the future generations in farming. Would you all agree?
▶ 1:46:43Would you all like to say something? Would you like to say something? Yes, Congresswoman. Thank you. Um I would agree as well. You know, I would just add that I was, you know, inspired by um the subcommittee hearing back in April where, you know, we had um I believe it was called Cattleproof um and and GeoNet, but in particular, I think sort of the the Cattleproof story of, you know, previously having had um purchases of cattle using checks that maybe took days or weeks to clear and now being able to instead receive payment, you know, sort of almost instantaneously, I thought, you know, really shows what what Dr.
▶ 1:47:13is is is speaking about in in kind of a real world use case of being able to have sort of those instantaneous payments. Um and and you know I think that's very promising technology that as you said can allow for you know growth because you're sort of getting your money faster and able to deploy it within the business for farmers and ranchers. And it sounds like for planning purposes right if you have a check it can bounce then you still have to chase the buyer of the product get a new check or get another form of money. All of that takes time.
▶ 1:47:43But when you have immediate access to capital, that means you can plan for the future. You can grow your product, grow your market, and pass on the legacy of farming to future generations. With that, I yield back. Thank the gentle lady. And now recognize the gentleman from New York, Mr. Riley, for five minutes. Uh, thank you, Mr. Chairman, and uh, thank you to our witnesses uh, for for being here.
▶ 1:48:07I think part of the backdrop for this, it seems like maybe it was a while ago, but in other ways it wasn't, is the '08 financial crisis. I represent a rural district in upstate New York. And um, you know, looking at uh the cutting edge of of all the issues we're talking about today, it's hard not to remember uh Wall Street basically treating the economy like a casino.
▶ 1:48:31Um it's, you know, still really frustrating for folks that Wall Street uh got a bailout while the middle class, which deserves a bailout, um uh didn't. And people just really don't trust uh Wall Street uh still because of that. And they might be looking for because of that alternative places to invest. And I was te texting earlier today one of my buddies from high school, Mike Chochi.
▶ 1:48:56is uh really uh big into crypto and a big supporter of and I asked him sort of his perspective on this and I thought it was interesting. He said it crypto gives people like me, this is what Mike said, access to financial markets kind of the way Erade used to do for stocks, but the thing with the stock market is it's still rigged uh for large players. And so he sees crypto as being more accessible for somebody like him.
▶ 1:49:24And I'm wondering um how we can make sure that as this these new innovations are happening, we don't end up kind of going down the same path where this is something that is uh seen as accessible and fair for somebody like Mike Chochi and not uh you know just run by the big players. And I think that one of the lessons we learned from the uh financial crisis was that a lot of people just got really overleveraged.
▶ 1:49:49And um I'm worried that we could end up in a similar situation here when I read about situations where there's digital asset trading on margins with really high leverage. And so my question for all of you is just generally with that backdrop and that still being forefront of mind for so many folks in upstate New York, what sorts of things would you tell them about the regulatory efforts and legislative efforts to make sure this is this works for them and not just the big players? And then more specifically on this leverage issue, am I thinking about that the right way?
▶ 1:50:20Um and if I am, what are the best ways to address it, including potentially with respect to the legislation we're considering? Um, Commissioner Pywire, I wanted to start with you on that if you could give your perspective. Sure. No, on that leverage point, um, I think you make a great point. You know, thinking back to the global financial crisis, right, what we saw was there was way too much leverage in the system that the regulators simply did not know anything about. If you think of the over-the-counter derivatives market, this this is where the real credit risk was.
▶ 1:50:49Um I happened to be working in the White House during the global financial crisis and part of my job was to look at and say well which banks were exposed next and the data that we had was completely useless because um the current law at the time was it was actually the SEC and CFTC were prohibited from collecting information on the overthec counter derivatives market. Um DoddFrank addressed that through title 7 and split up jurisdiction very similar to what we're talking about today in terms of the swaps market and securitybased swaps market.
▶ 1:51:17um they could have done a better job on the front end. I talk a little bit about that on the on my written testimony, but um it now provides the regulators with the tools that they need um to see the leverage in the system. The other thing we noted that was that um a lot of these exposures uh were with the banks and so now the bank regulators need to step up and do their job. Um you know, the the response for the last four years was keep crypto out of the banks because they're going to make the banks um you know, but the crypto can bring down the banks.
▶ 1:51:46what we saw in the case of Silicon Valley Bank, it was almost the opposite. Um, and so um, what we need to do in cup with not only with the digital with the crypto market and as and as Dr. Ching pointed out um, it actually takes out credit risk, it takes out market risk, it takes out systemic risk types of concerns from these markets. So I think it's actually um, working in the right direction. Great. That's really helpful. Did anybody want to add anything on that?
▶ 1:52:13I'll just add one thing uh which is that um I think that there's definitely you know in the DeFi space and you know you definitely have much more um kind of freedom around the products that are there. I think this regulation will have definitely helped to understand the protections for consumers.
▶ 1:52:26But the other advantage you're going to get from DeFi is going to be transparency and so I think in those kind of previous instances you mentioned there was a lot of lack of transparency around how much were the risks of the overall financial markets in in um in the blockchain space those risks are kind of very clear and present for everyone to see and analyze and and and kind of understand and then kind of educate customers about. So I think these are the kind of tools you want to build up and and support as we see these technologies progress further in the future. That's really helpful. I appreciate it. Uh yield back, Mr. Chairman.
▶ 1:52:57Thank the gentleman. Now recognize the gentleman from Iowa, Mr. Fer, for five minutes. I want to thank the chairman and ranking member for having this great hearing today. The increased adoption of digital assets and the use of blockchain technology has the potential to change the world by lowering the cost of services for everyday Americans and increasing the security and clarity of digital transactions.
▶ 1:53:20However, the past few years, we saw President Biden wage a war on digital assets which squashed innovation and brought regulatory uncertainty to the marketplace. I want to thank President Trump and this committee for recognizing that this helped spurs on innovation by providing clear rules of the road and growth of digital assets in the United States.
▶ 1:53:42The bill before us today establishes distinct roles for the SEC and the CFTC, providing a structured pathway for digital asset firms to operate legally and with confidence, ensuring consumer protections through strengthened transparency and accountability in the marketplace. Fostering innovation through regulatory structure to encourage businesses to remain in the US. Miss Ching, thank you for taking the time to speak to us today.
▶ 1:54:09Your experience in the industry is has great perspective. In your testimony, you emphasize the importance of regulatory clarity for token issuance and distribution. From your perspective, how does this bill ensure emerging blockchain applications are not unintentionally stifled by overrigid or over ambitious compliance frameworks? And then also, how does this benefit us? thank you for the question, uh, Congressman.
▶ 1:54:37Um I I'd like to talk back a little bit about the story of Apptos Labs and answer this question. Apttos labs was founded uh here in the US uh in 2021 and we did face a lot of uncertainty when it came to launching our token and the token issuance and distribution of it. Uh we spent a lot of time trying to um understand the previous launches and see what the best practice were in the space but ultimately we had to launch with all of uncertainty. Um this bill and and the clarity act is going to really help projects like ours to understand what the right rules are and how to write understand the framework uh that best supports American innovation.
▶ 1:55:08Uh I also talked to hundreds of builders across the country. Many of them do not have the resources we have that can actually um support that kind of investigation. This bill would really help them to get a lot of certainty and clarity in the market. Today there are estimated to be about 10,000 developers of blockchain technology. Yet there are millions of programmers around the world and millions in the US alone. We'd love to see these these programmers start to leverage their talents much more towards this technology base here in the US as this clarity act becomes very very much reality in in the everyday world.
▶ 1:55:38That is fantastic. It's I'm glad to hear the benefits. I mean there's so many great benefits that this is going to create. Um Mr. Miller. Uh, this bill gives the CFTC new authority regulating jurisdiction over digital commodities, cash or spot markets. I want to talk about this a little bit. Can you speak how this expanded jurisdiction would close existing regulatory gaps and why CFTC oversight of spot markets is critical for protecting consumers and ensuring market integrity? Thanks for the question. Of course.
▶ 1:56:09So what what the CFTC brings to bear is its expertise in markets, bids and offers, liquidity, um preventing manipulation, preventing trading misconduct. And while today we have crypto markets that have some state regulatory programs, there's no clear trade surveillance, market monitoring, and market conduct obligations under those programs. The CFTC makes those the fundamental tenants of their regulatory approach. Thank you. So what what would you say to banks there?
▶ 1:56:36I know banks are sort of concerned about some of these Yeah. So banks banks want to ensure that they've got clarity from their regulators that they are permitted to operate in any any given asset class. And I think as we get more clarity around the types of products the CFTC and the SEC are regulating the bank regulators get more and more comfortable about giving the banks the ability to deploy their capital into these markets. And ultimately that brings up liquidity and it brings up the resiliency of the markets with more participants.
▶ 1:57:06That's great. So it's sort of a win-win for everybody. It's it's all moving in the right direction. Yep. All right. Thank you and I yield back. Gentleman yields back. Now recognized the gentleman from California, Mr. Costa, for five minutes. Thank you very much, Mr. Chairman.
▶ 1:57:20Uh I think the sharing is timely considering the fact that we will I believe next week be marking up uh the clarity act and I regret uh for those who testified earlier that I missed your comments but I'm going to ask some questions uh and and maybe you have already um opined on that statement but clearly at this point in time there does not be appear to be a real regulatory framework.
▶ 1:57:49work in our country to deal with uh the efforts of of digital assets and and and how those are transferred. Is that correct? I'll say yes. Yeah. There there's 55 million Americans who hold digital assets and it's not clear what the regulatory environment is for the service providers of that business.
▶ 1:58:09And uh have you uh the four of you had an opportunity to uh to look at the uh markup uh the draft of the market digital market clarity act that we will be hearing next week. I've studied pieces of it. I see a couple heads nodding. Uh let's start. Uh uh is it Chelsea Pizzazzo? Uh do you think that this really establishes that level of framework?
▶ 1:58:37and if so uh what is lacking or what is uh what is problematic in your view? I do think this establishes the appropriate framework for regulation of uh digital commodity markets within the United States. I think the bill appropriately allocates jurisdiction between the CFTC and the SEC in a way that that you know sort of reverses the prior ambiguity that had driven you know digital commodity markets. Mr. Miller, do you agree? I agree. It's it's it's thoughtful and balanced.
▶ 1:59:06It invites the regulators to coordinate, but it creates clear allocations of registration authority. Any critiques on the current draft on how we can make changes or improve it as we look toward next next week's hearing? I think the biggest issue is that it's not adopted. It's not what? It's not adopted. It's not passed. Oh, okay. Got it. No, I was I was reading some of the background. Um, there's no obviously comprehensive framework at this point in time.
▶ 1:59:35Only nine of the digital asset service providers have registered with the SCEC. Five of those firms registered pursuant to settlement agreements arising from SEC enforcement actions and and no digital asset service provider is registered with the SEC as a national security exchange. So therefore, there's no regulated platform to deal with trading of these digital asset securities. You would agree?
▶ 2:00:05Congressman, I I would say yes. Um that you know the Clarity Act provides that framework for them to do that. Um and then on your earlier question just to um add to what they were saying. I note that the Clarity Act is a substantial improvement from the discussion draft that was out there and um I really um appreciate the fact that the staff uh and the members really took to heart some of the feedback that was coming in from folks on things like the definition of affiliated persons and how to deal with sort of dual registration and stuff.
▶ 2:00:32Um, as far as what else needs to get done in my testimony, I point out that, you know, continue to work with the SEC and CFTC staff. They're the ones that are going to have to implement this. Um, and you know, the the Clarity Act was just, you know, and do you believe that the SEC this will then, if enacted into law, will give them the necessary tools to provide the regulatory oversight necessary to protect businesses from uh engaging in these transactions? Yes.
▶ 2:01:00and it preserves their exemptive authority to allow them to tailor uh the regulations that fit this market that are unique and a little bit different than some of the the markets they already oversee. Dr. Chen, do you agree? Uh from our point of view, we've we've been studying the the FIT 21 and clarity. We see a lot of improvements as well. U thank you for the feedback that I think has been provided by many counterparties including ourselves. Um overall, we're very positive about the the direction of this. So you agree? Yes, I agree. That's a long way. By the way, I'm a bit curious.
▶ 2:01:30Aptos labs. I'm familiar with Aptos, California. Does this have anything exactly the same? Uh, yes. So, Aptos is um a city in your state. Uh, and we Yes. It's a nice part of California. Beautiful place. Okay.
▶ 2:01:43Um finally um in terms of comparative analysis uh what do you uh or is there I guess is the better question in in Europe or in Asia that would compare to establishing this type of a regulatory framework for the SEC? Is there anything that other parts of the world that they're already doing?
▶ 2:02:07I was going to say so um you know the we have a unique structure here where we have the SEC and CFTC as two markets regulators most places have a single market regulator so there's a little bit of nuances uh that are going on there other places have moved um but you know because we're the biggest market in terms of you know and I've talked about how our capital markets are the envy of the world um we're soon going to have the digital asset markets that are going to be the envy of the world too once the SEC and CFTC start implementing the regulations um with the authorities that you provide them.
▶ 2:02:37Well, my time's expired, Mr. Chairman, but I think it is helpful uh as we're moving forward on this effort to ensure that that we uh complement our efforts because these efforts uh and transactions not only include the continental United States, but obviously other parts of the world where we do business. Thank you. I thank the gentleman. Now, please recognize the gentleman that represents the rice and duck capital of the western United States, Mr. La Malfa for five minutes.
▶ 2:03:08Well finessed, Mr. Chairman. Well finessed. Western. So Arkansas must not be the West. Appreciate it. Um I'll put our rice and ducks up against anybody's. Anyway, um I wanted to clarify something that was uh mentioned earlier in this committee on uh on a concern about the funding for CFTC and its ability to uh do the work.
▶ 2:03:34Um and it is my understanding that uh it will be self- sustained through the next four years through a fee schedule that will have on those being regulated. So, um I understand it's under called section 410. So, there was a contention earlier that there wouldn't be the resources for CFTC to do the work, but that's uh not the case.
▶ 2:03:58So, that said, um uh couple thoughts on uh on core principles. This will be focused on Miss uh as we know the principles core principles are critical part of how CFTC regulates and uh would you uh would you mention just some of the core principles that the commission applies to these designated markets um how are they similar to the core principles
▶ 2:04:28applied to uh uh digital exchanges in the clarity act so that we can uh get the contrast of course thank you congressman uh you know I think some of the key core principles that apply to DCMs uh that have analoges in the clarity act are requirements to provide a competitive open and efficient market that you know that's really meant to protect the on exchange price discovery process you I think similarly a core principle requiring publication of of trading data in a timely manner it's again meant to protect the price
▶ 2:04:58discovery uh mechanism on exchanges I think you know as Mr. Miller mentioned earlier that the requirement to monitor trading to prevent manipulation, price distortion and disruptions, requirements to protect markets and market participants from abusive practices. You know, these types of of really sort of market integrity um and and market transparency mechanisms I think are a key um reason that uh you know the CTC regulated markets have functioned so well over the previous decades.
▶ 2:05:27And I think you know the fact that the Clarity Act has these core principles or sort of analoges of those core principles um you know really is promising for its ability to um uh you know sort of have similarly robust digital commodity markets. But I think at the same time you know that the clarity act appropriately adds sort of additional core principles that are tailored for digital assets.
▶ 2:05:47You know, for example, there are requirements to disclose information that's specifically relevant to digital assets like digital asset economics, source code, transaction history that maybe aren't sort of you wouldn't you wouldn't see those those requirements for other commodities because they just aren't applicable. But, you know, I think um in that regard, the Clarity Act is very appropriately tailored to digital assets in the core principles that it sets Okay. All right. Thank you.
▶ 2:06:12Just following up on then, how how do these core principles work to ensure that the exchanges are wellrun as well as provide strong consumer protection? Well, I think some examples of of ways that the core principles ensure exchanges are wellrun are are sort of things like, you know, recordkeeping requirements, um requirements to um you know, have system safeguards in place, um you know, obligations to you know, undergo examinations, for example.
▶ 2:06:40Um I think those are ways that you know both the regulators can come in and make sure that you know there are records there are um you and also I think financial integrity and financial resourcing requirements those are all sort of ways that um you know the CFTC for example will will come in and and and make sure that the exchange is um you know through through examining records and through looking at the exchanges uh financial um wherewithal will make sure that it's being appropriately run and that you know there aren't any cyber security or other system safeguard requirements or um concerns.
▶ 2:07:17All right. I' I'd still like to follow up on some of the FTX um situation previously with my remaining time and shoot this to Mr. Miller. Um could you maybe it's been answered but I'd like to hear a little more on what what would have happened um what what do you think it would have been like if the situation if these consumer protections had been in place in the Clarity Act uh for these dig digital assets if they'd
▶ 2:07:47been regulated under Clarity Act? How how much better would that have turned out? Thanks for the question, Congressman. So you you would have had um an audit and examination requirement over customer funds and you would have had an obligation of customer funds to be held in a segregated way. Those three tools ensure that customer funds cannot be accessed by founders um malfeasants acting persons or otherwise.
▶ 2:08:12And so in the FTX case, there wouldn't have been a path for the founding team to access the customer funds without a regulator knowing about it. Okay, good. I appreciate that. Thank you both. And Mr. Chairman, I know with Mr. Crawford out of the room, we really do know where the best rice comes from. So, thank you. I yel back, sir. Gentleman yields back. Uh, now please recognize Mr. Tandoor for 5 minutes. Uh, good afternoon.
▶ 2:08:38And, uh, thank the members here, all of you to be here and educate us and give us your expertise. Uh, I want to thank the bipartisan coalition including U. Chairman Thompson and Chairman Johnson and ranking members Craig and Davis who introduced the Clarity Act.
▶ 2:09:04Effective digital asset regulation is key to a successful market where both buyers and sellers of digital assets can thrive. uh this bill while not perfect represents a major step in the right direction to ensure that United States can be a leader in future innovation in the digital asset market. Uh I'm a serial entrepreneur myself.
▶ 2:09:33Um and I'm looking at this from u uh the entrepreneurial community and uh is um the clarity act um uh how does that help um and my question is to any one of you on the panel.
▶ 2:09:53How does this um clarity act u help uh in assuring uh the entrepreneurial community to stay in the United States because they could go take their laptops and computers and go anywhere in the world. Why uh does how does this help them to stay in the United States uh keep uh the development the innovation here in the United States?
▶ 2:10:21Uh how does this clarity act uh help and do you see uh areas where this clarity act lack uh in giving that confidence uh that we do have a regulatory environment where they can uh you know foster and do better. So just wanted to get your input on any of I'll start with and thank you for the question, Congressman.
▶ 2:10:50As a fellow entrepreneur, I can say that um launching tokens in the US has been difficult. Uh we went through a lot of challenges in launching our own token and a lot of uncertainty. Uh back in 2022, we already know that the internet has yielded so many great innovations in the US. Uh from you know Netflix to Facebook to Amazon to Google and so on so forth. Um I'd love to see the next iteration of these entrepreneurs happen uh you know for web 3 in America and in order to have that happen we have to have that regulatory clarity.
▶ 2:11:19We have um you know millions of programmers here who are going to careers in other in other places uh other in other fields because the lack of clarity that exists today and I think with with the clarity act you know no pun intended um we're going to start to see that innovation happen here uh in America at tremendous scale um we've talked to so many different projects in this space about um what they want to do and how they want to launch tokens and how they want to build innovative products uh whether it's digital identity payments infrastructure commerce
▶ 2:11:49Uh and what we do see is that this lack of clarity makes it challenging for them. They don't have the necessary the resources to invest uh to to find out how to best do things. And so uh I I do believe strongly that with this um with this new legislation, it is going to lead to a huge innovation wave within America and America can be strong leaders in this space of blockchains and web 3. All right. Well, many of you are familiar with um the FIAT 21 uh bill from last Congress.
▶ 2:12:20Uh where does clarity act improve upon fit 21 and where does it take a step backwards? Anyone al thank you for the question congressman. I I think what the clarity act gives us is uh direct and clear registration requirements. They tell the businesses and the founders, the entrepreneurs where to go and which licenses they need. Um, that is important.
▶ 2:12:45It also creates space for innovation around decentralized finance and and it instructs the regulators to continue thinking about that topic while leaving space for innovation. I think those are two critical components. Thank you so much. And uh, Mr. Chairman, I yield it back. Gentleman yields back. Thank the gentleman. I recognize the uh u gentleman from uh Wisconsin, Mr. Van Nordon, for 5 minutes. Thank you, Mr. Chairman. Uh Mr.
▶ 2:13:14Miller, I read your uh your CV here and it's very impressive. Um I do have one question though. You're Well, you're welcome. I see that you are the general counsel for FTX US. Is that correct? That's the That's correct. How did that turn out? So, you might recall or have heard in the news that the global FTX group entered into bankruptcy in November of 2022. When were you on board? I I joined in 2021 and left after the bankruptcy file.
▶ 2:13:43Did you contribute or were you uh did you profit financially from FDX? Um my role there was the as the general counsel of That's not my question. I asked you if you if you profited from the failure of FTX. I did not profit from the failure of FTX. Okay. Well, thank you for clearing that up. Um, I'm going to ask you, starting with you, doctor, uh, tell me if this is an accurate statement, please.
▶ 2:14:07Uh, Bitcoin is a decentralized, scarce, and secure network for transferring value without any ability to restrict it. Altcoins are unregulated tech startups that regularly result in massive losses by retail investors while their promoters get rich. Is that accurate? Uh, I definitely have my views. Um but is that accurate in my view? I I would I would think not. But um you you why not?
▶ 2:14:35I think it's really this how is that inaccurate I guess would be the way to phrase that. I think this space is lack of clarity around regulation and is really led to that issue. Good to go. Uh sir uh Bitcoin is a decentralized absolutely scarce and secure network for transferring value without any ability to restrict it. Altcoins are unregulated tech startups that regularly result in massive losses by retail investors while promoters get rich. Is that accurate? I don't know. I don't invest in altcoins and they're not under the SEC.
▶ 2:15:04So, you have no idea what you're talking about then. Is that what you're telling? No, no, no. Uh, the ones that are under the SEC jurisdiction are the ones that I'm more familiar with. Initial coin offerings and things like that. So, altcoins, meme coins, stable coins. Yeah. The SEC has said that they're not under the same jurisdiction. So, you're narrowly focused on one thing and you don't have an understanding, a broad understanding of this entire ecosystem. I I have a casual understanding of it, but as there's an expert testifying, it's based on the SEC's. Thank you. I appreciate that, Mr. Miller. Yes, sir. Do you want me to read that again?
▶ 2:15:32Bitcoin is a decentralized, scarce, and secured network for transferring value without any ability to restrict it. Altcoins are unregulated tech startups that regularly result in massive losses by retail investors while promoters get rich. Is that an accurate statement? So, I think we have several enforcement fraud-based actions against what I'm asking. If you reflect on your your former vocation or current vocation when you're the general counsel of FTX, would that statement be accurate?
▶ 2:15:59The statement retail investors get There are altcoin offerings that we should not have and the Clarity Act will make them. So you're I'm not talking about the actor. I'm asking you a very direct question. So did retail investors get fleeced while a bunch of people got rich?
▶ 2:16:17one guy went to prison for 25 years uh working with FTX which you were the general counsel of there sir you should be intimately familiar with this is that an accurate statement or not there were customer losses when FTX file for ma'am we're not listening so is that an accurate statement should I read it again for you please do you need okay here you go Bitcoin is a decentralized scarce and secure network for transferring value without any ability to restrict it altcoins are unregulated tech startups that regularly literally
▶ 2:16:47result in massive uh losses by retail investors while promoters get rich. Is that an accurate statement? Congressman, we have seen altcoin failures that did, you know, result in investor losses. I think we've seen, you know, in other markets, we've seen, you know, similarly sometimes see stocks go to zero and see massive losses. But I do think the bill puts in place the kind of disclosure mechanisms and other um, you know, protections against insiders sort of dumping tokens that I think help. Thank you.
▶ 2:17:16And I I want to be crystal clear. Uh I view these types of currencies as a way to uh help guard against tyranny. Um and I want them to be independent from the government. They should be regulated to only to the point where we can't fleece people like uh Mr. Miller is the general counsel for FDX. So that happened. I don't want that to happen again. But these currencies are critical for us to maintain freedom. We have to be able to exchange in commerce without the government getting in our business.
▶ 2:17:47And so I I'm supporting your efforts. I'm just I just want you to really focus on what the heck's going on here and understand it ain't about you. It's not about, you know, making a dollar off another dollar. It's about making sure that American citizens have the and world citizens uh because these are global commodities to make sure that they have the ability to transact uh amongst themselves without the United States government or other governments getting into our business. And with that, I yield back. Gentleman yields back.
▶ 2:18:17Now recognize Miss Tuda from the great state of Hawaii. Thank you, Mr. Chair. Um and thank you to the witnesses that are here. Aloha, Dr. ing. It's great to see another Komaina in the room. Uh the potential for digital assets to transform our modern financial systems is undeniable and I appreciate the committee's commitment to developing a thoughtful bipartisan framework to regulate these new technologies.
▶ 2:18:42Last Congress, we took steps to develop a modern framework for regulating digital assets with the FIT 21 Act. And many of us did raise strong uh concerns that the legislation did not go far enough in establishing strong consumer protection standards, particularly around disclosures, fraud prevention, and cyber security safeguards.
▶ 2:19:01In the wake of several high-profile cases of cryptocurrency fraud and bankruptcy among crypto exchange companies, um, as was just mentioned, like the collapse of FTX in 2022, I believe it's crucial that we bake robust, strong consumer and investor protections into our regulatory framework for digital asset markets.
▶ 2:19:19Um we have an important opportunity with the clarity act to prevent future market catastrophes by setting the right conditions to ensure security and transparency for investors while also promoting innovation in this area. Um Mr. Peivvar are your testimony highlights the importance of consumer protection measures and federal security laws such as disclosure requirements that aid informed decisions and best interest standards and other fiduciary duties that ensure fair treatment.
▶ 2:19:48As we develop frameworks for regulating digital assets, what are the key customer protection elements that we should take into consideration and how do the protections in the clarity act compared to those provided by the SEC for other types of financial transactions? Thank you for that question. Um, it it's the same ones that the SEC already has, right? So, so one investor protect the the foundation is disclosure, right? So giving proper disclosure about meaningful information to make informed investment decisions about whether to buy, sell securities or vote their shares.
▶ 2:20:18So that's where it starts with. Then there's the protection of the actual customer assets. And Ryan talked about at the CFTC, it's basically the same thing of the SEC. It's different underlying laws, but it's basically the same thing where you safeguard the customer assets. You don't allow the company to play with those assets. um and in the event of a failure of of of the firm that those customer assets are moved very quickly to a solvent uh institution. Uh that is there and so those are very much the same. And then you mentioned um you know best interest standard.
▶ 2:20:47There's the conflicts of interest that are still there uh involved with not putting the firm's uh interest in front of the customer. So whether it's best interest for broker dealers or whether it's a fiduciary duty for investment advisors or best execution requirements in terms of um uh the trading that's involved um those are that's a those are all principles based um and uh we talked about the the benefits of principal based um regulations that they can be tailored uh for the specific markets.
▶ 2:21:14Is there anything in particular that you would want to add or strengthen as it when it comes to customer consumer protection um into the act itself or I I think the you know the what the act recognizes is that the disclosures for digital assets are not going to be the same as for public companies uh in a couple ways. One, what is disclosed and how long it's disclosed.
▶ 2:21:35I what I really like about the act is that um you know in the in when when you have public companies or investment companies they stay securities for their entire life right with when it comes to digital assets you have this issue of early on a central common enterprise which is the definition that's used under um the howi test for an investment contract you have control by insiders insiders have information uh around the public offering but as the blockchain matures And I really
▶ 2:22:05like the phrase that's used in there in the in the in in the act evolves or matures into a decentralized blockchain system. That information becomes less important and in fact the control goes away and so the disclosure requirements sort of go away as the blockchain becomes mature. So I think that's an appropriately tailored way to think about it.
▶ 2:22:24Now, in terms of whether it's got the exact numbers and the right numbers in there, this is where um I think the SEC staff can be very helpful in providing some some maybe tweaks around the edges in terms of getting the specifics right. Okay. I'm pretty sure it was addressed, but I do think oversight discussions is really critical as we develop this as well. Um actually, I wanted to move on to to you, Dr. Ching. Um for myself, it is always an issue of accessibility.
▶ 2:22:52um especially in our rural and remote communities like where both of us grew up. And one of the promises of new financial technology is that it can broaden financial access. And but for that to happen, rural communities like ours, many of which still face gaps in broadband access and limited exposure to financial innovation, need to be able to to come along for the ride, if you will. Um so as somebody that comes from, you know, the state of Hawaii, I'm sure you're familiar with the challenges we face with connectivity, especially on the neighbor islands. Rural communities also tend to have higher underbanked population.
▶ 2:23:21Can you speak to the role a federal framework for digital asset markings can play in promoting equitable access to new financial technologies? Thank you for the question, Congresswoman. Um I I just want to start off by saying uh I think education is a big piece of this. Um I participated the first inaugural Hawaii blockchain summit last year.
▶ 2:23:40Um and also been exploring some efforts uh in the islands around u tokenizing driver's licenses as well as uh some efforts even in Mulkai to uh uh to support different kinds of uh value exchange using blockchain based based technology. I do share your concerns as well though with the lack of broadband access uh that is is difficult for everyone within the islands to kind of experience and and and benefit from the technology.
▶ 2:24:04uh as well earlier on in I think the the hearing we did discuss that blockchain is um undergoing transformation where perhaps not without internet access you can still interact with each other and then have those uh those transactions settled to the blockchain a later point when they do come in contact with internet and so we're going to from our point of view explore those technologies to make sure we can actually um enable that in the future. Thank you very much and thank you Mr. Chair for always prioritizing access in rural America like both of our districts. Thank you. I yield back.
▶ 2:24:35Very good. In the queue is Mr. Rose, followed by Mr. Mesmer at this time. And with that, the gentleman from Tennessee is recognized. Thank you, Mr. Chair, and uh thanks to Chair Thompson and ranking member Craig for holding this important hearing. And thank you to our witnesses for taking time to be with us today. Um Mr. Pivoir.
▶ 2:24:54Uh, regarding section 109 of the Clarity Act, which pertains to international cooperation, um, I'd like to explore the safeguards the SEC would likely implement when entering into information sharing agreements with foreign regulatory authorities.
▶ 2:25:11Specifically, what measures would the SEC take to ensure that sharing sensitive information with foreign regulators doesn't compromise US national security or the proprietary business interest of digital asset companies? Thank you for that question. Um, the information sharing agreements with SEC primarily are in the enforcement context and and and are information about fraud that is global in nature.
▶ 2:25:36So if you have somebody perpetrating fraud from one country and uh and and it affects US investors um and then the proceeds of that fraud are put into a bank or financial institution in another country. The information sharing agreements allow the regulator allows the SEC to find out from the regulators where the fraud was being fraud was being perpetrated to try to stop that fraud and then also to work with the regulators in the other countries um to freeze the bank accounts um to to to to get the customer money back
▶ 2:26:06um for for for the customers. Thank you for that. The Clarity Act requires four joint rulemakings between the SEC and the CFTC in order to set up efficient and functioning digital commodity markets. Importantly, these joint rulemakings clearly delineate the respective responsibilities. Opponents of this bill have criticized these joint rulemakings, citing the practical challenges uh of the SEC and CFTC coordination. Mr.
▶ 2:26:36Pivoir or Mr. Miller, and you both can speak to this. Can you highlight some of these joint rulemakings and explain why it is essential for the CFTC and SEC to coordinate on these matters? Yeah, thank you, Congressman. Yeah, in my testimony, one of the my recommendations was to try to narrow the amount of actual joint rulemaking that has to go through on the back end. Um, having been at the SEC and implement some of the DoddFrank implementations where many of them were joint rulemakings, um, it's difficult to do those.
▶ 2:27:05So, I would urge you to look through or actually talk to the staff and see how much you can get done on the front end because it slows it down on the other end. It's not because they don't work well together. It's just because they have different authorizing statutes, different ways of looking at things. Um, and their time could be better spent actually implementing the regulations rather than actually writing Yeah, thank you for the question. We're we're trending towards, you know, a single marketplace with equities, cryptocurrencies, other tokenized assets.
▶ 2:27:33And so the exchange places in many respects might be dual registered. And so the two agencies, if if the exchange places registered with both of them, need to identify a primary regulator and figure out what the role of the other regulator is. And there's a history at the two agencies of doing this all the way back to Shad Johnson through the DoddFrank Act and going forward. So I believe I believe they will do it. I do agree with Commissioner Puir that the more instruction that comes in the legislation the better. Thank you.
▶ 2:28:02And and so I take it both of you think it's it's uh not ideal but inescapable that there need to be the joint rulemakings. Is that a fair Yeah, there's some there's some issues where you just they just have to get together and do it. So I'll give one quick example is um futures contracts on stock market indexes, right? So uh a futures contract on the S&P 500 index is given to the CFTC right for jurisdiction.
▶ 2:28:28But if you have a single stock futures contract that behaves exactly like the stock and you're concerned about insider trading and so the SEC would be the implementing is is given jurisdiction over that. But what do you do with narrowbased indexes of three or four or five or nine stocks or whatever? Well, that was where the SEC and the CFTC had to come together uh on what Shad Johnson and some other things and come together and actually hammer out those things. So, there are some there are some places where they have to hammer out those things.
▶ 2:28:56But, um the the more the more you can sort of handle those on the front end, um the the quicker the the the rulemakers will actually get done. And and I believe as a part of recent executive action that you're going to end up going through OIRA a couple of times on these things. Do you have concerns about that? I do not. Um I've always been a strong proponent of costbenefit uh analysis, economic analysis at the agencies.
▶ 2:29:24Um the the you know the agencies have always been subject to additional review and have had rules thrown out on costbenefit analysis. I think going through additional review actually would uh kind of help and and and decrease the risk of uh having these things overturned. All right. I think my time's expired, so I'll uh yield back the balance of my time. Thanks, chairman. Thank you, Mr. Rose. The gentleman from Indiana is now recognized for five minutes. Thank you, Mr. Chairman, and thank you for the witnesses for being here today. Uh, Dr.
▶ 2:29:54Chang, you mentioned that Aptose had to fight through regulatory inefficiencies to make its way to market. Did the did the lack of clarity impact your your start date harm your revenue or decrease or delay customers involvement? Uh, thank you for the question, Congressman.
▶ 2:30:10uh it mainly impacted our ability to to launch to market at time to market as well as um impacted our ability to understand exactly uh how we could you know educate folks about uh token usage um we we definitely tried to be as conservative as possible um and also just by best practices. Okay. Can we assume the challenges you faced are endured by other blockchain technologies? Uh definitely we are not alone in this space. Okay. Thank you Mr. Miller and Dr. Ching.
▶ 2:30:37As individuals who have experienced the extremes of the current regulatory system and the absence of statutory structure, each of you has enlightened an enlightening perspective to share. On one end of the spectrum, honest investors are being punished while on the opposite end of the spectrum, spotty regulations have allowed bad actors to cause incredible damage. Would each of you speak to how the Clarity Act provides regulatory guide reels as described in Mr. Miller's testimony instead of a blanket that suffoc suffocates innovation?
▶ 2:31:07I think our our thank you for the question our learned experience as markets professionals is that responsible regulation promotes innovation promotes growth and promotes uh you know the deployment of capital and so I think that's where the clarity act is striking the right balance it says here is a structure opt into it you get certainty and then you can do your thank you I also agree with that I'm very supportive of all your efforts okay super thank you um with the obvious failure of the current regulatory structure
▶ 2:31:37to support innovation and dig dig in and digital asset markets. I feel the need to ask why it's taken so long to pass legislation. But I think your testimonies have already explained the draft and reddraft nature of Congress and the regulatory pendulum of administrations uh very well. The Clarity Act, like you said in your testimony, Dr. Miller, marks a bold step in actually producing legislative a legislative solution.
▶ 2:32:01It does so using input gathered not only from this year's round of comments, but last year's as One of the notable strengths of the Clarity Act is is the inclusion of the CFTC's core principles regulation. Mr. Miller, how can you speak that that this adaptive regulatory style will keep the legislation relevant in an everanging industry? Thank you for the question.
▶ 2:32:22So the core principles approach in the Commodity Exchange Act and CFTC rules allows innovators and entrepreneurs to build their business and educates them on what the expectations are from a principles-based perspective of regulators. And I I think that approach has proven uh durable over the years and it's the right approach now. Okay. Thank you. Thank you, Mr. Miller.
▶ 2:32:43Now, Miss Pazola, do you think the Clarity Act checks the right regulatory boxes in integrating both prescriptive and adaptive methods to govern digital asset market structures? Congressman, yes, I do. I think it appropriately provides the kind of flexibility that Mr. Miller was just talking about for exchanges, you know, to tailor um their compliance methods to their particular business models, which I think we've seen uh be very successful in regulation of of uh designated contract markets. So, I think there's there's that flexibility that's appropriate for the exchanges.
▶ 2:33:13I think for the regulated intermediaries, the regulation is a bit more prescriptive in some areas, you know, sort of recordkeeping, chief compliance officer requirements, um you know, thing disclosures, things of that nature. Um, and I think it's, you know, perhaps appropriately so, a little bit more prescriptive just because there is that direct interface that those intermediaries have with customers. Um, you know, they may be receiving customer funds, but they're also, you know, interacting on a daily basis with those customers.
▶ 2:33:38So, there may be sort of more instances for, you know, trust building, but also for potential, you know, fraud and and things like that. Um, when you sort of got face to face interaction or or, you know, otherwise direct interaction every day. Okay. Well, thank you. Thank you both. I'm encouraged that the text in front of us uh and heartened that developers, lawyers, and regulatory experts here have come together to in agreement that the Clarity Act gets it right. So, thank you all and I'll yield back my time. Thank you. The gentleman from Indiana.
▶ 2:34:07Before we adjourn today, I invite the ranking member to share any closing comments she may have. Thank you so much, Mr. Chairman. If this hearing proved anything, it is that there is bipartisan agreement that we need clear rules of the road to provide sufficient customer protections for retail investors and to allow innovators in this space to do what they do best. The Clarity Act is a good first step toward this shared goal.
▶ 2:34:32I want to thank the witnesses for joining us to share the firsthand perspective that we need to make informed public policy. And I want to thank uh the chairman here for holding this hearing. I hope we can continue and the subcommittee chairman. I hope we can continue to work together to strengthen this bill and broaden support for it in the US House. I still firmly believe that any market for digital assets must be fair.
▶ 2:34:58If the United States is to be a leader in this space, we must make sure digital assets do not become an avenue for political corruption. But we'll have an opportunity to talk more about that a little bit later. Again, thank you and I yield back. We're on the cusp of something special here. Major victory for consumers, markets, and innovators. And I think it is it's uh remarkable.
▶ 2:35:24I want to thank our uh those uh hearing panelists today because I do think the standard DC way all too often is to do things that are polarized and partisan uh insular, uninformed, kind of detached sometimes from the real work of a marketplace. And yet this process, the clarity act building on the successes of FIT 21 has been the opposite of that. It has been bipartisan. It has been collaborative.
▶ 2:35:52It has been informed and it has been done together in a bipartisan and biccameal uh conversation and with many stakeholders from really across the technology and consumer protection sphere uh sphere. And I think we are uh madame ranking member at uh at a spot where we can make further improvements to the bill and ultimately land in a place that is going to be a huge success for everyone involved.
▶ 2:36:19Uh with that uh under the rules of the committee, the record of today's hearing will remain open for 10 calendar days to receive additional material and supplemental written responses from the witnesses to any questions posed by a member. With that, this hearing of the committee on agriculture is adjourned.