[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]


                       DIGITAL ASSETS AND THE FUTURE
                       OF FINANCE: UNDERSTANDING THE
                   CHALLENGES AND BENEFITS OF FINANCIAL
                    INNOVATION IN THE UNITED STATES

=======================================================================

                             HYBRID HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            DECEMBER 8, 2021

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 117-63
                           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]  

                               __________

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
46-302 PDF                 WASHINGTON : 2022                     
          
-----------------------------------------------------------------------------------  


                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 MAXINE WATERS, California, Chairwoman

CAROLYN B. MALONEY, New York         PATRICK McHENRY, North Carolina, 
NYDIA M. VELAZQUEZ, New York             Ranking Member
BRAD SHERMAN, California             FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York           BILL POSEY, Florida
DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas                      BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri            ANN WAGNER, Missouri
ED PERLMUTTER, Colorado              ANDY BARR, Kentucky
JIM A. HIMES, Connecticut            ROGER WILLIAMS, Texas
BILL FOSTER, Illinois                FRENCH HILL, Arkansas
JOYCE BEATTY, Ohio                   TOM EMMER, Minnesota
JUAN VARGAS, California              LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey          BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas              ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida                   WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam            TED BUDD, North Carolina
CINDY AXNE, Iowa                     DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois                TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts       ANTHONY GONZALEZ, Ohio
RITCHIE TORRES, New York             JOHN ROSE, Tennessee
STEPHEN F. LYNCH, Massachusetts      BRYAN STEIL, Wisconsin
ALMA ADAMS, North Carolina           LANCE GOODEN, Texas
RASHIDA TLAIB, Michigan              WILLIAM TIMMONS, South Carolina
MADELEINE DEAN, Pennsylvania         VAN TAYLOR, Texas
ALEXANDRIA OCASIO-CORTEZ, New York   PETE SESSIONS, Texas
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts

                   Charla Ouertatani, Staff Director
                            
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    December 8, 2021.............................................     1
Appendix:
    December 8, 2021.............................................    93

                               WITNESSES
                      Wednesday, December 8, 2021

Allaire, Jeremy, Co-Founder, Chairman and CEO, Circle............     5
Bankman-Fried, Samuel, Founder and CEO, FTX......................     6
Brooks, Brian P., CEO, Bitfury Group.............................     8
Cascarilla, Charles, CEO and Co-Founder, Paxos Trust Company.....    10
Dixon, Denelle, CEO and Executive Director, Stellar Development 
  Foundation.....................................................    12
Haas, Alesia Jeanne, CEO, Coinbase, Inc., and CFO, Coinbase 
  Global, Inc....................................................    14

                                APPENDIX

Prepared statements:
    Allaire, Jeremy..............................................    94
    Bankman-Fried, Samuel........................................    97
    Brooks, Brian P..............................................   123
    Cascarilla, Charles..........................................   131
    Dixon, Denelle...............................................   138
    Haas, Alesia Jeanne..........................................   145

              Additional Material Submitted for the Record

Waters, Hon. Maxine:
    Statement for the record from the American Bankers 
      Association................................................   161
    Statement for the record from Chamber of Progress............   201
    Statement for the record from Creative Investment Research...   203
    Statement for the record from the Electronic Transactions 
      Association................................................   213
    Statement for the record from the Independent Community 
      Bankers of America.........................................   215
    Statement for the record from Satoshi Nakamoto, Founder of 
      Bitcoin....................................................   218
    Statement for the record from the National Association of 
      Federally-Insured Credit Unions............................   222
    Statement for the record from the Securities Industry and 
      Financial Markets Association..............................   224
    Statement for the record from Yugen Partners.................   228
    Written responses to questions for the record submitted to 
      Jeremy Allaire.............................................   230
    Written responses to questions for the record submitted to 
      Samuel Bankman-Fried.......................................   259
    Written responses to questions for the record submitted to 
      Brian P. Brooks,...........................................   298
    Written responses to questions for the record submitted to 
      Charles Cascarilla.........................................   307
    Written responses to questions for the record submitted to 
      Denelle Dixon..............................................   317
    Written responses to questions for the record submitted to 
      Alesia Jeanne Haas.........................................   327
Foster, Hon. Bill:
    Written responses to questions for the record submitted to 
      Jeremy Allaire.............................................   251
    Written responses to questions for the record submitted to 
      Samuel Bankman-Fried.......................................   353
    Written responses to questions for the record submitted to 
      Brian P. Brooks,...........................................   356
    Written responses to questions for the record submitted to 
      Charles Cascarilla.........................................   306
    Written responses to questions for the record submitted to 
      Denelle Dixon..............................................   360
    Written responses to questions for the record submitted to 
      Alesia Jeanne Haas.........................................   349
Maloney, Hon. Carolyn:
    Written responses to questions for the record submitted to 
      Jeremy Allaire.............................................   253
    Written responses to questions for the record submitted to 
      Alesia Jeanne Haas.........................................   351
Williams, Hon. Nikema:
    Written responses to questions for the record submitted to 
      Jeremy Allaire.............................................   255
    Written responses to questions for the record submitted to 
      Samuel Bankman-Fried.......................................   362
    Written responses to questions for the record submitted to 
      Brian P. Brooks,...........................................   304
    Written responses to questions for the record submitted to 
      Charles Cascarilla.........................................   315
    Written responses to questions for the record submitted to 
      Denelle Dixon..............................................   365
    Written responses to questions for the record submitted to 
      Alesia Jeanne Haas.........................................   352

 
                     DIGITAL ASSETS AND THE FUTURE
                       OF FINANCE: UNDERSTANDING
                      THE CHALLENGES AND BENEFITS
                       OF FINANCIAL INNOVATION IN
                           THE UNITED STATES

                              ----------                              


                      Wednesday, December 8, 2021

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:04 a.m., in 
room 2128, Rayburn House Office Building, Hon. Maxine Waters 
[chairwoman of the committee] presiding.
    Members present: Representatives Waters, Maloney, 
Velazquez, Sherman, Meeks, Green, Cleaver, Perlmutter, Himes, 
Foster, Beatty, Vargas, Gottheimer, Gonzalez of Texas, Lawson, 
San Nicolas, Axne, Casten, Torres, Lynch, Adams, Tlaib, Dean, 
Ocasio-Cortez, Garcia of Illinois, Garcia of Texas, Williams of 
Georgia, Auchincloss; McHenry, Lucas, Luetkemeyer, Huizenga, 
Wagner, Barr, Williams of Texas, Hill, Emmer, Zeldin, 
Loudermilk, Mooney, Davidson, Budd, Kustoff, Hollingsworth, 
Gonzalez of Ohio, Rose, Steil, Gooden, Timmons, Taylor, and 
Sessions.
    Chairwoman Waters. The Financial Services Committee will 
come to order. Without objection, the Chair is authorized to 
declare a recess of the committee at any time.
    Today's hearing is entitled, ``Digital Assets and the 
Future of Finance: Understanding the Challenges and Benefits of 
Financial Innovation in the United States.''
    I now recognize myself for 5 minutes to give an opening 
statement.
    Today's hearing is part of this committee's ongoing review 
of digital assets. Earlier this year, I created a Digital 
Assets Working Group of Democratic Members to meet with leading 
regulators, advocates, and other experts on how these novel 
products and services are reshaping our financial system. This 
hearing, and subsequent hearings on this topic, will help this 
committee consider how to support responsible innovation that 
protects consumers and investors, safeguards our financial 
system from systemic risk, promotes financial inclusion, and 
addresses environmental content, as well as to consider a 
potential central bank digital currency (CBDC).
    We have also held several subcommittee and task force 
hearings earlier this year to better understand the landscape 
of this industry. At today's hearing, which I worked with 
Ranking Member McHenry to organize, I look forward to engaging 
directly with this panel of cryptocurrency CEOs, whose 
companies issue stablecoins and provide an exchange to buy and 
sell digital assets, to understand where they think their 
products, services, and technologies are heading.
    Americans are increasingly making financial decisions using 
digital assets every day. Even some pension funds are beginning 
to invest in cryptocurrencies on behalf of retirees, despite 
the track record of volatility of cryptocurrencies as 
investments.
    The pandemic has also continued to contribute to working 
families looking for alternatives to rebuild their nest egg by 
investing in cryptocurrency. The rapid growth of this industry 
has also become more visible, with celebrity endorsements and 
ATMs that exchange cash for cryptocurrency.
    However, several questions remain as to how traditional 
rules apply and whether regulators have sufficient authority to 
protect investors and consumers while maintaining market 
integrity and encouraging innovation. Currently, cryptocurrency 
markets have no overarching or centralized regulatory 
framework, leaving investments in the digital asset space 
vulnerable to fraud, manipulation, and abuse.
    Some cryptocurrency market exchanges and stablecoin issuers 
have obtained State money transmitter and sale of checks 
licenses from multiple States, and at least three 
cryptocurrency companies have obtained conditional approval for 
national trust bank charters from the Office of the Comptroller 
of the Currency.
    Meanwhile, the Federal Reserve is conducting research on 
central bank digital currencies, and other Federal agencies, 
like the FDIC and NCUA, have announced requests for information 
from the digital assets industry. The SEC is also actively 
utilizing its existing authorities to carry out enforcement 
actions against market participants.
    As the prevalence of cryptocurrency grows, it has also 
raised environmental concerns tied to the computing power 
needed to mine some of the coins, which can rival the energy 
needs of entire countries like Sweden or Argentina. At the same 
time, the promise of digital assets in providing faster 
payments, instantaneous settlements, and lower transaction fees 
for remittances are areas that our committee is exploring.
    As more and more people invest in and use cryptocurrencies, 
the committee will continue its efforts to look at how they are 
affecting many aspects of our lives and our financial system.
    I now recognize the ranking member of the committee, the 
gentleman from North Carolina, Mr. McHenry, for 5 minutes.
    Mr. McHenry. Thank you, Madam Chairwoman.
    2021 was the year of the cryptocurrency. More Americans 
than ever are taking notice of this transformational 
technology. DeFi, DAOs, NFTs, and Web3--jargon that was really 
once just used on crypto Twitter--is quickly becoming part of 
the lexicon.
    Technology and its adoption are moving fast. Entrepreneurs 
and innovators are building and deploying the next generation 
of the internet, and firms like the ones before us are the 
onramp for many Americans to participate in the digital asset 
ecosystem.
    But this panel is only a bit of that broad ecosystem, and 
this is the first time Congress is having a hearing about 
cryptocurrencies in its fullness. But as with any new and fast-
growing industry, there are questions that need to be answered.
    I want to be clear, though. This technology is already 
regulated. Now, the regulations may be clunky. They may not be 
up-to-date. I ask my friends, my policymaker friends here on 
the Hill this question: Do you know enough about this 
technology to have a serious debate?
    If the answer is no, then we need to first seek to 
understand, to build up that understanding of this new 
technology so we can have a serious debate on how we 
appropriately respond and update regulations and perhaps laws. 
But I should be clear: The goal today is to listen, learn, and 
ask questions.
    This technology is new and exciting. It promises a new 
direction for financial economies, services, and products. I 
further ask this question: How do we make sure, as American 
policymakers, that this cryptocurrency revolution, this 
technology revolution, happens in the U.S. and not overseas?
    There are a lot of questions we have to answer, but of 
course, we need reasonable rules of the road. We know that. We 
don't need knee-jerk reactions by lawmakers to regulate out of 
the fear of the unknown rather than seeking to understand. And 
that fear of the unknown and the move to regulate before 
understanding will only stifle American ingenuity and put us at 
a competitive disadvantage.
    Throughout history, we have seen countless harmful examples 
of overregulation around the world by governments. In the late 
1800s, England reacted to the rise of cars with laws that 
required three people to operate a vehicle at all times: one to 
drive; a second to fuel up the vehicle; and a third to stand in 
front of the car and wave a red flag.
    Now, Congress should not be dumb enough to raise a red flag 
around this technology revolution. We should embrace it. We 
should understand it. And we should be the international 
leaders in this space.
    A further example is Skype, the videoconferencing platform 
that may still be a little clunky but was vital during the 
COVID shutdowns that we just experienced. And it was vital for 
some of our kids to even go to school or even have hearings on 
this massive screen here.
    Skype was illegal in most of the world when it was 
launched. There wasn't a regulatory infrastructure in place 
that allowed this novel technology, this new technology.
    And finally, when an invention called the internet began to 
boom, U.S. lawmakers and regulators struggled to fully grasp 
the immense possibilities of this innovation out of the gate. 
That was in the early 1990s, and I think we are in a similar 
state with Web3 30 years later, for Congress first to 
understand before we would seek to legislate.
    Today, it would be nearly impossible to go a day without 
using the internet to communicate. We know that. Or to move 
from point A to point B. We know that. Or to purchase 
necessities for our families. We know that.
    I would argue that the nascent technology we are discussing 
today will have just as much impact on our daily lives, perhaps 
more. And that is why we must get this right.
    My fear, however, is that we will have a partisan divide 
here. My fear is that some of my Democratic colleagues have 
already made up their minds, and they have regulatory bills 
that they are going to file in order to stifle this innovation 
or to kill it before it fully grows and blossoms.
    I hope we can work together in a bipartisan way, and I hope 
this hearing is the first of many for us to understand and get 
clarity from innovators and entrepreneurs about what is needed. 
This should allow us to have these markets thrive and grow 
while protecting our consumers and giving clear rules of the 
road to prevent fraud and manipulation.
    Forcing the private sector to navigate unclear public 
statements and regulation by enforcement is the wrong approach. 
So is demonizing an entire industry based off of the headlines 
garnered by a few bad actors.
    Understandably, there are concerns with the use of 
cryptocurrencies for nefarious activities. Let me address that. 
Do you know what else is used for nefarious activities? Cash. 
Let us dispel the rumor now that digital asset technology is a 
looming threat to our financial system. Instead, we should work 
to fully understand the opportunities that the next generation 
of the internet could provide to Americans.
    I look forward to hearing from our witnesses. And I look 
forward to having a deeper understanding as a policymaker about 
the ramifications for action by Congress before we understand 
this new technology that is now actually a decade old.
    So, with that, Madam Chairwoman, thank you for having the 
hearing. Thank you for working with us on a bipartisan panel, 
and I hope Members will take the same spirit of bipartisan 
cooperation in their questioning.
    With that, I yield back.
    Chairwoman Waters. Thank you very much, Mr. McHenry.
    I believe that this hearing itself and the witnesses that 
we have here today have answered all of your questions about 
whether or not you think we are seeking information to arm 
ourselves with the ability to make the right decisions.
    We will now turn to our witnesses: Mr. Jeremy Allaire, co-
founder, chairman and CEO of Circle; Mr. Samuel Bankman-Fried, 
founder and CEO of FTX; Mr. Brian P. Brooks, CEO of Bitfury 
Group; Mr. Charles Cascarilla, CEO and co-founder of Paxos 
Trust Company; Ms. Denelle Dixon, CEO and executive director of 
Stellar Development Foundation; and Ms. Alesia Jeanne Haas, CEO 
of Coinbase, Inc., and CFO of Coinbase Global, Inc.
    You will each have 5 minutes to summarize your testimony. 
You should be able to see a timer that will indicate how much 
time you have left. I would ask you to be mindful of the timer, 
and quickly wrap up your testimony when your time has expired.
    And without objection, your written statements will be made 
a part of the record.
    Mr. Allaire, you are now recognized for 5 minutes to 
present your oral testimony.

  STATEMENT OF JEREMY ALLAIRE, CO-FOUNDER, CHAIRMAN AND CEO, 
                             CIRCLE

    Mr. Allaire. Good morning, Chairwoman Waters, Ranking 
Member McHenry, and members of the House Financial Services 
Committee. Thank you for the opportunity to share my testimony 
with you today.
    My name is Jeremy Allaire, and I am the co-founder, 
chairman and CEO of Circle Internet Financial, a now 8-year-old 
company that has operated at the cutting edge of the digital 
assets market and digital currency technology innovation.
    Today, we are at a pivotal moment in the development of the 
next major infrastructure layer of the internet, extending from 
an internet of data, content, and communications to an internet 
of value exchange and economic coordination. In a world where 
money becomes a core feature of the internet, the United States 
should be aggressively promoting the use of the dollar as the 
primary currency of the internet, and should leverage that as a 
source of national economic competitiveness.
    Circle's mission is to raise global economic prosperity 
through the frictionless exchange of financial value, creating 
a world where financial inclusion, responsible financial 
services innovation, and protecting the integrity the global 
financial system are not conflicting objectives.
    Today, I would like to address some of the key policy 
issues facing the United States around the rapid growth and use 
of dollar digital currencies, also known as stablecoins. Circle 
is the sole issuer of USD Coin, or USDC, an innovation that 
brings the benefits of digital currency--fast, inexpensive, 
highly secure, global, and interoperable value exchange--over 
the internet without the downside of the extreme volatility 
that has plagued most cryptocurrencies. USDC is helping to pave 
the way for digital dollars to be the leading currency of the 
internet.
    While stablecoins got started as a dollar settlement layer 
for digital asset trading markets, their use in everyday 
payments is expanding rapidly. Just in the past several weeks, 
Circle has signed on institutional customers who are using 
these services for small business payments, international 
remittances, and efficient payments for remote workers. Soon, 
we believe that dollars on the internet will be as efficient 
and widely available as text messages and email.
    As the recent President's Working Group report on 
stablecoins highlighted, not all of these payment instruments 
are created equal. But by the same token, not all of them are 
part of an unregulated, ``Wild West,'' as has often been 
portrayed. In our case, we have prioritized building, 
designing, and guarding the prudential standards for USDC 
inside of and conforming with prevailing U.S. regulatory 
standards that apply to leading fintech and payments firms.
    This approach has helped USDC to reach over $40 billion in 
circulation and has powered more than $1 trillion in on-chain 
transactions. The reserves backing USDC are held in the care, 
custody, and control of the U.S.-regulated banking system. 
These are strictly held in cash and short-duration U.S. 
Government Treasuries, and we have consistently reported on the 
status of these reserves and their sufficiency to meet demands 
for USDC outstanding with third-party attestations from a 
leading global accounting firm.
    With this growth comes an increasing responsibility to 
foster financial inclusion. To that end, we aim to deploy cash 
deposits across the country, where we will allocate a share of 
USDC reserves, hopefully accruing to billions of dollars over 
time to Minority Depository Institutions (MDIs) and community 
banks as a way of improving their balance sheets, but also 
ensuring that the future of payments and banking is more 
inclusive than the past.
    The President's Working Group report on stablecoins has put 
forward a set of recommendations for establishing national 
regulatory supervision of firms such as Circle. We support this 
effort and believe there can be strong nonpartisan support for 
the appropriate Federal supervision of this highly strategic 
payments infrastructure.
    Well before the President's Working Group report, we 
announced our plans to pursue a national banking charter from 
the OCC, and we continue prioritizing active engagement with 
all of the relevant Federal and State banking regulators. There 
is much work to do in defining the critical statutory 
requirements for stablecoins. At the same time, the technology 
of blockchains and digital assets is not standing still, and 
whatever the ultimate policy and regulatory outcomes, it is 
crucial that that policy embraces and enables the United States 
to be global leaders in the development of the internet of 
value.
    As the committee works in earnest on these issues, we 
welcome active engagement and believe this to be one of the 
most important areas for economic infrastructure and growth in 
the coming decade.
    Thank you again, Chairwoman Waters and Ranking Member 
McHenry, for the opportunity to present to you today. I look 
forward to the committee's questions.
    [The prepared statement of Mr. Allaire can be found on page 
94 of the appendix.]
    Chairwoman Waters. Thank you, Mr. Allaire.
    Mr. Bankman-Fried, you are now recognized for 5 minutes to 
present your oral testimony.

    STATEMENT OF SAMUEL BANKMAN-FRIED, FOUNDER AND CEO, FTX

    Mr. Bankman-Fried. Thank you, Chairwoman Waters, Ranking 
Member McHenry, and members of the committee, for having me 
here today to testify. It is an honor to be here.
    A little bit about my background first. I grew up in 
Stanford, California; went to MIT, where I majored in physics; 
and I spent 3\1/2\ years as a quantitative trader after 
college. My goal has been to find ways to have a positive 
impact on the world and to maximize that and to do so by 
supporting some really fantastic organizations.
    In 2017, I felt like it was time to try starting up my own 
thing. So, I left my job, and I moved out West and ultimately 
got involved in the burgeoning cryptocurrency ecosystem. I 
spent about a year trading, and in late 2018 began, with my co-
founders, building out FTX.
    FTX is a global cryptocurrency exchange. We are the second- 
or third-largest exchange globally, depending on what metric 
you use, processing about $15 billion per day of trading volume 
on the platform. About a year-and-a-half ago, we started up FTX 
US, our United States-based and servicing operations.
    A few points on FTX and the broader cryptocurrency 
industry. The first is that I think that the industry has the 
potential to improve a lot of people's lives. There are a lot 
of ways that this can happen. I think that the payment side of 
this gets a lot of attention, and rightfully so. Every time 
that a common consumer goes to a market to purchase goods, they 
pay multiple percent in fees to intermediaries, and that is if 
they are lucky.
    When you look globally, trying to send money back to your 
loved ones at home is extremely difficult. It can cost tens of 
percents in fees. It can take weeks to arrive. It can get 
embezzled by various third-party scams in the middle. And in 
general, the global financial ecosystem is not one where 
sending assets to those who are important to you is easy to do, 
and this hits the people who are least off the hardest, who 
have the least access to the financial ecosystem as it exists 
today.
    When you look at the number of people who are underbanked 
or unbanked, both in the United States and globally, it is 
indicative of a system that does not work for everyone, and 
this is a product of the intermediation involved. It is a 
product of how the larger institutions have evolved. And it is 
a product of the payments infrastructure that is difficult and 
clunky enough to use that it just does not work for most 
people.
    Cryptocurrencies do provide a potential way to address a 
number of these issues, making it easier, cheaper, faster, and 
more equitable for people to do what they need to do to manage 
their financial lives.
    A little bit about FTX. We are a cryptocurrency exchange. 
We have a different structure than the traditional exchanges 
do, as do many digital asset venues. We provide open and free 
market data to all of our users.
    On a traditional venue, you pay tens of millions of dollars 
per year if you want access to the data of the market that you 
are expected to be placing orders in. You have minimal access 
to the same tools and order types that sophisticated trading 
firms have if you are accessing it through the normal set of 
intermediaries.
    On FTX, all of our users have full access to the platform. 
They have full access to the same sets of tools that 
institutions do, and they have full access to all of our market 
data, which we make publicly available for free. This is true 
whether you are accessing it via an Application Programming 
Interface (API) as a sophisticated institution, via our 
website, or via our mobile app.
    We have also put a lot of work into the risk controls on 
our platform. This is true from the financial crime side, where 
we conduct sophisticated Know your Customer (KYC) diligence on 
all of our users. In order to identify any illicit activity, we 
monitor via multiple solutions all blockchain transfers into 
and out of our exchange.
    It is true of our risk engine, which is a 24/7 risk engine 
that is unlike the traditional financial ecosystem, where risk 
builds up overnight, where there need to be separate risk 
models for weekends and overnight activity and holidays, where 
hours or days can go by with no ability to mitigate risk to the 
system. We have a transparent system where all of our public 
market data is openly available and free, and where risk 
parameters are transparent.
    And we are already regulated and licensed. We have many 
licenses globally. Here in the United States, we are regulated 
by States under the money services business and money 
transmitting regime, and we are regulated nationally by the 
Commodity Futures Trading Commission (CFTC), where we have a 
DCO, a DCM, a Swap Execution Facility, and other licensure. We 
strive to conduct all of our business in a transparent and 
regulated manner.
    I think that it is coming, and I think it is important, and 
I think that it is healthy that the industry will be regulated. 
I think it is also already regulated in a number of ways. I 
think that there are points that need to be addressed to give 
oversight of various aspects of the industry that do not have 
sufficient oversight right now, and I also think that it is 
important to do so in a reasonable and common-sense way that 
understands the industry.
    I am happy to answer any of your questions.
    [The prepared statement of Mr. Bankman-Fried can be found 
on page 97 of the appendix.]
    Chairwoman Waters. Thank you very much, Mr. Bankman-Fried.
    Mr. Brooks, you are now recognized for 5 minutes to present 
your oral testimony.

        STATEMENT OF BRIAN P. BROOKS, CEO, BITFURY GROUP

    Mr. Brooks. Thank you, Chairwoman Waters, Ranking Member 
McHenry, and members of the committee. Thank you very much for 
having me here today to talk about digital assets and the 
future of finance.
    The topic is an important one for anyone who cares about 
American competitiveness in the financial services sector, a 
financial ecosystem that empowers users over bank CEOs and 
other powerful central decision-makers, and the next iteration 
of the internet in which individuals are able not only to read 
information and write content, but also to own a piece of the 
networks themselves.
    I am the CEO of Bitfury Group, a company that provides a 
suite of infrastructure products and services in support of 
various aspects of the cryptocurrency ecosystem, an ecosystem 
many of us today refer to as Web3, since crypto assets 
generally represent either the rewards paid to participants for 
maintaining a particular decentralized network or an app that 
operates on such a network.
    Since 2011, Bitfury has designed and produced eight 
successive generations of ASIC chips and related equipment for 
conducting transaction validation activity on the Bitcoin 
blockchain, a process known informally as, ``Bitcoin mining.'' 
Along the way, Bitfury developed a series of adjacent 
businesses to make crypto assets safe, sustainable, and useful. 
Our various businesses include LiquidStack, one of the world's 
largest immersion cooling systems, focused on reducing the 
energy used in Bitcoin mining and other high-performance data 
centers by as much as 90 percent; Crystal, a blockchain 
analytics company that provides transaction monitoring and 
related compliance tools to more than 150 law enforcement 
agencies, crypto exchanges, and financial services companies in 
Europe, Asia, and North America; Axelera, a producer of 
cutting-edge artificial intelligence ASIC chips; and others.
    I believe the committee's topic today requires an 
understanding of three important threshold issues. First, a 
national policy agenda that takes crypto compliance seriously 
should assess whether it makes more sense to continue to keep 
crypto activities largely out of the regulated financial system 
or whether it makes more sense to bring them inside the system 
precisely so that they can be supervised and operated with 
appropriate levels of risk management.
    For example, is it consistent to take the position that 
only banks should be allowed to issue stablecoins, but then 
fail to grant bank charters to the largest issuers of 
stablecoins? That would, after all, bring stablecoin activity 
within the ambit of an existing national bank supervision 
system, with which we are all familiar.
    Or does it make sense to bring enforcement actions 
challenging certain crypto assets as unregistered securities, 
but then fail to allow those assets to be registered and trade 
on a national securities exchange, subject to supervision by 
FINRA and the SEC?
    Second, Americans deserve to know what our national policy 
is for a decentralized Web3 powered by crypto assets. Treating 
crypto as a single unitary activity whose main feature is the 
need for financial regulation would be like treating the 
original internet in the 1990s as primarily a tax policy issue. 
We didn't do that then. What we had in the 1990s with respect 
to Web1 that we lack today with respect to crypto is a 
comprehensive national policy predicated first on the notion 
of, ``do no harm,'' to the emerging network.
    Today, instead of focusing only on micro questions, such as 
whether a particular token is a security or whether a 
particular exchange-traded fund (ETF) may be offered, it would 
be worthwhile for the elected branches of government to grapple 
with the bigger questions, such as do we believe a user-
controlled, decentralized internet is better than an internet 
largely controlled by five big companies? Do we believe that 
the financial services sector is any less subject to network 
effects than information and commerce were in earlier 
iterations of the internet?
    Do we trust big banks more or open source software more as 
a tool for maintaining ledgers of account and allocating credit 
and capital? Can we recognize the difference between crypto 
projects failing for lack of demand, just as many publicly 
traded companies fail, and the difference between individual 
crypto projects actually being scams unworthy of being 
presented to the fair, but sometimes harsh, judgment of 
markets?
    Third, crypto policy should take into account not only any 
new risks introduced into the system, but also the risks in the 
present system that are solved by decentralization. Having 
issued almost a billion dollars in civil money penalties 
against banks and bank executives during my tenure leading the 
Office of the Comptroller of the Currency (OCC), it is clear to 
me that the present financial system has plenty of examples of 
risks and costs and safety and soundness problems that are 
being addressed in the current system. Shouldn't we take 
seriously the possibility that algorithms and open source 
software that take a measure of human error--read, negligence, 
fraud, and bias--out of the system might actually make the 
system better on net, even if there are some new risks being 
presented that need to be understood and regulated?
    Apart from those three overarching considerations, I would 
like to very quickly make two points specific to my current 
perspective on the crypto economy. One relates to the effect of 
U.S. crypto regulation on American competitiveness in both the 
technology and capital market sectors. There are a number of 
examples of U.S. regulatory decisions that have driven 
legitimate activity offshore in ways that harm U.S. investors, 
innovators, and workers.
    Can anyone explain, for example, why Fidelity Investments, 
one of America's best-known investment advisers, had to go to 
Canada to offer a Bitcoin ETF? Or why physically settled crypto 
ETFs are safe and legal in Germany, Brazil, Singapore, and 
elsewhere, but somehow not in the United States?
    Can anyone explain why crypto exchanges, stablecoin 
issuers, and others can receive e-money licenses to access the 
payment system in the United Kingdom, but in the United States 
are reserved exclusively for chartered banks, with the result 
that the GDP cost of the payment system in the United States is 
roughly 4 times the cost in the United Kingdom?
    For that matter, why is there no clear path for crypto-
focused insured depositories chartered in the State of Wyoming 
to access Federal Reserve payment services like other insured 
depositories?
    These are the big questions that I hope to address today. 
Thank you, Madam Chairwoman, and Ranking Member McHenry.
    [The prepared statement of Mr. Brooks can be found on page 
123 of the appendix.]
    Chairwoman Waters. Thank you, Mr. Brooks.
    Mr. Cascarilla, you are now recognized for 5 minutes to 
present your oral testimony.

  STATEMENT OF CHARLES CASCARILLA, CEO AND CO-FOUNDER, PAXOS 
                         TRUST COMPANY

    Mr. Cascarilla. Chairwoman Waters, Ranking Member McHenry, 
and members of the committee, thank you for this opportunity.
    My name is Charles Cascarilla, and I am the CEO and co-
founder of Paxos. During my 22-year career in financial 
services as an analyst, investor, and entrepreneur, I have 
witnessed the shortcomings and systemic risks for our financial 
market infrastructure firsthand.
    Paxos is a regulated financial institution and blockchain 
infrastructure platform. Paxos' customers include Bank of 
America, PayPal, Mastercard, Interactive Brokers, Credit 
Suisse, and many others. We help financial institutions provide 
their clients with reliable, regulated access to digital 
assets.
    Paxos also offers a uniquely structured and regulated 
stablecoin, the Pax Dollar. Each Pax Dollar is fully backed by 
one U.S. dollar. As a result, it is not volatile like other 
types of digital assets. However, it retains the same 
properties that make digital assets so appealing. It can be 
transferred nearly instantly, overnight, and on weekends, and 
it is programmable, secure, and traceable.
    Digital assets and blockchain technologies can create a 
more efficient, secure, and innovative financial system, and a 
more inclusive and equitable global economy. In the existing 
financial system, a person needs a bank account to safely store 
money, establish credit, earn interest, and borrow. Yet, 
according to the Federal Reserve, 18 percent of all Americans, 
40 percent of Black adults, and 50 percent of adults without a 
high school degree are unbanked or underbanked.
    The current system is expensive and slow. International and 
even domestic money transfers can take days. At any given time, 
there are trillions of dollars' worth of capital held up in 
transactions that have not yet settled.
    Digital assets are vastly more accessible. Anyone with a 
smartphone can download a wallet app to send and receive 
assets. No bank account is required.
    Transferring digital assets is instantaneous and 
convenient. They can be sent or received 24/7. There is no 
waiting around for wire transfers or money orders to arrive or 
for banks and stock exchanges to open. The transfers are often 
very inexpensive, in some cases costing just a penny per 
transfer.
    Digital assets can also reduce bias in finance. At its 
heart, blockchain is just a math equation. It is agnostic to a 
user's race, gender, nationality, or income. And blockchain 
permanently and publicly records transactions, reducing errors, 
fraud, and systemic risk.
    A blockchain-based financial architecture could settle 
trades on the same day, thus mitigating counterparty risk and 
eliminating the need for costly central clearinghouses. For our 
part, Paxos recently completed a successful pilot to offer 
same-day security settlements in support of SEC Chair Gensler's 
goal of reducing settlement times.
    Paxos believes regulation is essential for increasing 
public trust in digital assets and ensuring adoption. That is 
why we sought oversight by a primary prudential regulator even 
though we are not required to do so.
    Paxos became the first regulated trust for digital assets 
in the country when it was approved by the New York State 
Department of Financial Services in 2015. We adhere to the same 
Anti-Money Laundering (AML) and Know Your Customer (KYC) rules 
as banks. We are subject to regular examinations of our 
operations, procedures, and capital levels.
    Our products are also regulated. Of the world's three 
regulated, dollar-backed stablecoins, two are issued by Paxos.
    Unfortunately, the uncertain state of digital asset 
regulation is hampering the industry's development. The 
solution is not to shoehorn digital assets into a regulatory 
system designed for earlier generations of financial assets. We 
have an opportunity to build a more efficient and effective 
financial system. We believe a primary prudential State or 
Federal regulator should regulate digital asset companies and 
their products.
    Compliance standards need to be enforced. Regulation must 
ensure that customer assets are held segregated from the 
company's balance sheet.
    For stablecoins, independent auditors should regularly 
attest that assets backing the token are always held in 
reserve. Those reserves should be held in bankruptcy remote 
accounts and not available to the issuer's general creditors.
    If the Federal Government instead stifles the adoption of 
digital assets, issuers' talent and capital will flee for more 
welcoming jurisdictions. That would be a disaster for 
Americans, both consumers and workers, and our economy as a 
whole. Without regulated U.S. dollar-backed stablecoins, or a 
central bank digital currency (CBDC) and the infrastructure to 
support them, it will become increasingly less viable for other 
countries and companies to continue using the U.S. dollar as a 
global reserve currency.
    We need the government's support to create a new, more 
secure, more competitive financial system. The benefits of 
getting this right are enormous, but so are the consequences of 
getting it wrong.
    Thank you for the opportunity to provide my testimony, and 
I look forward to your questions.
    [The prepared statement of Mr. Cascarilla can be found on 
page 131 of the appendix,]
    Chairwoman Waters. Thank you very much.
    Ms. Dixon, you are now recognized for 5 minutes to present 
your oral testimony.

STATEMENT OF DENELLE DIXON, CEO AND EXECUTIVE DIRECTOR, STELLAR 
                     DEVELOPMENT FOUNDATION

    Ms. Dixon. Good morning, Chairwoman Waters, Ranking Member 
McHenry, and members of the committee. Thank you for inviting 
me to testify today. I am honored to be here.
    My name is Denelle Dixon, and I am the CEO and executive 
director of the Stellar Development Foundation (SDF). I took 
this role and joined the blockchain industry more than 2\1/2\ 
years ago. Prior to that, I was the chief operating officer of 
the Mozilla Corporation, where I spent a lot of my time 
advocating for, among other things, openness and 
interoperability in Web technologies.
    It is those same policy priorities that drew me to 
blockchain, an industry that I believe can learn from past 
mistakes made in other areas of Web development. Stellar is an 
open, permissionless, decentralized network that is optimized 
for payments. There is no single entity, including SDF, that 
controls the code base of the network or its growth. You don't 
need permission to use this technology. Just like the 
underpinnings of the internet, it is ready and available for 
use to anyone.
    Importantly, and especially in the context of this hearing, 
Stellar was designed for asset issuance, making it possible to 
create, send, and trade digital assets backed by nearly any 
form of value. And it also was designed with compliance tools 
built in to help those asset issuers meet their own compliance 
obligations.
    The Stellar platform is a pioneer of tokenization, 
optimized for fiat-backed asset issuance before stablecoin was 
even a word, and over the last few years, an ecosystem of 
businesses and users have built use cases around Stellar-based 
stablecoins due to their incredible ability to solve many of 
the problems we see in today's payment landscape.
    Despite the headlines, what is happening in the world with 
blockchain, with cryptocurrency, and with stablecoins is not 
just lending, trading, and borrowing. Other use cases are 
active and focused on solving real-world challenges using the 
technology.
    Let me start with MoneyGram International. MoneyGram is 
building a solution on Stellar that enables seamless conversion 
between cash and digital assets. MoneyGram's network integrates 
with the Stellar blockchain to enable cash funding of digital 
accounts and payout in different currencies of the consumer's 
choice using stablecoin. It is using Circle's USDC coin.
    In real terms, consumers will be able to send value in the 
stablecoin and easily convert to local fiat currency for 
instant pickup at thousands of participating MoneyGram 
locations globally. This is in pilot phase right now in the 
U.S., and is expected to be widely available in 2022.
    Another example, Leaf Global Fintech, has built a solution 
for refugees and cross-border goods traders who are vulnerable 
to theft while carrying across borders. With Leaf's wallet, 
these users can save their money in multiple currencies, 
benefit from cross-border transfers, and pay for goods and 
services.
    That functionality is only possible because they leverage 
Stellar's ability to issue assets, to issue stablecoins, and to 
exchange value with low transaction fees and high speed. This 
use case is live and operational today.
    The last use case I would like to touch on is one that is 
in development. Tala is best known for its mobile lending app, 
which enables its customers to apply for a loan and receive an 
instant decision, regardless of their credit history. Tala is 
now working to expand their offering by using Stellar assets 
and stablecoins to help their current customers with credit by 
allowing borrowing, spending, saving, investing, and sending 
and receiving.
    There are many more valuable use cases in the Stellar 
ecosystem that I would love to be able to share with you today, 
but I would just briefly like to mention that in a recent 
report from the G20 and IFC, there were five Stellar ecosystem 
companies named for their innovative solutions in digital 
finance supporting MSMEs.
    Use cases like these are in varying states of maturity, but 
their current and potential value is undeniable. And none of 
these use cases would be possible without stablecoins. 
Stablecoins are a core technological component, and by 
extension, that means stablecoins are essential in delivering 
on financial inclusion.
    That brings me to the President's Working Group (PWG) 
report on stablecoins. The PWG report raises legitimate risks, 
but its recommended solutions go too far. Specifically, to 
limit stablecoin issuance to insured depository institutions is 
not narrowly tailored to the actual risk of stablecoin 
arrangements for the simple reason that although there are 
outliers, most stablecoins, unlike bank deposits, are fully 
reserved.
    Instead, we advocate for a regulatory approach that focuses 
more on stablecoin reserves by requiring stablecoin 
arrangements be fully reserved by appropriate assets, requiring 
reserves to be held at insured depository institutions, 
creating clear standards for regular audit and public 
disclosure of stablecoin reserves and key contractual terms 
regarding redemption, and by making it clear that payment 
stablecoins are not securities.
    Of course, regulators must be empowered to oversee these 
requirements. The framework should allow oversight through 
State banking supervision or a narrowly tailored charter of the 
OCC. In our view, this would promote the safety and soundness 
of stablecoin arrangements.
    We have started to see how innovation can be hampered in 
other parts of the world when regulators and lawmakers react 
prematurely. In Nigeria, stablecoins and blockchain technology 
were eliminating costly foreign exchange and transaction fees 
and slow processing times until the Central Bank of Nigeria 
abruptly ended that business model. Many innovators have 
consequently been stopped in their tracks.
    As we walk away from this hearing, I urge you to look at 
the industry and technology beyond the narrow lens of 
applications that often dominate the news.
    Thank you for having me here today, and I look forward to 
your questions.
    [The prepared statement of Ms. Dixon can be found on page 
138 of the appendix.]
    Chairwoman Waters. Thank you, Ms. Dixon.
    Ms. Haas, you are now recognized for 5 minutes to present 
your oral testimony.

STATEMENT OF ALESIA JEANNE HAAS, CEO, COINBASE, INC., AND CFO, 
                     COINBASE GLOBAL, INC.

    Ms. Haas. Chairwoman Waters, Ranking Member McHenry, and 
members of the committee, good morning, and thank you so much 
for this opportunity to testify on digital assets and the 
future of finance.
    My name is Alesia Haas, and I serve as the chief financial 
officer of Coinbase Global. I also serve as the chief executive 
officer of Coinbase, Inc., our U.S. subsidiary.
    I joined Coinbase in 2018. I was formerly the chief 
financial officer of Sculptor Capital and OneWest Bank, and I 
have spent 20 years in the financial services industry.
    Today, I am here to introduce Coinbase, talk about the 
evolution of crypto, and highlight today's regulations and how 
they could be changed to advance bipartisan goals of protecting 
consumers and promoting innovation.
    Coinbase's mission is to increase economic freedom in the 
world. We were founded in 2012 with the idea that anyone, 
anywhere should be able to easily and securely send and receive 
Bitcoin. Over the last 9 years, our products and services have 
expanded to meet our customers' needs in the rapidly-evolving 
crypto industry.
    We have customers in every State except the State of 
Hawaii, and as a remote-first company, we have employees in 45 
States and in the District of Columbia, including 24 of the 25 
States represented by this committee. We now securely store 12 
percent of the world's crypto on our platform. This is across 
over 150 asset types, and we offer customers the opportunity to 
learn, to sell, to send, to receive, and to buy more than 100 
assets on our platform.
    Additionally, we offer customers the opportunity to spend, 
to borrow, to earn, to stake and transact on select assets. We 
serve more than 73 million customers globally, including 10,000 
institutions and 185,000 application developers.
    Importantly, nearly 50 percent of our transacting customers 
are doing something other than buying and selling crypto, which 
indicates to us that crypto has moved past its initial 
investment phase, and we are now in the long-expected utility 
phase of this ecosystem.
    Since our founding, Coinbase has strived to be the most 
secure, trusted, and legally-compliant bridge to the crypto 
economy. Coinbase is federally-registered as a money services 
business with the Financial Crimes Enforcement Network 
(FinCEN), licensed as a money transmitter in 42 States, holds a 
bit license and trust charter from the New York Department of 
Financial Services, and we are authorized to engage in consumer 
lending in 15 States. We have a robust Anti-Money Laundering/
Bank Secrecy Act (AML/BSA) program, and we are one of only two 
digital asset members of the Department of the Treasury's Bank 
Secrecy Act Advisory Group.
    In addition to the various State regulatory regimes, we are 
subject to Federal oversight from Treasury, the CFTC, the SEC, 
the FTC, and the CFPB. Much like the adoption curve of the 
internet in the 1990s, we are seeing dramatic advancement in 
crypto participation. There are more than 220 million crypto 
holders globally, and around 16 percent of Americans have 
invested in, traded, or used cryptocurrency.
    Total crypto market capitalization at the end of the third 
quarter was over $2 trillion, up from $800 billion as of the 
end of 2020. Coinbase's platform is powering the crypto 
economy, a new financial system for the internet age, which we 
believe is a critical infrastructure layer to Web 3.0. 
Technologies like nonfungible tokens, which we call NFTs, and 
decentralized application platforms will lead the way to Web 
3.0, which will revolutionize the internet, much like the 
industry was revolutionized when it went from static content to 
the dynamic engagement content we have today.
    We believe sound regulation is central to fueling crypto 
innovation and adoption. That is why we introduced our digital 
asset policy proposal, which we referred to as dApp. The dApp 
assessed the challenges of the existing regulatory framework 
and proposed a four-pillar solution.
    First, we believe the government should recognize digital 
assets under a new comprehensive framework that recognizes the 
unique technological innovations underpinning digital assets.
    Second, the responsibility for this new framework should be 
assigned to a single Federal regulator. This regulator would be 
charged with establishing a registration process for 
intermediaries, which we refer to as marketplaces for digital 
assets.
    Third, this new framework should have three goals to ensure 
holders of digital assets are empowered and protected: we 
believe in enhanced transparency through robust and appropriate 
disclosure requirements; we want to protect against fraud and 
market manipulation; and we want to promote efficiency and 
strengthen our market resiliency.
    Our fourth and final pillar is to ensure that regulatory 
solutions promote interoperability and fair competition.
    In conclusion, Coinbase believes crypto will drive 
transformational change across society in positive ways. This 
is why our mission is to promote economic freedom around the 
world. Disruption always challenges the status quo, but we 
believe sound policies can improve the system for everyone.
    We applaud Chairwoman Waters, Ranking Member McHenry, and 
the members of this committee for holding this important 
hearing. Thank you for the opportunity to discuss these 
important issues, and I look forward to answering your 
questions.
    [The prepared statement of Ms. Haas can be found on page 
145 of the appendix.]
    Chairwoman Waters. Thank you very much.
    I now recognize myself for 5 minutes for questions.
    Mr. Cascarilla, I am a bit concerned about your company, 
Paxos', partnership with Facebook, which is now calling itself 
Meta. As you know, Facebook has attempted several times to 
enter the cryptocurrency market. Starting in 2019, they founded 
the Libra Association, based in Switzerland, with the goal of 
creating a stablecoin, but suspended its activities after this 
committee held hearings and I, along with other Members and 
U.S. regulators, raised significant concerns, leading to a 
number of Libra Association members pulling out.
    Now, in partnership with Paxos and Coinbase, Facebook has 
launched a pilot project with its digital wallet, Novi, for a 
limited number of individuals in the United States and 
Guatemala to send and receive money using your stablecoin, 
known as USDP or Pax Dollars. As you know, one of the 
recommendations in the recent President's Working Group report 
focuses on mitigating systemic risk posed by stablecoins as 
well as concentration of economic power concerns.
    The report, among other things, recommends legislation that 
stablecoin users must comply with activity restrictions that 
limit affiliation with commercial entities similar to 
restrictions most banks face to promote the separation of 
banking and commerce. While your partnership with Facebook is 
reportedly a pilot limited to a number of users in Guatemala 
and the United States, what is stopping Facebook from, in the 
future, allowing its nearly 3 billion monthly active users to 
make payments and save funds with the Pax Dollar or another 
previously-issued stablecoin through a Novi wallet?
    If this were allowed at such a scale, how would this not 
undermine the U.S. dollar and the world's reserve currency?
    Mr. Cascarilla. Thank you for the question, Chairwoman 
Waters. I think it is important to note in the case of Novi 
that they are a customer of Paxos, just like any other customer 
of Paxos. We have an open product. They could use that product 
in the open market. They decided to come to Paxos. And I think 
they did that because we have the most regulated stablecoin 
product, and I think that was an important decision for them 
that they wanted to use a well-regulated product.
    And I think another important point here is that Novi is 
our customer that is a subsidiary of Facebook/Meta. But Novi 
itself is a regulated money services business. They are 
regulated to operate in almost all States in the United States, 
and we have done extensive due diligence on their controls and 
the regulatory oversight that they have, and we feel very 
confident that they are following those.
    And so, in terms of the Novi usage of our product, it is 
just like anybody else, just like if they had a bank account, 
which they do, and they were using it. In that way, the 
services they are getting from us are no different than 
services they get from any other financial institution with 
which they have a relationship.
    Chairwoman Waters. And this is supposedly a pilot that is 
limited to a number of users in Guatemala and the United 
States. What is stopping Facebook from, again, in the future, 
allowing its nearly 3 billion monthly active users to make 
payments and save funds with the Pax Dollar or other privately-
issued stablecoins through Novi wallet?
    How long is this pilot? Can you describe it?
    Mr. Cascarilla. Yes. The pilot is limited and controlled. 
It is something that we worked together with our regulator on, 
and they have reviewed our program.
    Novi would be best-positioned to talk about their plans to 
expand it. But right now, they are in a pilot phase. It is just 
the U.S. and Guatemala. It is quite limited in scope and size.
    Chairwoman Waters. I now recognize the gentleman from North 
Carolina, Mr. McHenry, the ranking member of the committee, for 
5 minutes.
    Mr. McHenry. Thank you.
    Mr. Brooks, let's step back from digital assets and 
blockchain for a moment. Let's talk about where the internet 
was, where it has come to, and where it is going. We are trying 
to level set here for policymakers. So, originally, the 
internet was a read-only format, in essence, for consuming 
information. And then, there are additional layers that we 
placed on it, and it became much more interactive.
    But counterintuitively, much more interactive, but much 
more centralized in Web1, and Web2. What we are hearing now is 
Web3. Policymakers need to understand the nature of Web3. This 
is a hearing about a component of Web3.
    Along those lines, what are the characteristics that 
defined Web1 and Web2?
    Mr. Brooks. Mr. McHenry, thank you very much for that 
question. I think that is critical to understanding what we are 
all trying to build here.
    The characteristic of Web1, if people remember their 
original AOL account, was an ability to look in a curated 
walled garden at a set of content that was not interactive, but 
was presented to you on AOL the way that Time magazine used to 
show you the articles they wanted you to see inside of their 
magazine. Only you could see it on a screen.
    The innovation of Web2 was that, suddenly, you could not 
only read content, but you could also write content. This is 
when the blogosphere became a big thing. People remember this 
from the late 1990s, the early 2000s. The reason for the 
centralization of the internet, of course, was that all of that 
activity was being monetized by a very small number of 
companies: Facebook, as the chairwoman mentioned; Google; and 
two or three other companies.
    What makes Web3 different is the ability to own the actual 
network, and that is what crypto assets themselves represent is 
an ownership stake in an underlying network. So, when you hear 
people talk about, for example, Layer 1 tokens, what they mean 
is this is your reward for providing the ledger maintenance 
services, the computing power to the network that on Web1 and 2 
was done by Google.
    People in my hometown of Pueblo, Colorado, can actually own 
the Ethereum network, but they can't own the internet. That is 
owned by Google and a few other companies. That is what the 
project of crypto was all about is allowing people to directly 
own the networks that have native assets which are supporting 
it, and that is the nature of decentralization, where the token 
holders are the people who control the assets, not Google.
    Mr. McHenry. Okay. Token holders, for our language here on 
the Hill, those are digital assets, which are the keys to open 
up the ledger for you to participate, right? Describe to us how 
those digital assets fit into this internet revolution, Web3?
    Mr. Brooks. The concept is that you have sort of 
application layer tokens and you have protocol layer tokens. 
So, if I am an owner of Bitcoin, let's say that I am a miner of 
Bitcoin, somebody who actually creates Bitcoin, the Bitcoin is 
the reward I receive for doing the work to keep the network 
operational, and that allows me to own a piece of the Bitcoin 
blockchain.
    Or take Ethereum, which is easier to understand. The Ether 
token represents an ownership stake in the network, but on top 
of that network are all kinds of apps that get built on the 
network, much like the apps on your phone depend on the 
underlying existing network that lets the phone operate. And 
people will make judgments about which network is likely to 
win, and they will invest in the tokens in that network much 
the same way you might invest in Google stock because you think 
Google is going to scale access to the original internet.
    The difference is that here, you can vote on what happens 
in the future of a proof of stake network, for example. You can 
get rewarded through a proof of work token for maintaining a 
ledger on something like Bitcoin. But the real message here is 
that what happens on the decentralized internet is decided by 
the investors, versus what happens on the main internet is 
decided by Twitter, Facebook, Google, and a small number of 
other companies.
    Mr. McHenry. Okay. Getting this layer on digital assets 
right, for Congress to understand this, everything is built 
upon that on-ramp to this new internet. So, it's very important 
for us to be sensitive to how this develops and any actions we 
take in terms of laws and updating laws to incorporate these 
new technologies?
    Mr. Brooks. Yes, Mr. McHenry, I couldn't agree more, and I 
think when you hear about all of the problems of different big 
tech companies, the importance of an owner-controlled network 
becomes clear.
    Mr. McHenry. Okay. Owner-controlled network rather than a 
cooperative, right? And thinking in those terms, right? So if 
you are not a part of management, you are not making a decision 
in Web2. If you are a participant in the network, you are 
cooperating in the making of those decisions?
    Mr. Brooks. Exactly right.
    Mr. McHenry. I ask this not to be insulting to this panel, 
but to having level set here so we have an understanding of 
what we are talking about. This is not simply about you on this 
panel. It is about trillions of dollars of assets that did not 
exist before Satoshi Nakamoto wrote his White Paper 13 years 
ago. It is about $3 trillion in notional value at this stage 
around the development of a whole new range, a whole new suite 
of technology that will be developed across the globe, whether 
or not the United States embraces it and wants to compete or if 
it is pushed offshore.
    So, as policymakers, we need to understand what we are 
talking about here. This is a small panel--as important as you 
may be--in the discussion about Web3.
    With that, Madam Chairwoman, thank you for having this 
hearing, and I hope that we can have more understanding as 
policymakers about these important concepts.
    And thank you, Mr. Brooks.
    Chairwoman Waters. Thank you very much.
    The gentlewoman from New York, Mrs. Maloney, who is also 
the Chair of the House Committee on Oversight and Reform, is 
now recognized for 5 minutes.
    Mrs. Maloney. Thank you, Chairwoman Waters, for having 
today's hearing.
    Our financial system has been built up over time with us 
learning from each financial crisis, fixing and adjusting as 
new financial risks come forward, from the Great Depression and 
the creation of the FDIC and deposit insurance, to the Dodd-
Frank Act reforms after the 2008 financial crisis. We may not 
all agree on every aspect of those laws, but they have made our 
financial system and our entire economy more resilient, and 
consumers and investors more protected when things do go wrong.
    In 2018, the New York attorney general released a report 
from its Virtual Markets Integrity Initiative, which detailed a 
few key findings regarding crypto trading platforms on 
potential conflicts of risks interest, lack of serious efforts 
to stop abusive trading activity, and limited protections for 
customer funds.
    The report stated, ``Customers are highly exposed in the 
event of a hack or unauthorized withdrawal. While domestic or 
foreign deposit insurance may compensate customers for certain 
losses of stolen or misappropriated fiat currency, no similar 
compensation is available for virtual currency losses.''
    This is not a theoretical concern. In fact, Coinbase was 
reportedly the subject of a hack earlier this year, impacting 
at least 6,000 Coinbase customers.
    Ms. Haas, what happens today for a Coinbase customer in the 
event of a hack of Coinbase or a Coinbase wallet or in the 
event of an unauthorized withdrawal? What protections does a 
customer currently have? FDIC insurance, commercial insurance? 
Could you answer that question, please?
    Thank you.
    Ms. Haas. Yes, thank you so much for the question.
    Coinbase does secure 12 percent of the world's crypto, as I 
shared with you earlier, and we have extensive controls to 
protect our customer assets. We bifurcate our assets into two 
different storage systems. We call one the, ``hot wallet,'' and 
we call the other one, ``cold storage.'' And less than 2 
percent of our assets are held in a hot wallet, which was the 
subject of a cyber attack.
    Specifically, the incident you mentioned was not a hack of 
the Coinbase system. But in that event, where customers did 
lose funds due to other losses, we did reimburse customers for 
that event. We do protect our customers for any hack of the 
Coinbase hot wallet, and we have third-party insurance, plus we 
use our own balance sheet to protect our customers in the event 
of loss on our platform.
    With regards to what losses we typically see, though, in 
the press, we typically see these are account takeovers at the 
endpoint where a customer had lost their credentials, and then 
has had a hack of their own phone, their own personal device. 
And that is unfortunate at this point in time, because that 
loss is not well-protected for within the broader crypto 
economy. That is something that Coinbase continues to study and 
would look to over time do more to support our users for those 
losses.
    Mrs. Maloney. Okay. Reclaiming my time. My time is very 
limited.
    Is that uniform, the protections you talked about, for all 
crypto exchanges and wallets, or just for yours?
    Ms. Haas. I am speaking specifically about the Coinbase 
protections we offer.
    Mrs. Maloney. Okay. So, it is not available to others.
    Do you think customers could benefit from some uniformity 
and standardized minimum protections if and when customers lose 
their funds through no fault of their own?
    Ms. Haas. I do believe there is an opportunity there.
    Mrs. Maloney. In addition to this committee, I have the 
honor of chairing the Oversight Committee, and we recently held 
a hearing on the rise of ransomware, and strategies for 
disrupting criminal hackers. As detailed by a recent FinCEN 
report, $590 million in suspected ransomware payments were 
reported by financial institutions in the first 6 months of 
2021, and it is getting worse. So, it is no surprise to me that 
these criminals frequently seek payment for ransomware attacks 
through cryptocurrencies, and FinCEN identified several money 
laundering typologies for these actors.
    Mr. Allaire and Ms. Haas, our anti-money laundering 
requirements are paramount to prevent fraud, sanctions, 
invasions, and the financing of terrorism. And you and your 
companies have highlighted your firms' compliance programs, 
stating that these standards are important to protect the 
financial system and to drive trust and adoption. But not 
everyone in this industry believes that, and many have rejected 
or avoided compliance standards. Some actively promote 
themselves on not complying with Know Your Customer 
requirements.
    This is an entire financial services ecosystem, and one 
weak link exposes the entire system to money laundering risk, 
as highlighted by the FinCEN data I just mentioned. Could you 
share why your firms have taken your anti-money laundering 
compliance approach, and the benefits of doing so across your 
various products and services, and what steps can we take to 
bolster our anti-money laundering efforts and ensure that all 
crypto marketplaces comply?
    Chairwoman Waters. The gentlewoman's time has expired.
    The gentlewoman from Missouri, Mrs. Wagner, is now 
recognized for 5 minutes.
    Mrs. Wagner. Thank you, Madam Chairwoman.
    Ms. Haas, let's continue. SEC Chairman Gensler has 
indicated on multiple occasions that, ``The test to determine 
whether a crypto asset is a security is clear.'' However, 
Commissioners Peirce and Roisman noted that they believe there 
to be an obvious lack of clarity for market participants around 
the application of securities laws to digital assets and their 
trading.
    The lack of clarity is clear through the numerous requests 
that the SEC receives for these no-action letters. In your 
view, is additional guidance defining clear rules of the road 
for investors and market participants needed at this time?
    Ms. Haas. Thank you for the question. We believe this is a 
very important area of focus for the SEC and this committee.
    We do agree that the laws are clear. However, existing 
laws, regulation, and legal precedent make it clear that 
blockchain tokens are not securities, that we believe that the 
law clearly shows that blockchain-based digital assets are one 
of two things, either a new form of digital property or a new 
way to record ownership, as Brian Brooks spoke about earlier.
    We do believe that clarity is needed because these are new 
assets. It is a new way of transacting with these new protocols 
that we spoke about, and I think it would benefit all of us in 
the ecosystem to have agreed-upon definitions.
    Mrs. Wagner. I couldn't agree more, and I would hope that 
Chairman Gensler would be listening to his Commissioners and 
some of the feedback that you all are giving him.,
    We talk a lot about financial inclusion in this committee, 
and digital assets have the potential to provide fair access to 
financial services to all Americans, I believe that Mr. 
Bankman-Fried brought that up, and many of you did in your 
written testimony.
    I would like to start--and I know that I have limited 
time--with Ms. Dixon, and then, Mr. Allaire. How would digital 
assets and blockchain technology facilitate financial inclusion 
and benefit the 1.7 billion unbanked people throughout the 
world, and particularly the millions here in the United States? 
Ms. Dixon?
    Ms. Dixon. Thank you for the question. This is a really 
important area. Understanding that your time is limited, I will 
just say that blockchain allows value and money to flow just 
like email, so it is very simple in terms of how it can get 
from one point to another, and it does so very, very quickly.
    The importance of that is it actually can cross borders 
much more simply than anything else that is out there today. 
So, the value of blockchain is the ability to send from the 
United States, for example, to another country without having 
to reconcile with all of the different software intermediaries 
that exist today. It eliminates intermediaries, it creates less 
friction in the marketplace, and it allows users who don't have 
bank accounts today, or who choose not to get bank accounts, or 
have been derisked by a bank from being able to, to be able to 
access this technology very cleanly, because they can do so 
with a wallet.
    Mrs. Wagner. Thank you very, very much for that input. And 
Mr. Allaire?
    Mr. Allaire. Thank you, Congresswoman. I think financial 
inclusion is a critical design goal for many of us, and 
certainly as we think about USDC, today, USDC, as a payment 
technology for dollars on the internet, enables users to 
transfer dollars in a fraction of second with a transaction 
cost that can be as low as 1/20th of a penny, and with the 
throughput of the Visa network. That is a benefit that can be 
brought to individuals.
    And I would like to really emphasize something for the 
committee, which is that one of the most powerful things about 
this technology is that it is the open internet. Just like 
anyone can have an email account or a text message or access 
the internet, this is an open financial system. And when you 
combine those kinds of access, efficiency, and that openness, 
it creates an opportunity for anyone with a mobile device, 
anywhere in the world, to seamlessly exchange value with one 
another.
    Mrs. Wagner. Great. Thank you.
    Mr. Brooks, in your view, what should members of this 
committee keep in mind to avoid hampering innovation, because 
that is not what we want to do in this new marketplace, and to 
increase the financial inclusion that we talked about here?
    Mr. Brooks. Congresswoman Wagner, the answer is one word: 
Parity. If we treat traditional financial assets in a certain 
way, we should not treat internet-based financial assets in a 
worse way. For example, if you have a stablecoin that is 
functioning like a payment instrument, it should not be treated 
differently from a prepaid card or a traveler's check in the 
normal situation. The answer is parity.
    Mrs. Wagner. Great. Thank you. I appreciate this panel. 
Thank you very much, Chairwoman Waters, and I will yield back 
the couple of seconds that I have. Thank you.
    Chairwoman Waters. Thank you very much.
    The gentlewoman from New York, Ms. Velazquez, who is also 
the Chair of the House Committee on Small Business, is now 
recognized for 5 minutes.
    Ms. Velazquez. Thank you, Madam Chairwoman, and Ranking 
Member McHenry, for this important hearing.
    Mr. Allaire, Mr. Cascarilla, it is my understanding that 
earlier this year both of your companies stated that your 
stablecoins are now almost entirely backed with cash reserves 
and U.S. Treasuries. Can both of you confirm that to be true?
    Mr. Allaire. Congresswoman Vazquez, thank you for the 
question. Yes, I can confirm that 100 percent of the reserves 
that back USDC are held in cash and--
    Ms. Velazquez. Thank you.
    Mr. Allaire. --U.S. Treasuries.
    Ms. Velazquez. Mr. Cascarilla?
    Mr. Cascarilla. I can confirm that as well.
    Ms. Velazquez. Okay. Are both of your stablecoins fully, 
100-percent backed by cash reserves and U.S. Treasuries?
    Mr. Allaire. Yes, that is the case.
    Ms. Velazquez. Mr. Cascarilla?
    Mr. Cascarilla. Yes, that is right, and I would add one 
addendum. All of our U.S. Treasuries are maturing in less than 
3 months. They are T-Bills, so short maturities.
    Ms. Velazquez. Thank you. And can you please explain why 
you were offering a stablecoin that was not backed by fiat 
currency, and what prompted you to make this change? And please 
be brief.
    Mr. Allaire. Thank you, Congresswoman. USDC has been 
governed by the money transmission statutes throughout the 
United States, the permissible investment rules of money 
transmission statutes, the same statutes that govern the 
balances, the $35 billion of balances with PayPal or Square or 
other fintechs. And so, we have always been within the 
statutory requirements, and I think we have reported on that 
every month since USDC launched in 2018.
    Ms. Velazquez. Thank you. Mr. Cascarilla?
    Mr. Cascarilla. We have always only backed our stablecoin 
by short-term Treasuries or cash and cash equivalents, and the 
reason we did that is because we have a regulated stablecoin. 
We are overseen by the New York Department of Financial 
Services. We operate through our trust company. We have a 
primary regulator. That primary regulator also regulates our 
token, and importantly, that primary regulator sets the 
supervisory agreement with which we are able to then offer our 
products. And so, this was a statutory requirement for us.
    Ms. Velazquez. Thank you for your answer. And can you 
guarantee to the global public that your product is, and will 
continue to be, backed fully by the U.S. dollar?
    Mr. Allaire. We are committed to a one-for-one backing, and 
we look forward to working with Congress and Federal regulators 
on ultimately the reserve standards that are really needed for 
stablecoins as a financial instrument in the financial system.
    Ms. Velazquez. Thank you. Mr. Cascarilla?
    Mr. Cascarilla. Yes. We will always be 100-percent backed 
by U.S. dollars that are cash and cash equivalents.
    Ms. Velazquez. Thank you. Mr. Allaire and Mr. Cascarilla, 
while I do appreciate both of your decisions to back your 
stablecoins with cash and U.S. Treasuries, and voluntarily 
sharing this with the public, unfortunately, an investigation 
by New York State Attorney General Letitia James earlier this 
year calls into question the veracity of the entire stablecoin 
industry and the statements made to the public. Attorney 
General James' investigation revealed for periods of time, the 
stablecoin Tether deceived clients and markets by failing to 
hold reserves to back their Tether in circulation, which was 
contrary to your representation.
    My question to both of you is, do you think mandatory 
reporting of your reserves to Federal regulators and submitting 
to their regular examination is a good idea and something you 
will each support?
    Mr. Allaire. Congresswoman, I am supportive of that Federal 
supervision and of those reporting requirements and mandates, 
and I think that is critical to make this a mainstream 
infrastructure that can benefit the U.S. economy.
    Ms. Velazquez. Thank you. And Mr. Cascarilla?
    Mr. Cascarilla. It is important to say that we are 
regulated as a trust company. We are a regulated financial 
institution. We have been since May of 2015, where we were the 
first one in the entire country, and we are proud of that. And 
so, our products already have a primary regulator that oversees 
our issuance. That is different from everybody else.
    Ms. Velazquez. Ecuse me. Maybe I need to add to my 
question, Federal regulators. Mr. Allaire?
    Mr. Allaire. Yes. We are supportive of Federal supervision.
    Ms. Velazquez. Good. And Mr. Cascarilla?
    Mr. Cascarilla. I think Federal supervision can make sense, 
especially for firms that do not have a State regulator that 
oversees their activities.
    Ms. Velazquez. Very good. Thank you.
    Ms. Haas, and Mr. Bankman-Fried, digital asset trading 
platforms like yours play an important role in the current 
functioning of stablecoins, and therefore, also raise the 
broader question about digital market regulations, supervision, 
and enforcement. Can each of you describe the method your 
platforms use to determine the price for exchanging digital 
currency for fiat currency? I see that my time has expired.
    Thank you. I yield back.
    Chairwoman Waters. One minute?
    Ms. Velazquez. Okay. Ms. Haas?
    Ms. Haas. Coinbase is an agency-only platform. We do not 
engage in proprietary trading on our platform. All prices 
established in our platform are due to market makers, so we 
offer a platform for customers to come together to offer bids 
and asks on a variety of currencies that we offer on our 
platform. So, the market price is determined by the market 
participants.
    Ms. Velazquez. And at what stage of the transaction do you 
provide an assurance of or lock-in of an execution price?
    Ms. Haas. We have two products. We have a consumer product 
and we have what we call our pro product for our institutions 
or more advanced traders. It is important that any customer can 
choose either platform, but we tend to see consumers choose our 
easy-to-use consumer platform.
    The price displayed on the screen to the consumer is the 
price that is locked in and that we guarantee the customer.
    Ms. Velazquez. Thank you.
    Chairwoman Waters. Thank you. The gentlewoman's time has 
expired.
    The gentleman from Oklahoma, Mr. Lucas, is now recognized 
for 5 minutes.
    Mr. Lucas. Thank you, Madam Chairwoman.
    Ms. Haas, you discussed in your written testimony how the 
future of blockchain might include new areas of tokenization, 
such as property, titles, and even people's time. Could you 
discuss further what trends you currently see and how new asset 
classes could arise through blockchain technology? Where are we 
going?
    Ms. Haas. Thank you for the question. I think it is 
important to share that anything can be tokenized, any item of 
value, and this is the internet of value that we are talking 
about with Web 3.0. The early things that we are talking about 
are the protocol layer. Over the protocol layer, we see 
infrastructure being built, and then we see applications being 
built as the next layer. So, Bitcoin, Ethereum, Stellar, and 
Solana are all important protocol layers that we are talking 
about.
    And on top of these, we see applications. An interesting 
article was published yesterday that gaming platforms, so video 
games that many of you may play, and your children may play, 
gaming, where non-fungible tokens (NFTs), which means they are 
different, every token is different--think about a shield or a 
sword or something of value--are being most actively traded. 
And a significant percent of the assets in D5, decentralized 
finance in November were traded in apps.
    And so, we are seeing all types of things. We have had 
early conversations with real estate developers to get broader 
global liquidity, more liquid markets for tokens. We have seen 
a lot of innovation in the payment space and a lot of 
innovation at NFTs, with digital art.
    But this is just the tip, and I think just like back in the 
early 1990s, when we were thinking about the internet and we 
couldn't envision Uber, we don't know what the future is, and 
there is so much ahead of us.
    Mr. Lucas. Fascinating. Mr. Brooks, it is good to see you 
before the committee again. Could you discuss what key 
fundamental differences between banks and stablecoin issuers 
are important for Congress and regulators to understand when 
looking at regulatory proposals?
    Mr. Brooks. Sure. Congressman Lucas, thank you so much, and 
it is nice to see you again, as well.
    One of the historical differences between banks and 
stablecoin issuers is that banks in this country, historically, 
have been engaged in multiple different kinds of financial 
intermediation and risk-taking functions. Banks typically 
engage in three different things: deposit-taking; lending; and 
payments.
    The core feature of stablecoins is they are a new payments 
technology, and payments are one of the core things that banks 
do, right? Banks historically innovated in payments by first 
having check clearing, then later having traveler's checks, 
then later having prepaid cards and things like that. 
Stablecoin is just the faster, most modern way of transmitting 
those values.
    Stablecoin issuers, of course, don't present all of the 
risks that banking presents. They don't typically engage in 
lending or anything else. And this is one of the reasons why, 
at the OCC, we look very carefully at the possibility that 
payment companies, like American Express in a different 
generation, and Circle today, might possibly qualify for bank 
charters. They are engaged in a core banking function but not 
in the other banking functions, as to my point earlier that 
sometimes crypto is reducing risk, not increasing risk.
    Mr. Lucas. Ms. Dixon, could you also discuss this for a 
moment?
    Ms. Dixon. I think that there is a really big opportunity 
with respect to blockchain. I think when you mentioned before 
about tokenized assets, there already are tokenized interests 
in real estate that exist on Stellar, for example, or in 
fractionalized interest in U.S. stocks. So, there is 
opportunity for growth there.
    With respect to what we have with blockchain and what can 
be accessible, the method that banks already have available out 
there, but when they derisk populations and they derisk 
individuals out of the banking infrastructure, they can 
actually access accounts, hold their assets in a digital 
framework, and then do a lot of the same things that you can do 
at banking institutions, but these individuals couldn't get 
access to it before.
    I think blockchain creates that financial inclusion that we 
are all talking about and that we all want to get to, and it 
does so, I think, as Ms. Haas indicated, with the different 
layers, the infrastructure layer and the application layers--
there is so much creativity that is happening now. So, I think 
we have a long road ahead of us with respect to this 
technology.
    Mr. Lucas. Mr. Bankman-Fried, could you respond to the 
criticism that stablecoins would be rife for illicit financial 
activity, and could you compare this risk with other payment 
rails?
    Mr. Bankman-Fried. Thank you, Congressman. We, as do most 
market participants in the digital asset ecosystem, have 
advanced surveillance techniques to prevent financial crimes 
for all digital assets, including stablecoins, conducting Know 
Your Customer policies and blockchain surveillance on all users 
and deposits and withdrawals through our platform. And all 
legitimate stablecoin issuers, in addition to that, conduct 
sophisticated Know Your Customer policies on all issuances and 
redemptions of those stablecoins.
    If you compare that to, for instance, physical cash, where 
no transactions effectively have Know Your Customer or Anti-
Money Laundering or anti-financial crimes surveillance on them, 
I think that the digital asset industry has already set a 
pretty strong standard on that front.
    Mr. Lucas. Thank you. Madam Chairwoman, I yield back.
    Chairwoman Waters. The gentleman from Texas, Mr. Green, who 
is also the Chair of our Subcommittee on Oversight and 
Investigations, is now recognized for 5 minutes.
    Mr. Green. Thank you, Madam Chairwoman, and I thank the 
witnesses for appearing as well. I trust that my volume is such 
that I am being heard. If you can verify that, I would greatly 
appreciate it.
    Chairwoman Waters. We can hear you very well, Mr. Green.
    Mr. Green. Thank you very much, Madam Chairwoman.
    In the last year, the digital asset market has exploded 
from about $500 billion to $3 trillion, and there is still 
extreme volatility, it seems, in this marketplace. Bitcoin, for 
example, lost half of its value over 2 days in March, and it 
rebounded, of course, later on.
    But there are many problems leading up to the global 
financial crisis that seem to be manifesting themselves in the 
market currently. Easy credit via margin investing, lack of 
transparency, the lack of transparency that I would like to 
see, and adequate financial disclosure is not readily 
available.
    With the explosive growth in cryptocurrencies, at what 
point should we become concerned about the possibility of a 
bubble?
    Let's start, if we may, with Mr. Brian Brooks.
    Mr. Brooks. Thank you, Congressman Green. It is terrific to 
see you again, and I always find your questions extremely 
perceptive.
    What I would say about that question is that a lot of the 
price volatility of cryptocurrency has to do with the early 
stage of the market and the thinly-traded nature of the asset 
compared to, for example, U.S. real estate, global equities, or 
anything like that.
    I think the message I would land with this committee in 
response to your question, however, is that some of the things 
that make U.S. equity and debt markets more stable and less 
volatile have to do with the fact that there is a lot more 
price discovery in those areas. And what I mean by that is in 
the U.S., we have regulated equity mutual funds. We have 
derivatives products and futures products that allow the free 
trading on a 24/7 basis that provides the market with forecasts 
of what is happening in the ecosystem.
    In the world of crypto, the U.S. hasn't responded by 
developing those tools for price discovery yet, and so the 
result, in a relatively new, relatively thinly-traded market, 
is that one person unwinding their position can have a massive 
effect on the price.
    The last point I would just make very quickly is that 
something like 80 percent of Bitcoin holders have never sold a 
Bitcoin. And so, when you hear about a day when there was a 
giant price drop in Bitcoin, often it turns out that there was 
one or two large traders who were unwinding a leveraged 
position, and the vast majority of holders have enough 
confidence in it that they have literally never sold a unit of 
it.
    So, I would argue we need more liquidity and more price 
discovery to tamp down volatility, not less.
    Mr. Green. Thank you. Let's go to Ms. Dixon, please.
    Ms. Dixon. Thank you for the question. I think from the 
standpoint of what is available in the market today, one of the 
things that we need to do better in this industry, and I think 
we are working in that direction, is much like the early days 
of the Web, we need to focus on consumer-oriented products that 
have a lot of information about the challenges and also brings 
the person through from a literacy standpoint, so they 
understand. You look at user experience. You look at UX design. 
All of these things are really, really important. And as we saw 
in the early days of the Web, it happened. It came together. We 
became better at educating the audience about what is available 
and what is out there.
    The nice thing about blockchain is you have immutability. 
You have records that are out there that can't be changed. This 
information is already leveraged by Chainalysis, for example, 
in Elliptic, to demonstrate the different things that are 
happening on chain, and I think it allows us the opportunity to 
create a lot more foundational efforts with respect to user 
experience and focus on these consumer protection issues that 
you are talking about.
    Mr. Green. Mr. Samuel Bankman-Fried, if you would, please, 
I would like to hear from you.
    Mr. Bankman-Fried. Thank you for the question. One of the 
really innovative properties of cryptocurrency markets are 24/7 
risk monitoring engines. We do not have overnight risk or 
weekend risk or holiday risk in the same way traditional assets 
do, which allows risk monitoring and de-risking positions in 
real time to help mitigate volatility.
    We have been operating for a number of years with billions 
of dollars of open interest. We have never had customer losses, 
clawbacks, or anything like that, even going through periods of 
large movements in both directions. We store collateral from 
our users in a way which is not always done in the traditional 
financial ecosystem, to backstop positions.
    And the last thing I will say is if you look at what 
precipitated some of the 2008 financial crisis, you will see a 
number of bilateral, bespoke, non-reported transactions 
happening between financial counterparties, which then got 
repackaged and releveraged again and again and again, such that 
no one knew how much risk was in that system until it all fell 
apart. If you compare that to what happened on FTS or other 
major cryptocurrencies in use today, there is complete 
transparency about the full open interest. There is complete 
transparency about the positions that are held. There is a 
robust, consistent risk framework applied. And we are excited 
to work with the Commodity Futures Trading Commission (CFTC) on 
our U.S. license and regulated venue to bring a lot of this to 
U.S. customers as well.
    Mr. Green. Thank you. My time has expired. Thank you, Madam 
Chairwoman. I yield back.
    Chairwoman Waters. You are welcome.
    The gentleman from Texas, Mr. Sessions, is now recognized 
for 5 minutes.
    Mr. Sessions. Madam Chairwoman, thank you very much, and to 
the panel, we appreciate this opportunity to hear from you. I 
think it is very important for us to hear from you. You are not 
the inventors, necessarily, but you are the people who are 
going to make this work.
    I am tremendously impressed that, from what I see, a lot of 
ingenuity, a lot of entrepreneurial spirit, and lots of advice 
about the future about where this can grow is, I think, very 
important for us to listen to.
    I am in favor of what you do. I am not sure I want to go as 
far as you do on robustness of how much oversight you really 
want, because I think that in your perhaps infancy, perhaps in 
your modeling, what makes you better is what you are, and I 
respect that.
    The question I would ask, and I don't know which one of you 
to ask this, so I would just say we are always interested in a 
traditional financial model of identifying risk--what is a 
risk? We get very little into value but a lot into risk. And 
so, I would ask you the value of much of this could be compared 
to stocks. IPOs, when they first come out, they might come out 
and be worth this amount of money, and one year later, they are 
worth a lesser amount of money.
    I am more concerned with the term, ``fraud,'' of the value 
that we are selling of all these different positions that could 
be held. What do you do to try and look at what might be fraud? 
I know there has been openness, a lot of discussion about how 
you allow information to be freely gleaned. You do these 
things. But is there an investigation or an understanding about 
what might be risky, even though you accept it, or fraud? 
Anyone?
    Ms. Haas. I am happy to take that one, Congressman.
    Mr. Sessions. Thank you very much.
    Ms. Haas. I want to share a little bit, and this is 
specific to the Coinbase platform. On the Coinbase platform, we 
have various tools. One, in onboarding, as we have talked 
about, we do do KYC, but also, when we onboard our assets. We 
offer, as I mentioned, over 100 assets for trading on our 
platform. We have robust assessment of each of those assets. We 
are looking at it for legal risks. Do we think it has the 
contours of Federal securities? We do not list securities on 
our platform.
    Two, we are looking at it for compliance reasons. Is this a 
scam? Are there real people behind it? Are there people behind 
them on the Office of Foreign Assets Control (OFAC) list? We do 
not want to list that token. So, we are doing a full compliance 
review of the founders of the coin, the developers on the 
project, and then we are looking at it from a security risk. 
Can we safely secure and store this on our platform, or is 
there underlying technology risk that would be rising to a 
hack? One way we look at fraud is when we list an asset, to 
make sure it is not a fraudulent asset.
    Two, through our market rules, we do have traditional 
exchange rules for looking for spoofing, for wash trading, for 
all sorts of market manipulation on our platform, that we have 
third-party tools as well as employees that came from former 
regulators or from traditional financial services that do 24/7 
monitoring. Much like Mr. Bankman-Fried responded to the risk 
models, we do compliance monitoring on a 24/7 basis.
    We also then monitor the blockchains. One of the wonderful 
things about this technology is the transparency, and so we can 
look for transaction activity, look for patterns on a 
blockchain, and then partner with law enforcement, we file 
Suspicious Activity Reports (SARs), and we have traditional 
approaches, much like you would see in finance, but the 
transparency really changes what we can do here.
    Mr. Sessions. I think that is a key, at least to me. If you 
know anything about the Medicare system, you have Medicare 
providers, and we have probably 18 percent fraud in that 
system. It is a Federal system that has been well-understood. 
Wherever you open up your door, whatever your storefront is, 
there is somebody there that is going to try and find a way to 
take you, to spoof you, to take advantage of this.
    And it seems to me that that is something that if you have 
accepted this as part of the duty that you have, to make sure 
for the integrity of your system, it seems like to me that I 
have satisfied myself that what you have ongoing but where you 
think you want to go, we need to be supportive of you. We need 
to look at you less as something that we ought to get in and 
understand and tackle you and hold you back and more to what we 
believe the future should look like, for people around the 
world, for people in the United States.
    I would simply say to you, I encourage your integrity. I 
encourage you to avoid the pitfalls that come from there being 
some fraud that was hidden for a long period of time, and the 
industry knew it. We have seen this happen in companies--I 
don't need to go through that where fully-vetted market 
individuals still did something wrong.
    Madam Chairwoman, I want to thank you for doing this today. 
I think it is good for all of our Members, and I, in 
particular, want to thank my ranking member for his proactive 
viewpoint, of Republican members, that I hope would be 
supportive of what you are saying today.
    Thank you very much. I yield back.
    Chairwoman Waters. You are certainly welcome, and thank 
you.
    The gentleman from New York, Mr. Meeks, who is also the 
Chair of the House Committee on Foreign Affairs, is now 
recognized for 5 minutes.
    Mr. Meeks. Thank you, Madam Chairwoman, and I also want to 
thank you for putting together this very, very important 
hearing. Look, the future is in innovation, and financial 
industries is just unavoidable, and to get ahead of it. So, 
your foresight, along with the ranking member, to do this is 
really important.
    Let me first ask my question to Mr. Allaire. As you may be 
aware, communities of color often rely on minority depository 
institutions (MDIs) or community development financial 
institutions (CDFIs) to safely do business and get access to 
crucial banking needs. And given their important role as well 
as the challenges that they face, I have long been an advocate 
for robust partnerships whereby MDIs and CDFIs can leverage new 
technologies to better serve their communities, as well as our 
Circle, actually, for using and exploring such partnerships and 
creating an initiative to deploy and share United States Dollar 
(USD) coin reserve into these MDIs and CDFIs, enhancing 
financial inclusion.
    My question to you is, can you provide us a status update 
on where Circle is in implementing this program, and what sorts 
of systems will be developed to ensure the long-term success of 
the program?
    Mr. Allaire. Thank you, Congressman Meeks. I appreciate the 
question very much. For those on the committee who are not 
familiar, we recently announced a new broad-based company 
initiative called Circle Impact. It includes several key 
initiatives.
    First and foremost, something I did reference in my 
testimony as well, is an initiative to take what we hope will 
be billions of dollars of the deposits that are held behind 
USDC and actually place those with minority depository 
institutions and community banks throughout the United States.
    I think one thing that is important to understand is that 
unlike a bank that wants to maybe hoard its deposits for its 
own lending business, as a full reserve model, we are not in 
the business of lending, so it is a tremendous opportunity for 
us to work closely with banking institutions that could benefit 
from strengthened balance sheets, and that could benefit from 
what that in turn can do to open up credit and lending and 
other opportunities in these underserved communities.
    This particular initiative is one that we just began. We 
expect to have the first wave of that in place by the end of 
the first quarter. We are also looking to coordinate with 
Federal banking regulators who have their own initiatives that 
are focused on supporting MDIs and community banks, and we view 
this as a really critical and strategic part of what we can do 
to foster a more inclusive financial system.
    My final comment is simply that we believe that the 
technology of digital currency, the frictionlessness, the way 
in which individuals with mobile devices can actively 
participate, and not just domestically but interacting with 
family members around the world and safely exchanging value, 
that these can also bring significant benefits to these 
communities. And we will certainly keep the committee up-to-
date on progress with this initiative.
    Mr. Meeks. Thank you very much for that, and let me go to 
Ms. Haas really quickly. You talked about technology 
enhancements, and I know what crypto and digital currencies can 
bring to our financial markets. They are really impressive. For 
example, I know a lot of communities rely on these new modes of 
payment systems to send money to their families in their home 
countries, and this type of activity, of course, is extremely 
useful to our global economy, which is really important.
    But there are also bad actors out there that could use 
crypto or digital currencies to hide cash from illicit 
activity. Also, people can hide cash, to not have to pay their 
support payments and other things.
    My question is, what is being put in place to keep the bad 
actors out of there? I know in your testimony, Ms. Haas, you 
mentioned that there is a small amount of noncompliant foreign 
exchanges where criminal actors benefit financially from this 
activity. So, what is your assessment about global coordination 
on stamping out such activity, and what more can U.S. 
policymakers do to better coordinate with regulators across 
shores to prevent this arbitrage to which you referred?
    Ms. Haas. Thank you so much for the question. On the 
Coinbase platform, we do have KYC and BSA/AML programs, and we 
ensure that we know who our customers are and then have clarity 
on those transactions. I know other U.S.-regulated exchanges 
that we speak to have similar controls, and everybody on this 
panel here today, I think shares those views.
    There are players who do not follow these, and I think that 
is where regulation should be focused, to make sure that there 
is an expectation on what it is to perform as a digital asset 
marketplace, and that was part of our policy proposal.
    Chairwoman Waters. The gentleman's time has expired. Thank 
you.
    The gentleman from Missouri, Mr. Luetkemeyer, is now 
recognized for 5 minutes.
    Mr. Luetkemeyer. Thank you, Madam Chairwoman.
    In 2019, the average daily turnover value of the U.S. 
dollar constituted 88 percent of foreign exchange market 
transactions globally. This dominance by the dollar in global 
marketplace is a key reason why the dollar remains the reserve 
currency of the world.
    Mr. Brooks, welcome back to the committee. It is good to 
see you again. I think we have actually talked about this 
subject before in the past. But as digital assets become more 
common in the global marketplace, with the total digital asset 
market reaching almost $3 trillion, as Ranking Member McHenry 
just said, how do we ensure that the U.S. dollar remains the 
reserve currency?
    Mr. Brooks. Mr. Luetkemeyer, it is terrific to see you 
again, and I would give you a couple of thoughts on that 
important question.
    One is, if we start with stablecoins before we talk about 
other crypto assets, I have said for a long time that the 
secular reduction in dollar holdings as a percentage of global 
central bank holdings is alarming, and this has been going on 
for more than 10 years at this point. So, dollars as a share of 
the European Central Bank, the Japanese Central Bank, et 
cetera, has shrunk from 80-plus percent to more like 60-plus 
percent in a short amount of time.
    What that tells me is that in the future, with the rise of 
China and other major economies, the U.S. dollar can't take its 
primacy for granted, and we need to start thinking about 
competing on utility, and on features, not just based on a 
post-World War II monetary system that we could take for 
granted for the last 2 generations. And that is one of the 
reasons that I have been such a supporter of internet-enabled 
dollars, which allow us to compete on features, not only on 
history. I think that is really critically important.
    The second thing I would tell you is as we enter Year 11 or 
12 of a highly inflationary environment--after all, we have 
been printing enormous numbers of new dollars since the 
financial crisis--there will come a time, gradually, then 
suddenly, when the attractiveness of the dollar relative to 
other currencies could change. One of the benefits of the 
crypto economy is that it creates some counterincentives on the 
part of the Fed to do that kind of policy, because people will 
flee to other kinds of assets. And that sort of market 
competition is something that I think will ultimately shore up 
our monetary policy and keep the dollar where it rightfully 
ought to be, which is as the dominant reserve currency it has 
been for all of our lives.
    Mr. Luetkemeyer. Yes, it is very concerning to me that if 
we lose that position, our economy, our whole country, our way 
of life is at risk.
    Mr. Allaire, you made a comment in your testimony with 
regard to promoting the dollar as a primary currency. I assume 
you have a thought on this as well.
    Mr. Allaire. Thank you, Congressman. Absolutely. I think, 
as I said in my initial remarks, that we are at a really 
interesting moment in time. We are seeing this infrastructure 
layer, these blockchains, proliferate globally, at incredible 
speed. It seems likely to us that the ability to access and 
interact with these blockchain networks will reach billions of 
users over the next 2 to 3 years, and the question is, in that 
timeframe will the United States support the dollar and digital 
dollars in the form of stablecoins, because they are in the 
market, in operations today, to help the United States dollar 
be the competitive currency of the internet?
    I think that is the opportunity. I think it is in front of 
us right now, and it is one of the reasons why we are so 
focused on this as not just a national economic priority, but a 
national security priority, because clearly, if this is the new 
economic infrastructure of the internet, we want the dollar to 
play a critical and strategic role. And partnering closely with 
private companies and using open internet technologies becomes 
a way for the United States to compete versus states that are 
seeking to nationalize that infrastructure, and operate it 
themselves in a surveillance-oriented model.
    Mr. Luetkemeyer. It is interesting, what you were talking 
about a while ago. I think Ms. Velazquez asked questions about 
reserves. And I think you were talking about basically a one-
to-one amount of backing of your coin, of your asset, with U.S. 
Treasuries. You are looking, I think, at the value that you are 
backing up your digital coin with, which is basically the full 
faith and trust of the United States Government. Would that be 
correct?
    Mr. Allaire. That is exactly correct, and I think, in many 
respects, the assets that back these dollar digital currencies 
are in many ways far safer than the dollars in a bank account, 
because dollars in a bank account, as we know, are fractionally 
reserved and lent out. So, this is--
    Mr. Luetkemeyer. I don't want to interrupt, but I have one 
quick question for Mr. Brooks. You talked about, a minute ago, 
how the owner controls the network. We had Mr. Zuckerberg in 
here when he was trying to talk about his Libra, and the 
control of that--the value of it was going to be with the 
commission. My concern is, who controls the internet? We have 
seen Twitter, we have seen Instagram, and we have seen Facebook 
control people on their platforms. How concerned are you about 
outside forces controlling the platform on which the digital 
dollar is traded?
    Mr. Brooks. Mr. Luetkemeyer, I will do you one better on 
your hypothetical, which is that we have now seen major banks 
de-platforming both industry and individual customers for not 
sharing the right point of view, so these are scary ideas.
    The point of crypto is to have true decentralization, and 
the projects that succeed will be the projects that achieve 
that. Bitcoin succeeded because there are literally millions of 
participants in the node network, and so there is no CEO of 
Twitter to de-platform you, or there is no CEO of JPMorgan to 
take away your credit card. It is user-controlled.
    Some of these won't achieve that. They will be consigned to 
the ash heap of history, I predict.
    Mr. Luetkemeyer. Thank you very much. I yield back, Madam 
Chairwoman.
    Chairwoman Waters. Thank you.
    The gentleman from Colorado, Mr. Perlmutter, who is also 
the Chair of our Subcommittee on Consumer Protection and 
Financial Institutions, is now recognized for 5 minutes.
    Mr. Perlmutter. Thanks, Madam Chairwoman. Mr. Brooks, it's 
good to see another Coloradan on the panel.
    But I want to start with a couple of questions for you, Mr. 
Bankman-Fried. Ms. Haas mentioned knowing your customer, they 
avoid getting into the securities transaction business, to the 
best of their ability. That is one of the things they look for. 
I have several questions for you, and one of them will be 
completely from left field, so get ready for that one.
    Cryptocurrency market exchanges such as yours are regulated 
through a patchwork of different State and Federal agencies. 
For instance, some exchanges register as money services 
business with FinCEN at the Federal level and may also receive 
money transmitter licenses, and you have talked a little bit 
about that in your opening. How is your company registered in 
this context?
    Mr. Bankman-Fried. Yes. Thanks for the question, and I am 
looking forward to the left-field question at the end.
    In addition to a bunch of international licenses, in the 
United States we are participating in that system you 
referenced, with the money transmitter and money service 
business licenses. In addition to that, however, we are also 
licensed by the CFTC. We have a DCO, a DCM, and other licensure 
from them through FTX US derivatives, and we look forward to 
continuing to work with them to build out our products. We just 
submitted an 800-page, I believe, proposal to them a few days 
ago, that I am excited to discuss, and we are also happy to 
talk with other regulators about potential products in the 
United States.
    Mr. Perlmutter. Okay. Let's talk about another regulator 
that may touch on what you do. You talked a little bit about 
derivatives and the fact that derivatives were sort of a key 
component in the failure of the financial markets in 2008 and 
2009. Is FTX registered with the SEC?
    Mr. Bankman-Fried. The core derivatives regulator is the 
CFTC, and FTX US derivatives is registered with the CFTC. With 
the SEC, we have begun discussions and are excited to continue 
discussions there. We do not list securities on our platform as 
of now, although we would be excited to explore listing digital 
asset securities in the future, under the guidance of the SEC.
    I will also say briefly that I would be excited to see a 
unified joint regime with both CFTC and SEC involvement, to 
create sort of harmonious markets regulations between spot 
derivatives, contracts, a number of things.
    Mr. Perlmutter. Okay. Now, the left-field question. Our 
role here--there is nothing new under the sun. The technology 
may change. It may speed things up. It may make it more 
transparent. But a deal is a deal--who is taking on the risk, 
who is getting rid of the risk, who is the middleman?
    One of the things we hear about blockchain is that it is 
invulnerable, it is impenetrable, it is something that is 
super-secure, and our responsibility is to make sure that 
things are generally safe, generally honest, and that people 
aren't swindled.
    I also sit on the Science Committee with Mr. Luetkemeyer, 
and the ranking member was talking about, we are at W-3. On the 
Science Committee, we are doing a lot on quantum computing, and 
so my question to you is, what threats or benefits to a 
blockchain system will come from quantum computing?
    Mr. Bankman-Fried. Thank you for the question. In terms of 
the threats, some cryptographic algorithms are not at least 
theoretically, might not be secure under quantum computing. 
Obviously, this is going to depend on the exact details of what 
comes. And it is important that, if and when that comes, that 
blockchain security algorithms are resistant to that.
    On the same front, I think it has the potential to create 
basically new cryptographic algorithms that are faster, that 
are more secure, and that are more efficient, from a number of 
different perspectives. So, we will see what happens there.
    Mr. Perlmutter. Okay. I have a million other questions, but 
I don't have enough time to ask them, so I will yield back.
    Chairwoman Waters. Thank you very much, Mr. Perlmutter.
    The gentleman from Kentucky, Mr. Barr, is now recognized 
for 5 minutes.
    Mr. Barr. Thank you, Madam Chairwoman, and thank you for 
holding this important hearing. Mr. Brooks, it's good to see 
you back in front of our committee, and to all of our 
witnesses, thank you for your testimony.
    Mr. Brooks, I will start with you, and this is a bit of a 
follow-up to Mrs. Wagner's question. Do you think Congress 
needs to introduce legislation to provide more definitional 
clarity with respect to digital assets, and if so, do you have 
any specific suggestions?
    Mr. Brooks. I really appreciate that question. That is the 
most important issue in the short term for the industry. So. 
let me just pick up where Mrs. Wagner left off.
    If the question is, is the current test clear, it is clear 
in the sense that we know what it is. It is not clear in that a 
four-factor balancing test--I often think about what the U.S. 
trucking industry would be like if the truckers didn't know 
that the speed limit was 75-miles-an-hour. They just had a 
four-factor test of general safety having to do with how much 
sleep they got the night before, the overall size of their 
payload, and other factors. People need to know what the speed 
limit is.
    In my old agency, the OCC, what would happen is a bank 
would come to us with a new activity proposal and we would give 
them an answer. We would either give them a non-objection or we 
would not give them a non-objection, and it was very clear 
whether they would be allowed to access that.
    What happens in the United States is you have a new crypto 
project, and you walk into the SEC and you describe it in great 
detail and you ask for guidance, and they say, ``We can't tell 
you,'' and you list it at your own peril.
    Whether this comes from legislation that defines what is a 
security and what isn't a security, or whether it comes from 
Congress in the form of legislative discretion to an agency to 
say, what is a security, I would argue that a four-factor 
balancing test is no better here than it as truckers drive down 
the highway and guess what safe is.
    Mr. Barr. Yes, and SEC Chairman Gensler has been quoted as 
saying the test to determine whether a crypto asset is a 
security is clear. Mr. Brooks, do you agree that that test is 
clear? I take it from your previous answer, that the answer is 
no. But could you walk me through the process that exists today 
to determine if a digital asset is a security?
    Mr. Brooks. Yes. Thank you for that. The best test that is 
out there is a test that several of us on this panel actually 
helped to develop about 3 years ago as part of an industry 
organization called the Crypto Rating Council. When I came to 
see several of you several years ago in connection with the 
Crypto Rating Council, the way I described it to you was it is 
sort of like motion picture ratings for crypto. We don't know 
authoritatively what is a security and what isn't, because no 
authority will tell us. But what we can do, at least, is we can 
tell you the difference between an R-rated asset and a PG-rated 
asset, and people can make their risk tolerance judgments.
    The way that process works is it is an objective, 
quantitatively-based process that asks several dozen questions 
about the asset, across each of the dimensions of the Howey 
Test. It gives you a number and that number tells you how close 
you might be to danger and how far away
    Mr. Barr. Let me interrupt and just say I recognize that 
some rules or Federal regulation of both digital assets and 
cryptocurrency trading platforms might be supportive of 
bringing clarity, but I would never underestimate the ability 
of the Federal Government and regulators to stifle innovation. 
Can you give me an example of an overreach that would stifle 
innovation?
    Mr. Brooks. The idea would be to, say, let traveler's 
checks exist inside the banking system and not bring a 
stablecoin issuer inside the banking system, when they have 
applied.
    Mr. Barr. Okay. Mr. Allaire, to you. Can you talk about the 
difference between a stablecoin versus a central bank digital 
currency and what advantages does a stablecoin offer that a 
digital dollar, say at the Fed, would not be able to offer?
    Mr. Allaire. Thank you, Congressman Barr. I am happy to. I 
think the first difference is that stablecoins are operational 
and growing in the market today, and they are built on an open 
internet technology model. When we think about all of the 
things that we have seen built on the open internet, on these 
open protocols and networks, whether it is ubiquitous 
information exchange, communications, interaction the world, 
that same open internet model is the foundation for 
stablecoins. And so, I think that is a fundamental difference.
    A CBDC, which is a concept right now--it is not 
operational--would very likely be a very closed-loop technology 
that is tightly administered and run by the government, and 
would unlikely to be accessible in the same way that these open 
networks are accessible. And so, I think that is a critical 
difference.
    But I would come back to the most important difference, 
which is that most payment system innovations in the world have 
been driven by the private sector, and I think what is taking 
place today with digital currency is no different.
    Mr. Barr. Could stablecoin and your product, could it 
address some of the concerns about China's advances and the 
threat that China's advances pose to sanctions enforcement and 
protecting the dollar as the world's reserve currency?
    Mr. Allaire. I think so, yes. I will try and make this 
point concisely--the United States and the U.S. dollar is 
winning the digital currency space race today. Dollar 
stablecoins are doing trillions of dollars of transactions. The 
experimental beta of a Chinese yuan, which is government-
controlled in China, has done $10 billion of transactions. So, 
the United States is winning.
    This has the potential to grow at a very significant speed 
around the world and benefit the U.S. dollar, and benefit 
American businesses and households. So, I think that is one 
really, really critical thing to understand, and I think the 
primacy of this infrastructure and the development of this 
infrastructure, it is a strategic national security and 
national economic priority for the United States, and we need 
to get going on it right now.
    Mr. Barr. Thank you. I have many other questions as well, 
but my time has expired. Thank you, Madam Chairwoman.
    Chairwoman Waters. Thank you very much.
    The gentleman from California, Mr. Vargas, is now 
recognized for 5 minutes.
    Mr. Vargas. Thank you very much, Madam Chairwoman. I 
appreciate very much you bringing this to our attention. And I 
appreciate the ranking member, and everyone participating 
today, especially the witnesses.
    First, one of the things that has been interesting is, I 
have heard a lot of very high and noble motives today. I don't 
want to misquote people, but I have heard that the digital 
asset world, the open internet model, for all people in the 
world, is easier, cheaper, open, free market data, it is 
transparent, reduces risk, not increases risk, and there is 
less friction in the marketplace. These things are all great, 
but it is interesting that most of the people I know who have 
invested in digital currency, it is not because of that. It is 
because they think they can get rich quick, and the 
appreciation of Bitcoin is something that they want a part of. 
It is not because of all of these other wonderful things that 
the internet can do. That is not the reason at all.
    Second, it is interesting when I ask them, ``Well, do you 
know what cryptocurrency and digital assets and Bitcoin, what 
it actually is?'' And most of them say, ``No. I just know that 
you make a lot of money, and I want to invest in it. I want to 
be part of it. I want to be able to invest because I know that 
it is appreciating.''
    We have seen this before, unfortunately, and it led to, I 
think, a financial crisis around the world, when you were 
investing in derivatives and other things, and people didn't 
know what they were investing in. Then, it became very 
problematic. So, I do see the risk in this.
    Now I have to say, when this was a B problem or a B issue, 
a billion-dollar problem, it didn't seem like such a big deal. 
But now that it has become a trillion-dollar issue, and I do 
think it is challenging, really, the supremacy of the dollar 
around the world, I do think it is potentially a big problem. I 
do have concerns.
    I want to follow up on what Mr. Barr said, the issue of the 
dollar being the reserve currency, it seems that this does 
challenge it. Does someone want to comment on that? If not, I 
will pick on somebody in particular.
    Mr. Allaire. I am happy to comment, Congressman. I want to 
respond to a couple of things in your comments.
    I would agree with the fact that there are passersby and 
then there are people who are actively building and who are 
very, very close to the technical innovation, and I think, like 
investments in technology companies or in other businesses that 
we see in the stock market, you have people who are investing 
because they think it is a business or a product that might go 
up. They may not understand the details of a given 
pharmaceutical company's science but they believe that perhaps 
it is an area of innovation and they want to invest in it.
    So, I do agree that there is that distinction. But I think 
it is certainly incumbent on all of the industry participants 
to ensure that there is a great amount of disclosure, financial 
literacy around these products.
    But more importantly, coming back to the comment about the 
dollar, I think there is this growth in digital assets as a new 
kind of asset class, and I think what is important to note is 
understanding those in contrast to fiat currencies, many of the 
digital assets, in fact, I think the overwhelming majority of 
the digital assets are commodities that have utility, that are 
used to power some kind of technology network or protocol, 
thought of more like an oil or a gas than a fiat currency, so 
they exhibit those properties.
    And I don't think those will ever rival the dollar. I think 
they will grow in value because they are utilized to help 
facilitate all kinds of activity on these Web3 applications and 
networks, and I do believe that with innovations like 
stablecoins and dollar digital currencies, we could actually 
see a dramatic amount of growth in the use of the dollar
    Mr. Vargas. I am going to reclaim my time just for a 
second, because one of the things that I see is that we do have 
digital currency. We have the digital dollar already. The 
digital dollar can do all of the things that you guys were 
talking about today, with the exception that it is a fiat 
currency that wouldn't be as easily manipulated by some 
nefarious group because it would be controlled by the Fed and 
the United States of America.
    I do have great apprehension that you have these 
cryptocurrencies that are used by drug traffickers or used by 
people trafficking other human beings, and there is no good way 
to control it. I am all for digital currency, but why not the 
dollar? Why can't the dollar be the digital currency? Why can't 
we, once again, not 60, 80 percent but maybe even higher with a 
digital dollar? That, to me, makes much more sense, and it is 
much more protected, and people will not have the risk.
    But anyway, I yield back my time, but I did find this to be 
a very interesting discussion. Thank you.
    Chairwoman Waters. Thank you very much.
    The gentleman from Texas, Mr. Williams, is now recognized 
for 5 minutes.
    Mr. Williams of Texas. Thank you, Madam Chairwoman, and for 
those of you who don't know me, I am a small business owner in 
Texas, and I still own those businesses. I am a car dealer, and 
a former professional baseball player. And when I am trying to 
wrap my head around a new topic, like cryptocurrencies, I try 
to relate it back to something I understand, like baseball or 
business.
    Now, some of you may know this, but modern-day baseball can 
really be attributed to Babe Ruth. He brought in the live-ball 
era of the time and introduced power to the baseball diamond, 
and before this, teams would play small ball that was very 
conservative, where teams would literally play for one run a 
game. The entire objective was simply to get the ball in play 
so they could try to steal their way around the base pass. And 
there was nothing wrong with this whole way of playing, but 
when the White Sox won the World Series in 1906, the entire 
team had a total of 6 home runs all year.
    Then, Babe Ruth came along. Babe Ruth came along and 
totally changed everything. In 1920, he set the American League 
record of home runs with 54. To put that in perspective of how 
fantastic this feat was at the time, the previous mark to be 
set was by Socks Seybold, in 1902, with just 16. This 
introduced an entire new generation of new baseball fans, and 
for the first time ever, the New York Yankees' over one million 
fans came to see them in a single season.
    Now, with that being said, many of you are becoming the 
Babe Ruth in the financial services space. You are introducing 
a blockchain technology to the financial services industry and 
working to upend a tradition and a traditional way of doing 
business. And while many economists and so-called experts have 
been calling on the downfall of cryptocurrency, and discounting 
the future of blockchain technologies, all of you were working 
tirelessly to create something new in order to bring this new 
technology to the masses. Unfortunately, it would only take a 
few misguided curve balls, we will say, from Washington, to 
undo some of the progress you have all put into motion.
    Mr. Brooks, can you talk about some of the negative 
consequences that could happen if we take a heavy-handed 
approach to regulating this developing technology?
    Mr. Brooks. Mr. Williams, as a long-suffering Dodgers fan, 
I share a lot of the things you are talking about, and I think 
the era that you are talking about was an era when baseball 
went from focusing on not losing, to an era where it is focused 
on winning. And winning and not losing are not the same thing.
    I come back to Mr. Vargas' question from a second ago, 
which I think is the right way to answer your question. Mr. 
Vargas asked the question of people having the potential to 
lose a lot of money. These things are volatile. They are risky. 
How do we protect them from those kinds of issues?
    There are two ways of answering that. One is to prevent as 
many people as possible from accessing this amazing technology. 
For example, the way the current legal regime works is certain 
kinds of assets can only be purchased by accredited investors, 
meaning rich people. So, the only people who can get rich on 
this are people who are already rich. That would be one way of 
protecting people from losing money is to make sure that only 
the richest can access it.
    Another way of addressing it would be to make it safer, the 
way that we made equity safer 40 years ago. Right? We created 
mutual funds, diversification, sector funds, and other things 
that make it easier for regular Americans from places like my 
hometown in Colorado to buy equities without having to be stock 
experts.
    Strangely, in the U.S., we have refused to do that so far, 
so we don't allow crypto mutual funds. We don't allow people to 
diversify, the way that they do in Canada, Germany, Singapore, 
the United Arab Emirates, and a series of other regulated 
economies around the world.
    So, I would argue the way to win is to bring more people 
into the system more safely, and not to keep them out at their 
own peril.
    Mr. Williams of Texas. Great. Second question, we often 
hear that the crypto industry is the Wild, Wild West, where 
there is no regulation guiding the industry. But as all of you 
are aware, that simply is not true. The SEC and the CFTC are 
the primary Federal regulators, and our States also have strict 
regulations that all of you must be abide by.
    Mr. Bankman-Fried, can you discuss the different layers of 
regulation that FTX must abide by as an exchange, and also in 
order to uphold customers' deposits in your digital wallets?
    Mr. Bankman-Fried. Yes. Thank you for the question, 
Congressman. And putting aside the 190 other regulatory 
jurisdictions that we take part in, and the dozens of licenses 
that we are acquiring each month, in all of those, in the 
United States, there is the sort of state-level money 
transmitting license regime with money services business and 
MTLs, which we and many others are part of. For any merchant or 
financed or derivates transactions in the United States, there 
is a CFTC regime, where there is licensure required to offer 
those products.
    For any products that might be security as a digital asset, 
there doesn't exist currently a very clear pathway forward, but 
that would be an SEC-registered regime for it. Obviously, there 
are discussions about additional registered regimes for 
stablecoins and other assets as well.
    Mr. Williams of Texas. Thank you. I think my time us up 
Madam Chairwoman, so I yield back.
    Chairwoman Waters. Thank you very much.
    The gentleman from Illinois, Mr. Casten, who is also the 
Vice Chair of our Subcommittee on Investor Protection, 
Entrepreneurship, and Capital Markets, is now recognized for 5 
minutes.
    Mr. Casten. Thank you, Madam Chairwoman, and I came up 
vastly before I thought I was going to, which means that you 
will have to humor me for my ill-formed thoughts.
    I really appreciate our witnesses coming here, and I also 
feel terrible for you because we could have an entire hearing 
on stablecoin. We could have an entire hearing on blockchain. 
We could have an entire hearing on, oh, CBDCs, I suppose. And 
we could probably have an entire hearing on whether or not 
things that have forced scarcity are inherent stores of value, 
except that I think we resolved that a hundred years ago, and, 
yet, we still sort of need to debate it periodically.
    All that said, I want to start just focusing on 
stablecoins, if I could, and Mr. Allaire, I want to start with 
you. I am sure that you have seen the President's Working 
Group's report, raising all sorts of issues with stablecoins, 
primarily around, do they really look like money? Do they have 
sufficient reserve assets behind them? What are the redemption 
rules? Is there transparency around permission blockchains, the 
custody of reserve assets? You have read the report, I am sure. 
I see you nodding. I could go on.
    The first question is just really simple. Do you support 
the recommendations of that report for stablecoins?
    Mr. Allaire. I support a number of things, but not 
uniformly. I think there are a number of challenges with the 
report. I think the first, maybe, to discuss is, really, this 
question of what form of Federal charter ought to be in place 
around a large-scale dollar stablecoin issuer.
    I think the report recommends that it would be an insured 
depository institution. But I think one of the really critical 
things to discuss there is that an FDIC-insured bank, is FDIC-
insured because the bank is taking risk with deposits and so--
    Mr. Casten. If I could--and I apologize for cutting you 
off--but I want to just narrow sort of specially to the issue 
of, if I deposit something in a bank that is indexed to a 
dollar, and I perceive as a customer that I have eliminated the 
FX risk, but now, I am left saying, is it actually there when I 
want it, and other reservations?
    Setting aside how we get it done, broadly speaking, are you 
supportive of the idea that if this is going to look and feel 
and attract investors with the expectations that this has all 
the risk and liquidity profiles of a dollar, that we should 
make sure that it actually has those features?
    Mr. Allaire. Absolutely, full reserve disclosures, 
transparency, I think definitions around what those reserves 
are and the liquidity mandate on it, those are all really 
critical features that need to come in place.
    If it is full reserved, is it an FDIC-insured product or is 
it a statutory set of constraints around what the reserves are? 
Those are some of the things that I think have to be worked 
through.
    Mr. Casten. Okay. And I want to get to two more questions, 
so I apologize if I am being quick. But in the absence of those 
protections being in place, it seems to me that somebody who is 
currently holding a stablecoin perceives that they are holding 
a currency, but in reality is holding something that is subject 
to a lot of exogenous risks beyond their control, which feels a 
lot more like a commodity.
    So if we agree that as of right now it is not really a 
currency, would you also be supportive of saying, well, we 
should regulate it as a commodity until such time as we have 
the protections in place to give it the robustness of a 
currency that the market is expecting of it?
    Mr. Allaire. I don't agree with that, but I think it raises 
a couple of key points. The first is--and I can only really 
speak on behalf of Circle here--USDC, for example, operates 
under the same stored value electronic money and electronic 
money transmission statutes that govern Square and Stripe and 
PayPal and the balances there. So today, there are consumer 
protections.
    There are reserve requirements around holding of those 
assets, one-for-one redeemability, anti-money laundering 
requirements, surety bonds that need to be posted to protect 
consumers, segregation of client funds and for benefit of 
customer accounts.
    There is a great deal that is there--and we have operated 
under such statutes, really, since 2014. We were the first 
company to go and get all those licenses. So, there is a 
framework today. I think as these get larger and are operating 
at a global scale, I think, really, there needs to be something 
more, that is more bespoke to this.
    Mr. Casten. Let me, if I could, because I am just nervous 
watching the time here, let me sort of get to the last 
question, leave it to the whole panel, and if we are out of 
time, I will follow up separately.
    The concern I have is that a stablecoin, at some level, is 
an ETF, and we could imagine a stablecoin indexed to all sorts 
of different currencies and some kind of baskets of currencies 
that are behind there, and we regulate those in certain ways 
with expectations of who is bearing the risk, to Mr. 
Perlmutter's question.
    We have this emerging world of central bank digital 
currencies, and I am satisfied that no central bank wants to 
allow counterfeiting. They all want to protect the integrity of 
the currency and so they will put those rules in place.
    On the other hand, different countries are going to have 
very different ideas about what kind of data they would like to 
track when we trade a central bank digital currency.
    And so, a question for any of you who feel technically 
competent to answer this, if you have a stablecoin that 
includes some portion of central bank digital currencies that 
are tracking things that we, as Americans, would not like to 
track, can we design the stablecoin to insulate the 
contamination of that system so that somebody who believes that 
they are buying something that looks like a dollar is not 
actually being tracked by our adversaries?
    Would anybody like to comment on that?
    Mr. Allaire. I will make one quick comment, which is that 
one of the benefits of this technology is these stablecoins, 
all of the code that they provide and how they interact is all 
public and open source, and so everything that functions inside 
of that is visible to everyone who interacts with it. So, there 
is the ability to have, I think, greater transparency into how 
are these things functioning, including a foreign-issued coin.
    Mr. Casten. I am out of time, but I do have some concerns 
about the encryption rules as well.
    Chairwoman Waters. The gentleman's time has expired.
    Mr. Casten. Thank you. If anyone would like to follow up, I 
would like to know.
    Chairwoman Waters. The gentleman from Ohio, Mr. Davidson, 
is now recognized for 5 minutes.
    Mr. Davidson. Thank you, Madam Chairwoman, and thanks to 
the ranking member, thanks to our witnesses, and, frankly, many 
people who have worked literally years to get to this point, to 
have a hearing.
    The market has been way ahead of this and, frankly, it has 
been painful to watch, in 2017 and since when you see the ICO 
market ripe with people committing fraud or just regulatory 
arbitrage taking advantage of the fact that our regulators 
haven't paid attention to bad actors.
    And it has been especially frustrating to watch some of our 
regulators take aim at people who are working very hard and 
very aggressively to be legitimate businesses, to come into 
compliance with every kind of licensure and regulatory regime 
that our country currently offers.
    It has been woefully inadequate, so it is so good to get to 
this point for the hearing. Thank you, and thanks to my 
colleagues.
    I have been very encouraged by the amount of preparation 
many colleagues have done to close the gap in any knowledge 
they have had, and over the past few years, the number of 
Members of Congress who really understand this space has 
certainly increased.
    Three years ago, we had a hearing--not really a hearing, 
because as a junior Member, I can't hold those or pick them--so 
in exasperation, we just held a meeting over at the Library of 
Congress, and some of the folks in this room were there or 
representatives from your companies were there, and we came up 
with that the most essential thing was to establish a bright 
line test, not just for the players in the industry, not just 
for the investors, but also for the regulators. So that if 
somebody at the SEC, for example, says this looks like a 
security, it is not a form of interpretive art to say, does it 
really fit this test?
    We came up with a four-part test that said it is already 
created, it exists, that it is recorded on a distributed, 
secure, and immutable ledger that is not controlled by a 
central authority, that permissionless peer-to-peer 
transactions can be done without an intermediary and it does 
not represent a financial interest in any entity.
    More important than that particular test is the fact that 
there is, as Mr. Brooks, you highlighted, a speed limit so that 
there is some clear thing, not just, as I say, for the 
investors, not just for the participants in the market, but for 
the regulators themselves so that we have continuity.
    If only there were such a body that could provide this 
clarity. My hope is that the next time we have a hearing, we 
will notice some bills and will be able to talk about 
particularly the text towards that.
    Mr. Brooks, when you look at stablecoins, which is maybe 
the lowest-hanging fruit, some of those are well-established in 
long-standing things like New York trusts.
    Some of those aren't traded in anything. They are just U.S. 
dollars stored in a vault for every token. Some have U.S. 
dollars in components of M2, like U.S. Treasuries. Some have 
other things.
    When you were at the OCC, you provided some clarity there 
and you also dealt, importantly, with self-custody.
    Mr. Allaire, you mentioned that the code is literally 
online. Any of us right now during the hearing could download 
code and could begin to self-custody a digital asset.
    As you look at that, how important is it to provide this 
clarity, Mr. Brooks?
    Mr. Brooks. Specifically on the issue of custody and self-
custody, this is a way that crypto tries to make an advance 
over the current systems. The issue with custodial assets, we 
have seen, and this committee has looked at many, many times. 
Think about the financial crisis when there was an issue of 
foreclosures and it was difficult for custodians to produce the 
original note that proved whomever was entitled to enforce that 
transaction and foreclose on a property, because the piece of 
paper had gone missing or the custodian had merged with another 
custody company or whatever.
    One of the things crypto is trying to do is to use 
technology so that you can safely keep your own assets for 
free, versus having to pay somebody else to custody them. That 
also provides a layer of financial privacy, something that this 
committee usually favors, but sometimes, strangely, doesn't 
favor.
    Self-custody is one of the key things, along with self-
ownership and self-determination, on this internet of value 
that is really critical to the nature of the network.
    Mr. Davidson. Thank you. And as we have digitized 
information, it is frankly amazing that we finally digitized 
money in a way that we can move not just a store of value but a 
means of exchange.
    The use case for digital assets has partially been that it 
is this stable store of value. Certainly, stablecoins solve 
that. Some have pointed out that Bitcoin, for example, doesn't.
    Mr. Bankman-Fried, one of the ways that people have 
speculated that volatility is created in the market isn't by 
holders of the asset who are hold-on-for-dear-lifers (HODLers), 
as it has become known in the space, but by the other big group 
that owns these assets, which are traders.
    Many of them trade on leverage, so when you looked at 
leverage, you made a lot of news by saying, we are capping 
people at 20 times leverage. That is a lot of leverage. But you 
also pointed out that the average leverage on FTX was around 2 
times. Could you talk about the importance of leverage in 
volatility?
    Mr. Bankman-Fried. Thank you for the question, Congressman.
    The first thing that I will say is in crypto currencies and 
digital assets, as, like, essentially every other financial 
asset in the world, more volume trades through futures 
contracts than through the spot asset.
    The reason for this is, basically, it is more economically-
efficient. It is much more capital-efficient. The lack of an 
immediate delivery requirement on the physical creates a much 
easier ability for people to hedge exposure, for people to 
express opinions, and so, for all of those reasons, I think 
that they are an important part of the digital asset ecosystem, 
as they are for every other ecosystem.
    I will just briefly say it is important to have robust risk 
engines that monitor the positions on these assets. We have 
gone through multiple very large up and down moves and have 
been able to manage positions both times.
    Mr. Davidson. Thank you, and thanks again for the hearing. 
I feel like I have just spoken to Steve Case in, like, 1990. 
So, thanks for the vision that you guys have, and thanks for 
the hearing, Madam Chairwoman.
    Chairwoman Waters. You are welcome.
    The gentleman from New York, Mr. Torres, is now recognized 
for 5 minutes.
    Mr. Torres. Thank you, Madam Chairwoman.
    I represent the South Bronx, which is often said to be the 
poorest congressional district in America, and of greatest 
concern to me are the use cases of crypto that would improve 
the lives of the people of the South Bronx.
    I represent a heavy population of immigrants, who often pay 
predatory fees in order to send remittances to their loved ones 
abroad. What can crypto blockchain, Web 3, do for that 
Dominican immigrant in the South Bronx who is burdened by 
remittance fees that she cannot afford? How much more 
affordably and quickly can the crypto economy facilitate 
remittances?
    Mr. Cascarilla, if you could take that question, and please 
be specific?
    Mr. Cascarilla. Yes. Thank you for the question.
    I think this is a really important element of the 
technology, which, again, is that it is open to anybody. You 
don't need to have a bank account. You don't need to, in fact, 
rely on any intermediary. So, somebody who is an immigrant and 
wants to send a remittance to a family member in another 
country is able to do that, and there are ways to do that with 
both crypto and with stablecoins, and all you need to do is 
download a wallet and then you can send it to somebody else 
anywhere in the world.
    So, this is a really powerful tool for democratization of 
access, especially for those who have difficulty getting bank 
accounts. There are no minimum fees. There are no minimum 
balances. There are no check cashing fees that are part of this 
technology, and you can do it, in some cases, for a penny or 
less.
    Mr. Torres. And how much quicker?
    Mr. Cascarilla. This is an important point. Blockchains, 
part of the beauty of them is that they are operating 24-hours-
a-day, 7-days-a-week, 365-days-a-year. So, it would be sent 
just about instantaneously.
    There are no multi-day lags that you have right now, and 
that change in speed is just crucial because usually it is 
these lags that really are very costly.
    Mr. Torres. I am going to interject.
    Mr. Brooks, I have a question about the challenge of 
enforcing laws in a world of decentralization, whether it be 
law enforcement relating to financial crimes or SEC disclosure.
    How exactly do you enforce the law when there is no central 
entity against which to enforce the law? How do we grapple with 
that challenge?
    Mr. Brooks. That is a great question, Mr. Torres. I really 
appreciate you asking it. I would say a couple of things about 
it.
    First of all, to the extent that some of the activity we 
are talking about is parallel to activity that happens in the 
supervised system, my question is, why don't we allow it in the 
supervised system? Again, you have heard me say it before this 
morning.
    But you have on this panel a big stablecoin issuer who has 
applied for a bank charter, and it doesn't look like they are 
going to get it. The easiest way to supervise that would be to 
let them in the banking system and have the OCC have authority 
over them. I would start with that.
    The second point is that lots of these decentralization 
protocols are designed to solve the exact problems that create 
the need for enforcement in the first place, because most 
enforcement in the securities and banking system is about some 
combination of human error, human negligence, human greed, or 
human bias.
    And the point of some of these decentralized systems is to 
take that out and have an open source piece of software that 
everybody can look at and deal with those things 
algorithmically.
    As an example, I used to sit on a bank credit committee. We 
would decide who got credit and who didn't, and I think we had 
a really good system for it.
    But we were human beings. We might have been indulging in 
implicit bias. We might have made mistakes. Algorithms don't do 
that. So, some of the need for what you are talking about goes 
away in a decentralized system.
    Mr. Torres. And I know there are critics who have said that 
the blockchain might not be as secure and as unhackable as 
advertised. But, for me, the proper question is not whether the 
blockchain is perfectly secure and unhackable. The question is 
whether it is better than everything else? Like Winston 
Churchill famously said, democracy is the worst form of 
government with the exception of everything else.
    Is there a computer network that is more secure than the 
blockchain?
    Mr. Brooks. I think the beauty of the blockchain is not 
that it is perfectly secure. It is that it is perfectly 
transparent, so you can see when somebody messed with it.
    Mr. Torres. But I want to specifically address security. Is 
there a computer network, to your knowledge, that is more 
secure than the blockchain?
    Mr. Brooks. I don't know of one. But we have a Ph.D. in 
physics sitting right next to me, so we will let him answer.
    [laughter]
    Mr. Bankman-Fried. If you are talking about any major 
global use blockchain, I don't know of one. There are small 
blockchains that are less secure. All of the major ones are 
incredibly secure.
    Mr. Torres. And one of my concerns about crypto is that it 
would present a challenge to the supremacy of the U.S. dollar 
as the world's reserve currency. But what I have found striking 
is that the leading stablecoin issuers have actually chosen to 
peg their stablecoins to the dollar, which strikes me as a vote 
of confidence that reinforces rather than challenges the status 
of the dollar as the world's reserve currency.
    What are your thoughts on the relationship between the 
dollar and the crypto? Is it is it as contradictory as many 
have feared or could it be actually complementary?
    Mr. Cascarilla. I will answer that. I actually don't think 
that it is contradictory at all. What people want is a U.S. 
dollar bank account. Everywhere in the world, people want to be 
able to have U.S. dollars and, actually, that is the hardest 
thing to get. And crypto is a tool for a lot of different 
things, including bringing communities together, but what 
people want for their everyday spending is dollars.
    If you are in Argentina, you want dollars. If you are 
somebody anywhere in the world, you want to have access to 
dollars, and that is the hardest thing to get access to right 
now, and that is why tokenized dollars are so valuable, because 
you don't need to have a bank account, yet, you can have access 
to the dollar-based system and a very, very important tool for 
inclusion.
    Chairwoman Waters. The gentleman's time has expired.
    The gentleman from Michigan, Mr. Huizenga, is now 
recognized for 5 minutes.
    Mr. Huizenga. Thank you, Madam Chairwoman. My apologies to 
the panel. I had to leave to manage a bill on the House Floor 
dealing with the very exciting issue of LIBOR.
    Chairwoman Waters. Thank you.
    Mr. Huizenga. You are welcome. We are getting there, Madam 
Chairwoman.
    But to my colleague from New York, I do want to point out 
that this isn't quite the same, but the same idea exists. 
Committee Republicans released a CBDC Central Bank Digital 
Currency principles recently and of those, we had said in this 
as one of those principles is we need to make sure that the 
private sector leads the way but we need to ensure that the 
U.S. dollar remains the preeminent currency.
    So, that is a common goal, certainly, and we have been very 
aggressive in trying to lay that out.
    I only have a short amount of time, so I am going to try 
and go as quickly as possible, and I am going to peek around my 
colleague from West Virginia here, trying to get to Mr. 
Bankman-Fried, quickly.
    And again, I apologize. I am not trying to replow ground 
that has already been gone over. But how many various levels 
and types of regulators do you currently engage with? Because I 
know you are worldwide. You have indicated that you have 
multiple regulators that you currently work with, so I am 
curious if you can even peg that number?
    Mr. Bankman-Fried. Yes. There are dozens, probably soon 
hundreds worldwide that we are engaging with, and that includes 
all across Europe, all across Asia, and then, within the United 
States, we are engaging with State money, transparent money 
services, and business licensure.
    We have a CFTC license for derivatives that we are engaging 
with the SEC, and I anticipate more agencies getting involved 
soon as well.
    Mr. Huizenga. Yes. And I want to make sure that we are not 
overregulating that law, and I am sure it has cost you an 
untold amount of money so far, and I am sure everyone has been 
dealing with that.
    But I also want to make sure--no offense to any of you--
that there are others who are going to be able to enter that 
space and that they are not being blocked out and that there is 
an artificial barrier to entry that is going to allow others to 
do, frankly, what you all did, which was be innovative and 
supply a product to people who are looking for that product.
    I am going to have to move really quickly. I am going to go 
to Mr. Brooks on a couple of things.
    Would you describe why establishing these clear rules of 
the road is an important step before we add additional 
regulation and consider that regulation?
    Mr. Brooks. Mr. Huizenga, it is good to see you again.
    I think the most important reason of many is international 
competitiveness. Other countries make this easier. Let me just 
make clear, other companies make this easier in other 
countries.
    I just came yesterday from the Middle East, we were in 
Dubai and Abu Dhabi, and they have super clear derivatives 
regulations, super clear ETF regulation. They are trying to 
lure Americans over there to build these products and they are 
moving there.
    Mr. Huizenga. How are they viewing these crypto assets 
differently than traditional assets? What Rubicon have they 
crossed that we haven't, and why is it important to think about 
digital assets differently?
    Mr. Brooks. I think one of the things that they have 
figured out is that crypto actually is less fundamentally 
different than equities in depth than you would think it is. It 
is a risk on asset that people want to invest in.
    They want to invest in it in Canada, so Canada builds a 
regime for it. They want to do it in Germany. We are the last 
country standing that hasn't figured that out. It is a risk on 
asset that people want exposure to as part of asset 
diversification.
    Mr. Huizenga. As opposed to traditional assets?
    Mr. Brooks. Correct.
    Mr. Huizenga. Okay. I have a minute left here.
    Ms. Haas, you indicated in your testimony that, ``every 
asset listed on the Coinbase platform is subjected to rigorous 
legal compliance and security review.''
    Could you provide us specific details on what Coinbase's 
process has been to be able to make that type of statement?
    Ms. Haas. Thank you for the question.
    Yes. Specifically, for the legal review, we assess each 
asset under the Howey Test where we, as Brian Brooks spoke 
about earlier, through the Crypto Rating Council, have 
established a framework where we look at the risk factors and 
we determine whether or not it meets characteristics of the 
Howey Test.
    It is a risk-based assessment. It is not a black-and-white 
test. But based on our assessment, we believe it is lower risk 
that these are securities before we list them on our platform. 
We separately do a compliance review.
    Our compliance review includes looking at the developers of 
the token, and ensuring they are not on an OFAC sanctions list. 
We look to make sure it is not a scam, that there are actual 
people using this coin, that it was developed in sound manners. 
And then, we look at a security review to understand the 
underlying code to say, can we provide custody for this, is 
this at heightened risk of an attack or someone pulling the 
value from these assets?
    So, it is security, legal, and compliance before we list an 
asset.
    Mr. Huizenga. Okay, and I am hoping that the Chair will 
grant me leave for my LIBOR work to just scoot, and with a 
closing statement, as my time is up here, a number of you have 
brought up the unbanked and underbanked. And despite rhetoric 
that gets thrown around, all of us on this committee are very 
concerned about it.
    I happen to represent the second-poorest county in the 
State of Michigan, which is in the top 100 poorest counties in 
the nation, and I understand what it means for these unbanked 
and underbanked folks to be involved in the process.
    I want to make sure that what we do, not just here today, 
but in the future--we tend to be lag indicators at the 
government level and with regulators rather than on that front 
end, and I am hoping that we do nothing to harm their 
opportunity to engage in the process.
    With that, I yield back.
    Chairwoman Waters. Thank you very much, and thank you for 
LIBOR.
    The gentleman from Florida, Mr. Lawson, is now recognized 
for 5 minutes.
    Mr. Lawson. Thank you, Madam Chairwoman, and Ranking Member 
McHenry. This is a very extraordinary hearing, and I would like 
to, again, as everyone else has, welcome everyone who is 
testifying today at this hearing, which is a very important 
one.
    It will probably take me a long time to understand what all 
we mean by crypto currency, and I just heard some testimony 
stating how we lag behind all other countries in making 
changes.
    And this is to everyone. My colleague, Representative Soto, 
and I, and eight other Members of Congress led a letter to 
leadership addressing the digital assets provisions that expand 
the definition of broker under Section 6045(c)(1) of the 
Internal Revenue Code in 1986 to include any person who for 
consideration are responsible for the regular provision and 
service of effectively to transfer of digital assets on behalf 
of another person.
    As drafted, the provision would include minors and other 
validated as well as software and hardware wallet makers who do 
not engage in trading activity and beyond the scope of broker 
services.
    What are your thoughts on this provision? Do you think this 
is a good tax policy requiring nonbrokers to report on 
transactions for people who are not even their customer? Why or 
why not? And this is to the whole panel.
    Mr. Brooks. Maybe I can jump in there, Congressman. It is 
Brian Brooks speaking here just for a moment.
    I have said many times that that language would be sort of 
like requiring YouTube to get an FCC broadcast license because 
they are a person engaged in distributing television content.
    I think what we need to recognize is that there is a 
difference between centralized exchanges--you have two of the 
biggest ones represented here--who all agree that they should 
be engaged in tax reporting, and they do that, versus 
decentralized algorithms where there is no company involved in 
the transactions at all, and there is no one well-situated to 
provide that kind of tax reporting.
    I think that distinction is super clear. The technology has 
enabled people to transact peer to peer with no intermediary. 
So, who is it that we are asking to do the tax reporting in 
that context?
    Mr. Lawson. Would anyone else like to speak on that?
    Ms. Dixon. Yes. This is Denelle Dixon from the Stellar 
Development Foundation.
    One of the issues that I think is a problem with this is 
that it may seek to require these entities that actually don't 
have access to any personal information at all--because as the 
validators, they are actually just validating the transaction 
and don't know who those individuals are that are on the other 
side of it--to gain access to that information, which is 
exactly what I think many of you don't want, and neither do we.
    Mr. Lawson. Anyone else before I go to the next question?
    [No response.]
    Mr. Lawson. This question is for Ms. Haas. Does Coinbase 
have multiple lines of business? And if so, how is each line of 
business segregated and ring-fenced from one another in a way 
that confidential information is not improperly used?
    Ms. Haas. Thank you for the question.
    Coinbase does have multiple products. In many cases, we 
consider our products a product family where we are serving one 
customer and the customer benefits by having those products 
within one application.
    For example, we provide custodial services, which is, for 
all intents and purposes, a wallet where they can hold their 
crypto assets. But then integrated with that is the ability to 
trade out of that account, and then to settle new assets back 
into that account.
    So, those are different products to be able to store versus 
be able to buy or sell. But they are integrated products. Those 
we have within one legal entity, as an example, are offered as 
one product family.
    That is different from when we offer products such as our 
Coinbase cloud offering where we are using our technology to 
allow others to build in the crypto economy. That data is 100 
percent ring-fenced, not allowed through any of our other 
products, and we do segregate data.
    We have different engineers, we have different legal 
entities, and we provide a lot of protection. So, it depends on 
the product that you are speaking about, Congressman, and some 
we share and some are very much ring-fenced.
    Mr. Lawson. Okay. And a really quick question, do 
withdrawal fees apply to taking crypto off the platform? What 
fees apply? How are these fees calculated?
    Ms. Haas. No, we do not charge any fees to withdraw crypto 
from our platform.
    Mr. Lawson. Okay. With that, Madam Chairwoman, I yield 
back.
    Chairwoman Waters. Thank you. The gentleman from Arkansas, 
Mr. Hill, is recognized for 5 minutes.
    Mr. Hill. Thank you, Madam Chairwoman. I appreciate this 
good productive hearing and the good questions from both sides 
of the aisle, and I appreciate the panel being here.
    Let me start with Mr. Brooks. You have had some good 
comments about the President's Working Group on whether or not 
stablecoins should be banks.
    But on the issue of the wallet, what should Members of 
Congress be concerned about in sort of that regulatory umbrella 
of any individual's wallet?
    Do you anticipate, really, tens of thousands of wallet 
providers or hundreds or and I know in the Working Group they 
suggested it, too, should be a bank or, I assume, connected to 
a bank. So is that really necessary, and talk to me about 
wallets for our consumers to have access?
    Mr. Brooks. Yes. Congressman Hill, thank you for that 
question. That is an important one, and I think, as I said 
earlier, the ability of people to self-custody their own assets 
and to send them directly without using an intermediary is at 
the core of what we are trying to build.
    So if we made it so that wallets had to be hosted by a bank 
or some other regular institution, we already have that. We 
already have banks and that will take time--
    [interruption]
    Chairwoman Waters. Mr. Lawson, please mute. You are 
unmuted. Please mute. Please mute. Mr. Lawson, please mute. 
Thank you.
    Mr. Brooks. Okay. So, just to finish the thought--
    Mr. Hill. Meanwhile, back at the ranch.
    [laughter]
    Mr. Brooks. Exactly. So, the ability to self-custody is 
really, really important. My point about the role of the 
banking system is simply that, again, to my point of parity, an 
asset that is or a transaction that is allowed to be done 
inside of a bank shouldn't be technology-specific. It should be 
technology-agnostic.
    If your agent payments are lending you should be able to do 
that however. But wallets are critical. What is missing from 
this, which technologists are building today, are crypto-native 
identification protocols that will allow us, without getting 
the name and the taxpayer ID number of the person on the other 
side, to know that it is a safe wallet, not a blocked wallet. 
And that is in development today by multiple companies.
    Mr. Hill. Yes, I think that is critical because we like the 
concept of not being spied upon by the actions in our wallet. 
And yet, we all want to comply with the rules around AML/BSA. 
And so, anonymously securing that the wallet is in compliance 
is sort of an important feature.
    Mr. Brooks. Absolutely.
    Mr. Hill. Ms. Haas, community banks have been the backbone, 
of course, of our local markets, and in September, it was 
announced that your institution partnered with Vast Bank to 
provide crypto banking services.
    Maybe others can comment, but let's start with you. For 
aiding a normal community bank customer out there in my 
district, or someone who wants to innovate in a bank and using 
crypto products, are we in a good position regulatorily or are 
there changes we need to make?
    Ms. Haas. I am going to speak about two things. One, I am 
going to talk about how they can do it, and separately, we can 
talk about the regulatory environment.
    Coinbase has tools to allow any bank to be able to provide 
crypto to their customers where we want to make our back end 
services, our 9 years of experience of safely custody and 
crypto assets of being able to integrate with blockchains 
available to all global users, and one way we do this is by 
letting banks partner with us and white label our tooling so 
that they can offer this directly to their customers.
    There does need to be continued innovation and clarity on 
behalf of many banks about what are permissible activities for 
them and--banks that we partner with and speak about their 
ability to offer crypto to their end customers are working with 
their various State and Federal regulators to gain clarity 
about what would be permissible for them to offer to their end 
consumers.
    Mr. Hill. Thank you. This is a big deal because having 
spent almost 4 decades in and out of that business, banks are 
gun-shy about their regulatory burden, as Mr. Brooks certainly 
knows, and being cleared for that IT exam or their new product 
review exam at their board level is really not something that 
bank boards want to be surprised about in this arena.
    Mr. Cascarilla, on taxes, do you have a view on that, on 
partnering with banks?
    Mr. Cascarilla. Yes. As maybe some Members know, we have a 
number of partnerships with banks and they work with us today. 
I think we are an infrastructure provider. So for us, banks are 
an important customer set.
    I think that they are trying to upgrade their 
infrastructure to be able to adapt to this new technology. 
There is a recognition that the way the current financial 
system is working today is not really adapting to the 21st 
Century needs of a digital economy.
    And so, I think that there are important ways in which the 
current financial system can upgrade itself. Traditional assets 
can now move on blockchain dollars, gold, and securities, and 
it is not just about crypto, which, as exciting as it is, is 
only one piece of this broader transformation that is 
happening.
    Mr. Hill. Thanks. What one regulatory issue would be 
important to you at that community bank level? And if you would 
respond to me in writing?
    Thank you. I yield back.
    Chairwoman Waters. Thank you. The gentleman from Illinois, 
Mr. Foster, who is also the Chair of our Task Force on 
Artificial Intelligence, is now recognized for 5 minutes.
    Mr. Foster. Thank you, Madam Chairwoman, and I thank our 
witnesses as well.
    I would like to focus on what I think is the crucial 
importance of having a secure digital identity for crypto asset 
transactions.
    First, regarding controlled anonymity for prevention of 
criminal activities, it seems to me that if we wish to prevent 
crypto assets from being used, for example, for ransomware or 
other criminal payments, that there is no logical alternative 
to having all crypto transactions be associated with a legally-
traceable identity--someone who can be extradited if they do 
something criminal--and these can be pseudonymous to market 
participants and to the public then must be capable of being 
de-anonymized pursuant to the action of a court in a trusted 
jurisdiction.
    Do any of you disagree with that conclusion, that this is a 
necessary condition for preventing, for example, ransomware?
    [No response.]
    Mr. Foster. Let the record show that no one raised an 
objection to that statement. I think that is very significant. 
So, we have to start planning for a system where, in a court 
and a suitable jurisdiction, it can actually de-anonymize any 
legitimate crypto asset.
    Okay, and, now, that is relevant to crypto assets such as 
stablecoins or CBDCs that have stable valuations but still 
could be used for criminal activities. But for crypto assets, 
which are speculatively traded, then we also have an additional 
worry, which is abusive trading practices.
    In that case, we need to know not only the beneficial owner 
behind a trade, but there has to be a uniquely-identified 
beneficial owner. There has to be a regulator that can see, oh, 
this is a wash trade, because even though they look like 
separate pseudonymous IDs, they are, in fact, the same person.
    Historically, in trading, it is required to have a 
regulator that can see the true beneficial owners. We had spent 
a decade trying to get the beneficial owner under the 
Consolidated Audit Trail (CAT), of which you are probably 
aware.
    So, do you think that is also a logically necessary 
condition to prevent wash trades and similar abuses?
    Mr. Bankman-Fried?
    Mr. Bankman-Fried. Yes, I will say I do think that it is, 
and we conduct Know Your Customer diligence on all of our users 
so that we do know who the participants are, and we are 
responsive to governmental inquiries about that.
    We are overseen by the CFTC on that with FTX US 
derivatives. I also think that this is a powerful argument in 
favor of having harmonized regulatory and market frameworks, in 
particular, between different asset classes, where if you end 
up with a different regulatory framework for the market's 
regulation of Bitcoin, Bitcoin derivatives, stablecoin, 
stablecoin derivatives, Ethereum, Ethereum derivatives, and 
other assets, you end up making it not just riskier and harder 
and more annoying for the user to access, and more overhead for 
the industry, but you make it hard to have consistent 
regulatory oversight of a fractured regime.
    Mr. Foster. I agree completely. Look, I have been lurking 
in the deep weeds for over a decade and trying to get this 
split inside Congress between the SEC and the CFTC. This is not 
something anyone would have created.
    But if you had built that discussion with--a number of you 
expressed enthusiasm for having a single, unified national 
regulator. Have you run that past the EAC committee?
    [No response.]
    Mr. Foster. No, look, I know the answer to that. This is 
one of the original sins of Congress as it is constituted, and 
financial services have been suffering from it for a while.
    Now, in terms of tax payments, it seems to me that if there 
was simply the requirement for any digitally-traded asset to be 
associated with a pseudonymized, basically, a tax ID, that you 
have an API provided by the government which says, I want you 
to give me a pseudonymous tax ID, and that that be put publicly 
on the blockchain, then and that that blockchain be listed with 
the tax authorities that then the tax authorities could just 
run a piece of software and calculate how much tax everyone has 
owed.
    It seems like that is a very lightweight requirement, even 
on a startup in this business. Is there anything wrong with 
that concept?
    Mr. Allaire. Congressman Foster, I think you have raised a 
number of really critical issues here around identity and the 
importance of that for law enforcement, and transparency and 
auditability.
    I think it is a critical area. I think there are some 
critical things that have to be balanced, of course. I think 
most of us would agree, I hope, that privacy, security, 
limiting the leakage of personal identifiable information in 
data breaches, these are real challenges.
    Blockchains provide a very powerful way to have assured 
data. They also provide auditability and transparency. And 
there is actually a risk of if you connect too much personally 
identifiable information to these, that that could be abused. 
And so--
    Mr. Foster. But the only personal identifier is the 
pseudonymous--you can cryptographically inspect it.
    Mr. Allaire. Right.
    Mr. Foster. Make sure it is valid issued by whatever 
government you claim to be domiciled in that has issued this 
and then that is all you need to know.
    Mr. Allaire. I would agree with that. I think that, really, 
a critical next step for this industry are digital identity 
standards that allow using cryptographic proofs, using crypto 
technology itself to prove that someone has been KYC'd, prove 
that someone has a pedigree.
    Mr. Foster. Oh, sure. I agree, and we have legislation on 
that subject. Thank you, and I--
    Mr. Allaire. Of course.
    Mr. Foster. --yield back.
    Chairwoman Waters. Thank you. The gentleman from Minnesota, 
Mr. Emmer, is now recognized for 5 minutes.
    Mr. Emmer. Thank you, Chairwoman Waters, and thanks to our 
witnesses for joining us today.
    Congress really needs to better understand the great 
opportunities that your businesses are bringing to this 
country.
    Mr. Bankman-Fried, I have several questions for you, and I 
would appreciate, as much as you can, quick answers so we can 
make the most of the time that we have.
    FTX US offers crypto commodity derivatives products, such 
as futures and options contracts. To provide these products in 
the United States, it is my understanding that FTX US has 
obtained at least four licenses from the CFTC, which you listed 
in your testimony.
    Mr. Bankman-Fried. That is correct.
    Mr. Emmer. Do you know if there are any additional licenses 
separate from those four listed in your testimony that are 
required by the CFTC for FTX US derivatives to be fully 
compliant with U.S. derivatives regulation?
    Mr. Bankman-Fried. I do not believe so.
    Mr. Emmer. I think that is correct. And where does the 
price discovery, sir, for your CFTC-regulated crypto commodity 
derivatives contracts primarily come from?
    Mr. Bankman-Fried. There is a very large number of market 
participants that partake in those. There are hundreds of 
billions of dollars per day globally of volume in similar 
products.
    And like other markets, we don't choose that pricing. It is 
a market-based pricing that comes from a variety of liquidity 
buyers, market-making firms, individual users, and other 
people.
    Mr. Emmer. Right, and I will note that for Bitcoin futures 
contracts that trade on the CME, which is a CFTC-regulated 
exchange, 100 percent of that pricing comes from five U.S. 
crypto spot exchanges: Bitstamp; Coinbase; Gemini; itBit; and 
Kraken.
    We have seen disapproval letters from the SEC on multiple 
Bitcoin spot ETF applications. I don't know if you are aware of 
that.
    SEC Chair Gensler's justification for not allowing Bitcoin 
spot ETFs to trade is his belief that Bitcoin spot markets are, 
``vulnerable to fraud and manipulation.''
    Now, it is my understanding that FTX uses surveillance 
trade technology akin to the technology that national 
securities exchanges use to protect investors and to ensure 
sound spot markets.
    What does this technology and any other tools FTX uses to 
protect the spot market from fraud and manipulation look like?
    Mr. Bankman-Fried. Yes. So, like other exchanges, we do 
have these technologies in addition to the Know Your Customer 
policies so that we can identify individuals associated with 
trades. We have surveillance for unusual trading activity. We 
have manual inspections of anything that gets flagged either by 
the automated surveillance or by manual inspection, and we do 
this with the trading activity, with the deposits or 
withdrawals and everything else.
    Mr. Emmer. It sounds like you are doing a lot to make sure 
there is no fraud or other manipulation. I thank you, Mr. 
Bankman-Fried--
    Mr. Bankman-Fried. Thank you.
    Mr. Emmer. --again, for helping us understand the extensive 
guardrails a crypto currency exchange like FTX has in place to 
ensure sound crypto spot markets for investors.
    The SEC has approved several Bitcoin futures ETFs that get 
100 percent of their pricing from U.S. crypto spot markets.
    I guess I am left incredibly confused by how the SEC's 
concern over spot market vulnerability applies to Bitcoin spot 
ETFs when it doesn't apply to Bitcoin futures ETFs. And by the 
way, this is not a partisan issue. I have been working closely 
with Darren Soto, our Blockchain Caucus Co-Chair, on this very 
issue.
    Why? Because the bottom line is that Americans deserve 
access to a wide diverse range of investment products. They 
deserve to choose what investment vehicle they want to put 
their hard-earned money into.
    But the SEC is not providing Americans this choice when it 
comes to crypto commodity ETFs for reasons, again, that just 
don't make a lot of sense, especially after highlighting the 
extensive measures that crypto exchanges take to protect their 
spot markets.
    Our strong crypto and Web 3 markets in the United States, 
have been giving the United States incredible capital market 
success. These markets are also teeing Americans up for 
incredible capital formation opportunities.
    But our regulators simply aren't capitalizing on the 
opportunity here, and it is my constituents and all of your 
constituents who are taking the hit because of this, and it 
must change.
    Again, I want to thank the witnesses for being here. I hope 
this is the first of many of these discussions we have as 
Congress tries to put together a thoughtful, light-touch guide 
framework for the industry.
    Thank you. I yield back.
    Chairwoman Waters. Thank you very much. We have been joined 
by Mr. Sherman from California, who has been on the House Floor 
working on his beloved LIBOR bill, and I understand it has been 
put up for a vote, and we are all looking forward to voting for 
this bipartisan legislation.
    So, the gentleman from California, Mr. Sherman, who is also 
the Chair of our Subcommittee on Investor Protection, 
Entrepreneurship, and Capital Markets, is now recognized for 5 
minutes.
    Mr. Sherman. Crypto is many different things. Crypto 
currency is an incredibly volatile investment that aspires to 
be a currency that might displace or at least compete with the 
dollar. A stablecoin aspires to be incredibly stable and is 
tied to the dollar.
    What they share is a culture, a vibe, a stick-it-to-the-man 
moniker, a belief that somehow this is new and hip, and a 
attack on the powers of society. But the fact is that the 
advocates of crypto represent the powers in our society.
    The powers in our society on Wall Street and in Washington 
have spent millions and are trying to make billions or 
trillions in the crypto world. These include Goldman Sachs, 
JPMorgan, Visa, BlackRock, Citadel, Musk, and Zuckerberg, not 
to mention the CEOs who are before us here today.
    Everyone before us today is a crypto advocate. We will at 
some point hear from the crypto critics. We won't hear from 
CEOs. We will hear from academics with their pencils and pens. 
Today, we hear from the CEOs with their lobbyists, their PACs, 
and their power.
    And we wonder why we won't be able to protect investors. 
The regulators need to listen to this hearing very carefully. 
With all of the money and power on one side, we will not be 
able to pass meaningful legislation.
    Don't cop out and say we are not going to do anything until 
we pass meaningful legislation. And if you wonder about where 
the power is, Zuckerberg had to come here himself, and sit 
there. Brian Armstrong sent his number two, and Tether didn't 
bother to show up at all.
    Zuckerberg did not have a day in the park. He did not enjoy 
it, but he had to come. Armstrong didn't, and Tether hasn't 
been here at all.
    Now, the number-one threat to crypto currency is crypto. 
Bitcoin could be displaced by Ether, which could be displaced 
by Dogecoin, which could be displaced by HamsterCoin. And then, 
there is CobraCoin, and what could MongooseCoin do to crypto 
coin?
    In the area of fiat currency, the dollar will always be 
more important than the Uruguayan peso, and the Uruguayan peso 
is not a joke. There will always be an Uruguay, and the 
Uruguayan peso will always have some value.
    Will MongooseCoin always have a value? I don't know. I just 
made it up. It is a joke. Although I said that about 
HamsterCoin, and then I found out there really was a 
HamsterCoin.
    It is not fair to compare fiat currencies' current system 
to what crypto currencies aspire to be. It is true that if you 
try to use a credit card or a debit card to buy a sandwich 
today, the system takes half a percent, 50 cents, away from the 
merchant. If you try to use crypto to buy a sandwich today--I 
don't know where you can go in Washington you can use a Bitcoin 
to buy a sandwich. It can't be done at all, but someday.
    We compare what we hope crypto can do, to the problems that 
we face with fiat currencies now. That is not a fair 
comparison.
    Now, looking at Ms. Haas from Coinbase, if I take a hundred 
bucks on your exchange, buy some Bitcoin, and then a couple of 
days later, say, Bitcoin happens to be selling at the exact 
same price, and I sell it, it is my understanding that I get 
$94.02 back. Am I wrong?
    Ms. Haas. We have multiple products and it--
    Mr. Sherman. Yes or no? Would I get, in that exact 
transaction, $94.02 back? Am I wrong?
    Ms. Haas. I can't answer the question. It depends on the 
product.
    Mr. Sherman. Okay. Are there products where I would be 
right?
    Ms. Haas. There is a product where you would be right.
    Mr. Sherman. Okay. So, I could lose $6 in 2 days. What 
about Tether? Buy a hundred bucks worth of Tether, 2 days later 
sell the hundred bucks worth of Tether or sell the Tether, 
could I lose six bucks?
    Ms. Haas. Yes.
    Mr. Sherman. Okay.
    Ms. Haas. It is a 2 percent charge.
    Mr. Sherman. A 2 percent charge. I thought it would be a 3 
percent charge. It was $2.99 last time I was on your site.
    Ms. Haas. No.
    Mr. Sherman. Okay. I am looking at the Coinbase fee, $2.99 
on USTD. We will put this in the record. In any case, to lose 
even 2 percent, let alone 3 percent, and then another 2 or 3 
percent on the way out in scarcely a couple of days, that is 
well over 1,000 percent interest lost in that period of time.
    Mr. Allaire, are your reserves all in instruments that 
yield less than one-tenth of 1 percent?
    Mr. Allaire. That is correct.
    Mr. Sherman. Then, how do you pay 1 percent interest on 
some deposits?
    Mr. Allaire. We don't pay interest on deposits.
    Mr. Sherman. And yet, you have a deal with oh, my time is 
expired.
    Chairwoman Waters. Thank you very much. The gentleman from 
Georgia, Mr. Loudermilk, is recognized for 5 minutes.
    Mr. Loudermilk. Thank you, Madam Chairwoman, and thank you 
for having this hearing. I think it is very intriguing and very 
timely with where we are with the progression of technology. I 
go back and I think about my 30 years I spent in the IT field. 
Had the government gotten in the way of the internet, we would 
still be using dial-up today to do a lot of what we are doing.
    So, I think we have to proceed very cautiously. One thing I 
have learned in my 30 years in the IT sector, especially the 10 
years that I spent in the intelligence realm in the Air Force, 
is that the most important aspect, from an IT perspective, is 
data security--cybersecurity.
    That is something we have to be focused on all the time. In 
fact, in my business, 20 years in the private sector, that was 
the number-one issue for most of my customers.
    And it really got to the point--when I ran for Congress, of 
course, I couldn't continue that business. I sold it primarily 
because I knew that with the way things were, the question 
wasn't if someone was going to be hacked and lose data, it was 
when.
    And one of the things that I learned when I was in the 
military, one principle is that you don't have to secure what 
you don't have. So if you don't need data, don't keep it. But 
then you have the aspect of, yes, we have to secure the data 
that we do need to keep.
    Now, this is one thing that the Federal Government has yet 
to learn is you don't need to acquire a whole lot of data and 
keep that data, especially for the Federal Government, which is 
the riskiest of anyone out there of letting data get out.
    And then, you see more proposals like the one that we have 
heard recently, the craziest proposal, that the banks would 
have to report every transaction by Americans in their banks to 
the Federal Government. This is the type of thing that we don't 
need to be doing.
    However, there is data that is important that we do have, 
whether you are in the private sector, or whether you are in 
public sector, and that is where I see the value of the 
underlying technology of crypto currency, particularly 
blockchain, as a solution to our cybersecurity problems because 
of the distributed ledger aspect of it, is the data is 
available but is not centrally located to where it could be 
taken.
    Mr. Brooks, can you discuss how blockchain and distributed 
ledger technology can enhance our cybersecurity posture?
    Mr. Brooks. Mr. Loudermilk, it is good to see you, and I 
appreciate the question.
    The simplest answer, as I said earlier today, is that 
blockchains are as much about transparency as they are about 
security. One of the biggest problems when you think about the 
biggest cyber hacks we have ever had in the United States is 
how long it took for us to figure out that they occurred--the 
case of Target, the case of Equifax, etc.
    We found out days and weeks later by accident that they 
occurred. And if you think about the Equifax hack, in 
particular, initially, we thought it was a small problem. Weeks 
later, we learned it was a medium-sized problem, and only 
months later did we learn it was a gigantic problem that 
involved all of our data, because there was no transparency.
    The thing about blockchains is every single block as it is 
validated is publicly visible to the network. The other thing 
about blockchain is it is based on a consensus mechanism. So, 
before you can have a change to the ledger, you have to have a 
significant majority of all of the validators agree that that 
is the correct change.
    So, unlike normal networks, where one bad guy can defeat 
the entire system, here, you have to have thousands of 
computers agreeing at the same time that the change can be 
made, and even then, everyone sees it.
    That hiding in plain sight aspect is the safest thing about 
blockchain, is why it is so critical to our security 
infrastructure.
    Mr. Loudermilk. And I think that is one of the most key 
values of this emerging technology is bringing us into a new 
era where we can do some of the things that we need to do 
without amassing this data.
    Another area I have been interested in is, really, with 
payments, and I have done some work on a related issue with the 
CFPB's regulation of remittance transfers.
    So, Ms. Dixon, I understand that your organization is 
active in that space. Can you describe how blockchain and DLT 
are being used to facilitate payments?
    Ms. Dixon. Yes, thank you for the question. This is one of 
my favorite topics, because it is something that actually is 
defining the use case that is happening today.
    I think that there are businesses that transact on the 
network, that can actually go from the interoperability with 
the traditional financial system, is remarkable.
    You can actually take money from a bank account, put it 
into a digital asset, transfer that value to another to the 
end, wherever it is being sent, and then it can convert right 
back into a bank account.
    The fact that you have such complete interoperability with 
the existing financial infrastructure should give us all the 
ability to take, like, excitement about elevating that 
technology to the right level so that we continue to innovate 
there.
    Payments are something that are constantly being leveraged 
on the Stellar Network. They are done with business payments. 
They are also done with remittances from the personal 
standpoint.
    When you live in California, for example, and you want to 
send money to your family in another country, you can do so in 
3 to 5 seconds, 100,000 transactions for less than a penny on 
the Stellar Network. It is a remarkable use of this technology.
    Mr. Loudermilk. And this is what can happen if government 
doesn't get in the way of the development of technologies that 
benefit the individual.
    I have several other questions, but I see my time has 
expired, and I want to be respectful of everyone.
    With that, Madam Chairwoman, I yield back the balance of my 
time.
    Chairwoman Waters. Thank you. The gentlewoman from Iowa, 
Mrs. Axne, who is also the Vice Chair of our Subcommittee on 
Housing, Community Development, and Insurance, is now 
recognized for 5 minutes.
    Mrs. Axne. Thank you, Madam Chairwoman, and thank you all 
for being here.
    Mr. Bankman-Fried, I would like to start by asking you the 
first question. FTX US has a derivatives platform and recently 
bought LedgerX as part of that. Is that correct?
    Mr. Bankman-Fried. Yes.
    Mrs. Axne. Okay. Thank you. And that platform is registered 
with the CFTC. Is that correct?
    Mr. Bankman-Fried. Yes.
    Mrs. Axne. Okay. Perfect. I just want to clarify something. 
And this isn't to say anybody is doing anything wrong. It is 
just to get the lay of the land. You also have an exchange for 
Bitcoin and other tokens, but that is not registered with 
either the CFTC or the SEC. Is that correct?
    Mr. Bankman-Fried. That is correct. Currently, neither of 
them. Our primary market is regulated for spot Bitcoin to USD 
markets.
    Mrs. Axne. Okay. Thank you. And I know you are registered 
as a money transmitter, but that is not the same kind of 
oversight that we will see from a Federal market regulator.
    I also sit on the House Agriculture Committee, which 
oversees the CFTC, so, a gap like this is especially concerning 
to me. And the big problem that I see here from what I 
understand is that the CFTC doesn't have regulatory authority 
for spot trading of commodities, just their derivatives. That 
leaves consumers with inconsistent protections, which is a 
concern that I have.
    Mr. Bankman-Fried, both you and Ms. Haas run exchanges, but 
the investor protections, basically, can be whatever the 
companies separately come up with and they won't necessarily be 
the same. Is that correct?
    Mr. Bankman-Fried. I completely agree with your worry. We 
do, in fact, have much the same investor protections on our 
spot markets as on our derivatives markets. But I would be very 
much supportive of a similar regime for spot commodities 
markets like Bitcoin USD markets as we see for the derivatives 
markets.
    Mrs. Axne. Very good. Thank you.
    When it comes to oversight, I have a couple more questions 
here. Do you report your full order history publicly, either 
you, Mr. Bankman-Fried, or Ms. Haas, and are there public 
standards for that to make sure it is accurate?
    Mr. Bankman-Fried. We do report all of our public market 
data. It is available on our webpage. It is available via our 
API. We do not charge anything for it, and never intend to.
    I would be supportive of that becoming more than just a 
norm but a regulatory standard as well.
    Mrs. Axne. Okay. Ms. Haas?
    Ms. Haas. We also make all of our data available, and we do 
not charge for our data. It is available to our customers.
    Mrs. Axne. And is that order history public as well?
    Ms. Haas. Yes, it is.
    Mrs. Axne. Okay, thank you. I just want to make sure I am 
clear on this. Bitcoin, which has almost a trillion dollars 
invested, has CFTC oversight for people who are trading futures 
and options, but not for people who are trading the currency 
itself, is that right?
    Mr. Bankman-Fried. That is essentially correct.
    Mrs. Axne. Okay. That kind of difference in protections is 
really what I want to focus on here. I am not here to tell 
anyone what they should or shouldn't buy, if they should have 
crypto or not have crypto. I think there are pros and cons, and 
certainly, I have had plenty of conversations with my own son, 
who wants to get into crypto.
    But I will tell you that what I care about is that when 
folks do, I want to make sure that they are protected and they 
have the same investor protections that they would for other 
forms of currency.
    I am asking, can you as an industry, and it sounds like you 
can, benefit long term from having more regulation that sets 
better standards to protect investors in this area?
    Mr. Bankman-Fried. Yes, I absolutely think so and I think 
it is--I am not concerned about more regulation. I think 
getting consumer protection in areas where there is not 
currently enough can be extremely helpful for a robust 
ecosystem. I think it is just important to do so in a way that 
fits the product and in a way that fits the regulators as they 
are.
    Mrs. Axne. Okay, thank you for that. And, listen, I agree. 
I think it is something that we absolutely need to look at, and 
I would certainly ask all of you to think about the steps that 
you can take within your own organizations to make crypto more 
safe and trustworthy for investors.
    But I completely agree with you that we have to be doing 
something to make sure that we are protecting investors.
    There are things that you, as exchanges have to help the 
industry long term. You mentioned that you think we could do 
some of these regulations, and they would be good for the long-
term growth.
    What do you think that you could do to help you build 
trust, and trust for folks in general for crypto currency?
    Mr. Bankman-Fried. I will say that we have had 
conversations with a very large number of institutional 
players, everyone from banks, investment banks, pension funds, 
and the number-one thing that comes up is, what is the 
regulatory framework for the industry, how can we feel that we 
are protected both from a commercial standpoint, but also from 
a regulatory standpoint in pursuing these options for our 
investors.
    And I think it could be extremely helpful to clarify the 
regulatory frameworks, to build them out where they are 
missing, and to make sure that we have streamlined and uniform 
standards that are clearly communicated.
    Mrs. Axne. Thank you so much for that. I would love to make 
sure that crypto is safer and more trustworthy for investors.
    I yield back.
    Chairwoman Waters. Thank you very much.
    The gentleman from West Virginia, Mr. Mooney, is now 
recognized for 5 minutes.
    Mr. Mooney. Thank you, Madam Chairwoman.
    I am certainly thankful to the witnesses for being here. I 
appreciate your expertise as we all learn more about the 
growing digital currency issue.
    Back in August of this year, the Cuban government announced 
their central bank would work on a rule to officially recognize 
digital currencies. So, I am wondering whether the country's 
recent embrace of crypto could be a way for the Communist 
Regime to evade tough U.S. sanctions.
    So, let's start with Mr. Bankman-Fried. What process does 
FTX use to ensure that rogue and, frankly, murderous autocratic 
regimes like Cuba cannot use an exchange to avoid United States 
sanctions?
    Mr. Bankman-Fried. We run sanctions checks on all of our 
users. We conduct Know Your Customer surveillance on them. In 
addition to that, we conduct surveillance on the blockchain and 
fiat assets that transfer into and out of our system.
    Mr. Mooney. Okay. Thank you.
    I want to ask Ms. Haas the same question, propose the same 
question to you as it relates to Coinbase.
    Ms. Haas. Largely, the same answer. We similarly run OFAC 
tasks on all of our customers, both on onboarding and then 
ongoing. We believe that sanctions are an effective tool of the 
U.S. Government in combatting illegal activity.
    In addition to our onboarding controls, we do transaction 
monitoring. We do surveillance on all of our transactions on 
our platform, but we also have tools that are looking across 
the industry, looking in, and we partner with law enforcement 
on investigations.
    Mr. Mooney. Okay. So, second question. Let me set it up for 
you. One of the ways that bad actors or rogue states could try 
to fool exchanges is by using technology like VPN that spoofs 
IP addresses, fooling others into thinking they are in a 
different location.
    Let's go with Mr. Brooks on this one. Can you speak to the 
importance of moving away from IP addresses to verify location, 
and a follow-up to that, what is an alternative way of 
verifying location?
    Mr. Brooks. I have a couple of quick answers. On the 
compliance side, I think the utilization of VPNs to avoid 
geolocation and to avoid sort of geofencing is something that 3 
years ago, was effective and useful, and the industry has 
developed lots of technology which makes that much, much harder 
today. So, some of these decentralized tools, several of the 
companies that have been mentioned already--Chainalysis, 
Elliptic, and some others--have an ability to actually trace IP 
addresses based on probabilistic sort of network information. 
So, it is not just that that IP address might have been issued 
by an ISP in a given jurisdiction; it is also that that IP 
address is associated with lots of other transactions that 
could only be Cuba or could only be Libya or whatever. And the 
probability assessment is one of the things that makes this 
much easier. That is why the network is so important.
    Mr. Mooney. Okay. Thank you.
    I referenced Cuba. The Cuban government's continued tyranny 
is personal for me and my family. My mother fled Communist Cuba 
when she was 20-years-old to come to the United States. She 
even wrote a book about the horrific experiences and the 
aftermath of the revolution there, including her time as a 
political prisoner in the Castro regime and the Marxist Cuban 
government cannot be allowed to continue to oppress the Cuban 
people.
    Former President Trump's tough sanctions restricted access 
to resources for Cuba's rogue government, and I want to work 
with the members of this panel to ensure that the digital 
marketplace does not enable the Communist Cuban regime or other 
bad countries around the world who hate us and kill their own 
people and are tyrannical. I am sure we all share that goal. I 
know there are those who think that that is a role for the 
Federal Government to come in and issue a whole set of 
regulations, because you can't do it yourselves, but I think it 
is better if we work with you, and if you can do it yourselves 
better than the Federal Government, then that might be the 
answer.
    Thank you, Madam Chairwoman, and I yield back the balance 
of my time.
    Chairwoman Waters. Thank you.
    The gentleman from New Jersey, Mr. Gottheimer, who is also 
the Vice Chair of our Subcommittee on National Security, 
International Development and Monetary Policy, is now 
recognized for 5 minutes.
    Mr. Gottheimer. Thank you, Madam Chairwoman.
    And thank you to all of our panelists for being here today. 
I am very grateful.
    If I can start with Mr. Bankman-Fried, in my role on our 
National Security Subcommittee, I am committed to ensuring that 
bad acquisition torsion like terrorists and drug dealers cannot 
access the financial services sector for purposes contrary to 
U.S. interests. And while, obviously, I support cryptocurrency 
and its potential benefits to the digital payment space, one 
area remains particularly concerning for me: the theft of 
cryptocurrency and its potential use in illicit or terrorist 
financing.
    These issues are also related insofar as stolen funds may 
be used for nefarious purposes. I introduced my bill, H.R. 
3685, the Hamas International Financing Prevention Act, in part 
because of the increased reporting around the use of 
cryptocurrency donations to support Hamas.
    Two questions, if you don't mind: one, what are exchanges 
doing today to both ensure that consumers are protected from 
hacking and theft, and to prevent bad actors such as Hamas and 
other terrorist organizations from accessing cryptocurrency 
markets and in what context; and two, in what context would you 
flag a transaction to law enforcement and have you ever flagged 
transactions to law enforcement agencies?
    Mr. Bankman-Fried. Yes. I guess I will first briefly talk 
about the security aspect of this, about stopping breaches to 
accounts where we mandate that all users have to factor 
authentication for all of their accounts. We have a very broad 
suite of security practices that all users can access on the 
site, in addition to all familiar customer policies.
    On the bad actor side, we conduct KYC surveillance on all 
users of the exchange. We do that on all deposits and 
withdrawals, using multiple tools on the blockchain and for 
fiat currencies. And to address any care question about law 
enforcement, we work cooperatively with law enforcement here in 
the United States and globally on tracking down any bad actors. 
We are in constant communication. We strive to be as helpful as 
we can be.
    The combination of the Know Your Customer surveillance that 
we do, plus the transparency of the public ledgers of 
blockchains actually can make it a really powerful tool for 
tracking down any funds from illicit activity. We have been 
participating in freezing a substantial amount of assets on our 
platform in cooperation with law enforcement, and we look 
forward to continuing to work with them globally.
    Mr. Gottheimer. Thank you so much.
    Mr. Allaire, the President's Working Group's recent paper 
on stablecoins includes a recommendation that all stablecoin 
issuers be required to become insured depository institutions, 
such as banks. I understand that Circle has stated that it 
intends to become a bank, but currently backs the USDC in 
circulation 1:1 with reserves held at partner banks.
    I am working on a bill that could potentially implement a 
number of these recommendations. If I can ask, do you think it 
is necessary for safety and soundness for stablecoin issuers 
to, themselves, be insured depository institutions, or is 
partnering with insured depository institutions sufficient, and 
what are the pros and cons of each model, please?
    Mr. Allaire. Thank you for the question, Congressman.
    I think it is a very important issue. As noted, we have 
decided to pursue a national bank charter and we are open to 
being an FDIC-insured bank, as well. I think, however, there is 
some subtlety in this topic, and I think it is important for 
the committee to consider it. A full-reserve digital currency 
model, such as USDC, where 100 percent of the assets are fully 
reserved in high-quality liquid assets such as cash and short-
duration U.S. Treasuries, is not the same as a bank deposit 
where the bank is, in turn, taking the deposit and 
rehypothecating it and lending it.
    And, really, the purpose of FDIC insurance is for that 
fractional reserve lending that takes place. I think it can be 
really powerful for a stablecoin issuer to have a Federal bank 
charter, to be able to access the Fed and hold cash at the Fed 
in terms of the ultimate form of safety and soundness for those 
cash assets, but not necessarily being lending banks that are 
rehypothecating capital. The form of insurance, perhaps, could 
be investigated.
    I know that the FDIC, itself, has been thinking about, what 
are potential appropriate forms of insurance on stablecoin 
issuers, and so I think it is a live issue. But just applying 
the kind of apples-to-apples model on a full-reserve banking 
model, I think, does raise some questions.
    Coming back to your question, I think that statutes in the 
United States should support stablecoin issuers that are 
operating at a State level, and at a Federal level, and support 
money services businesses, as well as banks, being active 
participants in the stablecoin ecosystem. And I think it is 
important that the barriered entry in the stablecoin space not 
be so high that start-ups that are innovating as money services 
businesses can't participate in this innovation.
    Mr. Gottheimer. Thank you so much.
    And I yield back.
    Chairwoman Waters. Thank you.
    The gentleman from North Carolina, Mr. Budd, is now 
recognized for 5 minutes.
    Mr. Budd. Thank you, Madam Chairwoman.
    The United States has a huge opportunity with crypto, but 
my fear is that this regulatory state is going to crack down on 
an industry that the regulators really don't understand yet, 
and it is going to force the next generation of financial 
technology to be created outside of our country. And we can't 
let that happen.
    Mr. Brooks, it is good to see you again. Where do companies 
draw the line and say, enough is enough, with this anti-
innovation, ``regulation by enforcement,'' and then just decide 
to take their industry elsewhere to another country. Where is 
the line?
    Mr. Brooks. Mr. Budd, it is good to see you, and thank you 
for that question.
    What I would say is that in some aspects of the industry, 
the line is super clear. There are some products that are legal 
in other countries and are just not legal here. Take some of 
the investment products we talked about earlier today, for 
example, exchange-traded funds. One of the things that makes 
crypto risky is that consumers may not understand the 
difference between one token and another token and so they may 
want to diversify much as I own an S&P 500 mutual fund.
    We don't allow that in the United States. We do allow it in 
Canada. We also allow it in Germany, Singapore, Portugal, and a 
number of other places. So, if you are a developer of those 
products, there is no fuzzy line. It is super clear: you can't 
do that here, so you have to go abroad.
    There are some other--
    Mr. Budd. Please say why we can't do that here?
    Mr. Brooks. Sure. It is because the Securities and Exchange 
Commission has consistently refused to approve products that 
other G20 nations have approved.
    Mr. Budd. So, we are behind the curve?
    Mr. Brooks. Unquestionably.
    Mr. Budd. Given your previous experience running the OCC, I 
would love to hear your perspective on where a regulator's 
authority begins and ends.
    And remember the joke earlier this year that everything is 
infrastructure? It seems like SEC Chairman Gensler thinks that 
everything is a digital asset that he can regulate. He cites 
the Howey Test and the Reves Test without providing any other 
explanations. So, Mr. Brooks, what are we missing, because 
Chairman Gensler clearly doesn't see a limit to his regulatory 
authority in this area?
    Mr. Brooks. Congressman, one thing I learned running my 
little agency is that the U.S--and this is not specific to 
crypto--is sort of unique among the developed countries in our 
fragmented approach to regulation. So, when I hear people talk 
about the idea that we need one regulator for crypto, I would 
say we should first have one regulator for banks, but we have 
three of them, or if you are an investment bank, five of them. 
So, that is inherent to the system that we have.
    What I say to that is, the last thing we need to do is add 
another regulator to a system that already has dozens of 
regulators. What we need to do, instead, is have parity for 
crypto activity, along with traditional finance. If I make a 
crypto lending platform, I should probably be regulated by the 
FDIC. If I make a crypto trading platform, I should probably be 
regulated by the CFTC and the SEC.
    But somehow, we treat crypto, because it is new, as 
different from everything else, and I am going to argue that 
crypto is just a step-function improvement in the system. We 
already have a regulatory system. The laws are super clear how 
it works, but there is something about crypto that scares 
people. I don't know what it is. Maybe it is just because it is 
new.
    And I remember in my banking law class when banks were 
first allowed to use computers to keep ledgers, people sued 
over that at the time. I remember when I was a second-year 
lawyer, and we got email, and the ADA said that lawyers 
couldn't use email because it would travel over this mysterious 
network of computers. These all seem ridiculous today, but it 
seems like we haven't really learned the underlying lesson, 
which is that technology usually advances human flourishing. We 
have a regulatory system. Let's use it.
    Mr. Budd. Thank you for that.
    Ms. Haas, as you are aware, the infrastructure bill was 
signed into law last month, and it had lots of problems for 
digital assets. So, I was very vocal about a need for a fix for 
this, and I was proudly supporting Ranking Member McHenry's 
bill to make those fixes. Would you please address some of your 
concerns, and why those flaws would be so bad for the crypto 
community?
    Ms. Haas. Thank you. And thank you for your support on this 
important bill.
    First of all, I want to make it clear that Coinbase 
supports tax payments in crypto. We think that everybody should 
be paying their taxes, and we think that centralized entities 
like Coinbase should be reporting, no different than a Schwab, 
no different than a Fidelity. It is an important value-added 
service for our customers.
    But what concerned us about the drafting of the 
infrastructure bill, specifically to the tax provisions, was 
that these are complex issues. Crypto taxation is complex. The 
technology has new players in the space and we didn't have the 
public comment period that we would typically have for 
something so complex, and so what happened was the risk of an 
unintended consequence.
    And I think that we can still solve this. I think that we 
are not to the place that it could be scary, but the definition 
of a broker was potentially overly-wide and could be 
interpreted to include players such as minors, such as the 
hardware wallets that do not have access to this information 
that have no ability to comply with reporting regimes, and 
there could be consequences. There could be penalties. There 
could be Federal risk to them. So, we thought it was overly-
broad.
    And then separately, in Section 6050I, we thought that 
there were additional reporting risks that were privacy, and 
also could be deemed overly-broad and pull in parties that were 
not necessarily deemed to be covered by this rule.
    Mr. Budd. Thank you very much.
    Madam Chairwoman, I yield back.
    Chairwoman Waters. Thank you very much.
    I think you need to make a correction. You referred to Mr. 
Brooks as having been at the SEC, and he has been saying all 
along that he was at the OCC.
    Mr. Budd. Okay. I never made that reference, but thank you.
    Chairwoman Waters. Okay. Thank you very much. We appreciate 
your presence here today and your expertise in banking law. 
Thank you.
    The gentleman from Massachusetts, Mr. Lynch, who is also 
the Chair of our Task Force on Financial Technology, is now 
recognized for 5 minutes.
    Mr. Lynch. Thank you, Madam Chairwoman.
    Great hearing. I want to thank all our witnesses, as well.
    Prior to the creation of the Subcommittee on National 
Security, we had a terrorist financing task force that I 
chaired for about 8 years. So, I am keenly sensitive to the 
issues around Know Your Customer (KYC) and Anti-Money 
Laundering (AML). And I have worked a lot, since then, with the 
Financial Crimes Enforcement Network (FinCEN) on traditional 
banking protections with regard to terrorist financing and 
money laundering.
    And I know that at the end of last year, FinCEN issued a 
rulemaking proposal to require banks and money services 
businesses to submit reports and verify the identity of 
customers involved with wallets for virtual currency. So, this 
particular rulemaking focused on those wallets that were hosted 
in low-compliance jurisdictions and were identified by FinCEN 
as wallets which were not hosted by a financial institution as, 
``unhosted wallets.''
    And the requirements that FinCEN came up with are sort of 
similar to what we use now for money transmitters. Mr. Allaire, 
your firm, in particular, was vocally opposed to that 
rulemaking and I heard your responses to Mr. Foster and to 
others regarding identity. And I just want to try to 
understand--can you share why the transactions involving Virtue 
Assets and payments involving those wallets that are quite 
similar to Western Union transmissions or MoneyGrams, why you 
objected to what looks like a fairly similar regulatory 
approach?
    Mr. Allaire. Thank you, Congressman Lynch, for the 
question. It is a very important question.
    First, I would simply start by saying that I think FinCEN 
has done an excellent job of looking at the issues of money 
laundering and terrorist financing in the context of virtual 
assets, virtual currencies. They led the way as the first 
Federal regulator to, in fact, put in place rules around that 
back in 2013, that led firms like Circle, Coinbase, and many 
others to put in place licensing and supervision around Bank 
Secrecy Act (BSA), Anti-Money Laundering (AML) provisions and 
the like.
    I think the specific issue at hand, which you are correct, 
we had some significant objections to, was really twofold. One 
was, there was an introduction of an eleventh hour rulemaking 
that did not have significant public comment. And I think at 
the bottom of that issue is there are some really significant 
things about the way digital assets and blockchains work, that 
we want to make sure that if we are going to be introducing 
rules around reporting, that they take account of the unique 
things with public blockchain infrastructures, in particular.
    Notably, public blockchain infrastructures are in some ways 
like the public internet or the worldwide web or email; they 
are open networks that anyone can connect to, join, and use. 
And it is really one of the powerful things that has made 
information exchange free and I think it is one of the things 
that we believe with digital assets on blockchains, can make 
value exchange much more frictionless for people around the 
world.
    Part of that is there is the ability for an individual to 
self-custody assets with a piece of hardware or a piece of 
software. That piece of software can be downloaded from an app 
store. And they are self-custodying a stablecoin like a USDC or 
a Bitcoin, that is, the software maker, itself, is not involved 
in facilitating a customer transaction; they are really just a 
software developer providing technology that end-users can use.
    And I think the rule as it was outlined, would be kind of a 
square peg/round hole or a bit of a blunt-force instrument. And 
what we, and I think is hopefully going to bear fruit 
significantly over the next year, is that what we really need 
are ways to provide proof of digital identities. A firm like 
Circle or a firm like FTX or Coinbase or Paxos can provide a 
cryptographic proof that someone has been KYCed and that proof 
could actually be carried around with them in a hardware wallet 
or a software wallet and then you would have the ability to 
know that you have legitimate actors, to be able to have the 
right information about users, without having, essentially, 
more personally identifiable information (PII) being 
broadcasted really broadly.
    And so, I think our view was to give the industry more time 
to develop technology that can allow these forms of 
transactions to happen, but still preserve privacy and take 
advantage of the really significant security benefits that come 
from cryptography.
    Mr. Lynch. Okay. That is fair.
    I know my time has expired, so thank you, Madam Chairwoman. 
I yield back.
    Chairwoman Waters. Thank you.
    The gentleman from Tennessee, Mr. Kustoff, is now 
recognized for 5 minutes.
    Mr. Kustoff. Thank you, Madam Chairwoman, and thank you 
also for convening today's hearing.
    And thank you to the witnesses. I know we have been here 
for some time, but it has been very informative, and I 
appreciate it, and I know we all do.
    Ms. Haas, could we talk about the Crypto Rating Council, 
that I believe Coinbase and other industry players created to 
determine what digital assets look more like securities and 
which ones don't. Could you talk to me about how the Council 
makes its determination and who is involved in the process?
    Ms. Haas. Thank you for the question.
    The Crypto Rating Council is an independent entity that 
works to serve industry participants, such as Coinbase, with an 
assessment of digital assets underneath the Howey Test. So, it 
is looking at the White Papers that new asset projects put 
forth and making a determination under the Howey Test whether 
or not that new project is more likely than not to meet the 
definition of a security under U.S. Federal securities laws. 
Independent law firms are the ones who are doing this 
assessment, who are U.S. securities laws experts and looking at 
facts and circumstances to make an assessment.
    Mr. Kustoff. Thank you.
    You talked about securities, so can you talk about to what 
degree, if any, the SEC and other stakeholders have been 
involved in, what the discussions have been with them in terms 
of the framework?
    Ms. Haas. Thank you for the opportunity to address this.
    At this point in time, the SEC has not provided a clear 
definition about what is or is not a security. They have asked 
us to rely on the Howey and Reves Tests. And we, companies like 
Coinbase, companies like FTX, and others pay careful attention 
to ongoing litigation that is existing in the space, and news 
that we see. But we are left to interpret, based on our 
interpretation of the law, what is and is not a security at 
this time.
    Mr. Kustoff. Thank you, Ms. Haas.
    Mr. Brooks, thank you also for being here. I think there 
are, obviously, people who believe that cryptocurrency is 
difficult, maybe even impossible to track. Can you talk about 
that as it relates to the blockchain?
    And while we talk about alleged illicit activities 
oftentimes being investigated by Federal authorities, could you 
explain, maybe, the fallacy in that, as if you were talking to 
our local police chiefs or our local sheriffs?
    Mr. Brooks. Sure. Thank you for the question, Mr. Kustoff. 
I actually do this talk at local rotary clubs and things around 
the country all the time, so I think I can do that pretty well.
    I think the easiest way to understand it is, let's contrast 
blockchain transactions with normal banking transactions to see 
how much easier it is to trace them on a blockchain than it is 
in a banking transaction. So, let's imagine for a moment that--
I would never do this because it would be flagrantly illegal--
but let's say I bought you lunch, okay. And let's say that 
afterwards, you wanted to Venmo me your payment back. So, you 
hit your Venmo button on your iPhone and you send me money.
    What many people don't understand is that there are seven 
or eight different steps in the Venmo transaction. All Venmo 
does is send an instruction to your bank. Your bank then 
receives the instruction, they write it down in their books and 
records, and then they send an instruction to an underlying 
transfer network. It could be the automated clearinghouse, it 
could be the Fed wire system, or something else. That system 
then contacts my bank. It inquires whether my bank has enough 
money to pay you. Once that has been done, then there is a 
debit from my account. It is very complicated. And in any one 
of those steps, information could be lost. There could be a 
breach. Something bad could happen.
    Versus in a blockchain, there are no intermediaries. I am 
not sending instructions to a third party to send instructions 
to another third party to eventually send you money. I've sent 
you money. And when the block is valid, I can see that my 
wallet address transferred that value to your wallet address; 
it's as simple as that.
    The easiest way for people to understand how easy this is, 
because we have had a lot of talk about hacking and 
cybersecurity issues, the reason that we found the bad guys in 
the Colonial Pipeline hack was because they asked for Bitcoin. 
If they had asked for diamonds, if they had asked for cash, if 
they had asked for almost any other thing, we never would have 
caught the bad guys. We caught the bad guys because--not in 
spite of the fact--they used Bitcoin and we could tell exactly 
where the money went.
    Mr. Kustoff. So, because the blockchain was used, it was 
traceable?
    Mr. Brooks. Correct.
    Mr. Kustoff. And just briefly, because my time is expiring, 
again, as you are talking to rotary clubs, could you give 
specific examples where the FBI and other Federal law 
enforcement agencies use the blockchain, in fact, to help trace 
and help determine?
    Mr. Brooks. When I used to work at Coinbase, I ran a group 
that facilitated those customers; they were our clients. We did 
work for them.
    Mr. Kustoff. Thank you very much. I yield back.
    Chairwoman Waters. Thank you.
    The gentlewoman from North Carolina, Ms. Adams, is now 
recognized for 5 minutes.
    Ms. Adams. Thank you, Chairwoman Waters, and Ranking Member 
McHenry, for hosting the hearing.
    Mr. Cascarilla, I want to touch briefly on the risks that 
stablecoins might pose to our broader financial system. The 
President's Working Group report, which we spent plenty of time 
talking about today, expressed concern that any perceived 
instability could trigger a run on that stablecoin. In 2008, we 
saw the dangers of instability in prime lending market funds, 
and now rating agencies are saying that.
    So, how do you respond to the assertion by the President's 
Working Group that a run on stablecoins could cause systemic 
instability?
    Mr. Cascarilla. Thank you for the question.
    I think this is a crucial topic when it comes to 
stablecoins. I think the key point here is to define 
stablecoin. And depending on how you define it, it creates 
different risks. If a stablecoin is backed by only cash and a 
cash equivalence--essentially, money that is sitting in an 
FDIC-insured bank account or sitting in T-Bills that mature in 
3 months--there is no risk of a run; it is liquid cash. You 
have simply taken a dollar and you have tokenized it.
    And there are very good uses for that, and there are really 
good reasons to set it up that way. Of course, you could decide 
to back your stablecoin with other assets and certain issuers 
do. It could be loans. It could be CDs. It also could be other 
types of securities.
    And in that case, you start to have not really a 
stablecoin, but you have something that looks more like maybe a 
bank deposit. In that case, it would make a lot of sense, I 
think, for a banking regulatory regime to oversee it.
    And, also, it could be that it looks more like a money 
market fund because it is backed by certain securities and it 
would make sense for the SEC to oversee it. So [inaudible] or a 
trust company.
    Ms. Adams. Okay. I was going to ask how stablecoins are not 
similar to money market funds, but I think you have made some 
clarification there.
    Ms. Haas, in October of this year, Coinbase released an 
operational framework of the digital assets policy proposal in 
which you advocate for the creation of a new self-regulatory 
organization (SRO). You indicate that incorporating an SRO into 
the regulatory supervision of marketplaces will speed the 
development and enforcement of an appropriately-tailored 
digital asset industry rule.
    In your view, how can Congress and industry best come 
together to begin laying the foundation for a successful 
regulatory framework for digital asset trading platforms such 
as yours?
    Ms. Haas. Thank you so much for this question.
    I want to clarify that first, in our proposal, we are 
seeking one single Federal regulator. It could be an existing 
Federal regulator. We are not asking for the creation of a new 
Federal regulator.
    And the value that we think having an SRO would be--this is 
complex. There is no innovation happening in crypto every 
single day. We haven't even touched on non-fungible tokens 
(NFTs) or decentralized autonomous organizations (DAOs) in this 
committee hearing today. And we think it is important that 
there is a nimble group that is constantly looking at the 
changes in crypto. And so, that is why we recommended having an 
SRO in addition to a single Federal regulator.
    The way we would love to work with you all is we think this 
is an important step in the process. We think this hearing is 
important, but we really believe that having policymakers 
deeply understand the technology, getting input from the 
industry, understanding the use cases will help craft prudent 
regulation here.
    We believe that we agree with you all on first principles 
of regulation, but how we get there is going to look very 
different in crypto than it has in our traditional financial 
markets, the relied-on intermediaries.
    I think many of the testimonies on this panel have spoken 
very similarly about the challenges we have seen and we would 
love to work with you in partnership.
    Ms. Adams. Thank you, ma'am.
    This is to all of the witnesses, and it can be a yes-or-no 
answer, would you commit to--as a two-time graduate of 
Historically Black Colleges and Universities (HBCUs), I care 
deeply about making sure that your companies reflect the 
diversity of our country. So, yes or no, would you commit to 
sharing data about the racial and gender makeup of your 
companies?
    I want everyone, if you can, to answer quickly, yes or no, 
are you committed to doing that?
    Mr. Allaire. Yes.
    Mr. Bankman-Fried. Yes.
    Ms. Adams. Okay.
    Ms. Haas. We would be happy to follow up with your office.
    Ms. Adams. Great. We would appreciate that very much. It is 
a concern of not only this committee, but certainly of one of 
our Co-Chairs, Joyce Beatty, and myself and some others. So, 
thank you for your responses.
    And Madam Chairwoman, I am going to yield back.
    Chairwoman Waters. Thank you.
    The gentleman from Indiana, Mr. Hollingsworth, is now 
recognized for 5 minutes.
    Mr. Hollingsworth. Good afternoon.
    I appreciate everyone being here, and I certainly 
appreciate the dialogue that has been engendered thus far. I 
will admit to you that my erudition on such matters is very, 
very low, and so I am on a genuine fact-finding mission, not on 
a confirmation of my preconceived notions about how this could 
be used or, alternatively, how it should be treated by 
regulators.
    I think, specifically to Mr. Allaire to start with, would 
you define stablecoin for me?
    Mr. Allaire. Sure. Thank you for the question, Congressman.
    There are many types of stablecoins. There are stablecoins 
that are called stablecoins because they are intended to hold a 
stable value, thus the name.
    Mr. Hollingsworth. Can you clarify and be more specific? A 
stable value relative to what?
    Mr. Allaire. Relative to some underlying reference asset.
    Mr. Hollingsworth. Right. But that reference asset, in and 
of itself, may, in fact, be volatile, right? If I said this had 
a 100 percent correlation with one ounce of gold, that should 
be stable relative to gold--
    Mr. Allaire. That is right.
    Mr. Hollingsworth. --but not stable relative in an absolute 
sense, I should say.
    Mr. Allaire. That is exactly right.
    Mr. Hollingsworth. Okay.
    Mr. Allaire. So, say, the purchasing power of a dollar is 
changing rapidly with inflation and so, or in other countries, 
hyperinflation or there are deflationary assets and so on. So, 
the reference asset obviously has a huge impact.
    Mr. Hollingsworth. You brought this up, and I wanted to 
delve further into that and I appreciate that. So, a lot--not a 
lot, maybe not even the majority, some non-trivial portion of 
stablecoins--are backed by U.S. dollars and are transferable to 
and from dollars, right? So, in essence, explain to me the 
value proposition to me owning a stablecoin that I can convert 
into dollars, as opposed to owning the dollars themselves?
    What is the value proposition to a consumer?
    Mr. Allaire. Yes, that is a really great question, and I 
think it is good to use analogies sometimes on this.
    Mr. Hollingsworth. Right.
    Mr. Allaire. It is sort of like the difference between 
having a postal letter versus an email. A digital version of a 
letter can move at the speed of the internet for free.
    Mr. Hollingsworth. Right.
    Mr. Allaire. That is really an upgrade to the functionality 
of a letter, for example.
    Mr. Hollingsworth. Right.
    Mr. Allaire. And, digital music, the same kind of 
attribute. So, digital currency dollars inherit the kind of 
super powers of the internet: the speed; the reach; the 
interoperability; and so forth.
    Mr. Hollingsworth. The net summary of that is that it is no 
different as a store of value than owning dollars, because it 
is convertible to and from dollars, but is different in its 
transaction characteristics? It can move faster and presumably 
at a cheaper cost of transaction than, perhaps, transacting in 
dollars? Is that a fair way to say that?
    Mr. Allaire. I think that is basically correct, although I 
would say that well-designed stablecoins are safer than bank 
deposits because with bank deposits, you are taking a risk on 
the lending book of the underlying bank. And so, you have run 
risks. You have default risks of all of the deposits and loans 
that might sit in a bank.
    A full reserve form of money, which is what a dollar 
digital currency such as USDC represents, is actually a safer 
form to hold, not just store value, but as a transactional 
medium, as well.
    Mr. Hollingsworth. Right. Assuming that you hold your 
dollars in a bank account.
    Mr. Allaire. That is right.
    Mr. Hollingsworth. Yes, there is some level of counterparty 
risk. We have worked hard, frankly, in this country and through 
a regulatory environment of minimizing that and through Federal 
Government guarantees, but that remains non-zero, if trivial.
    So, walk me through the transaction value of owning a 
stablecoin. And here is my view just outside of this. I 
understand the notion that if I go to a retailer that accepts 
that stablecoin, then I can transact with them, presumably at a 
lower cost to that retailer. Hopefully, my prices are lower on 
account of that and I can transact faster with them.
    But there is a non-zero transaction cost associated with 
getting into that stablecoin, so, I have kind of traded this 
notion of accelerating my pace of transaction, lowering the 
costs once I get into the system, but there are costs to get 
into that system, right? I have to buy whatever that stablecoin 
is from dollars, right?
    Mr. Allaire. Yes, and I can speak in the case of USDC.
    Mr. Hollingsworth. Please.
    Mr. Allaire. So, if an institution wants to transfer 
dollars into USDC, we don't charge a fee for that.
    Mr. Hollingsworth. You might have to get set up to do so.
    Mr. Allaire. You need an account.
    Mr. Hollingsworth. I can't just go and get a debit card, 
and use my debit card out of my bank account. I have to set up 
an account. Presumably, you have some process by which I do 
that.
    Once I get over that hurdle, then I can transact, or 
something like that.
    Mr. Allaire. That is correct. And I think many users of 
stablecoins keep their value in stablecoins because they are 
now able to use a very, very efficient payment and settlement 
medium. The high growth that you are seeing is partially 
attributed to that.
    Mr. Hollingsworth. So, is the value proposition that this 
network of those that accept this is going to expand some more, 
and people are going to keep that in stablecoins?
    And then my second question is going to be, why can't the 
same technology that runs stablecoins eventually run the 
payment system in dollars? Won't we eventually cut out the 
middle step of having to convert to a stablecoin, and then 
transact in this frictionless and speedier environment? Won't 
we eventually figure out how to run that through the existing 
payment system?
    Mr. Allaire. I think there are two points here. One is that 
dollar digital currencies like USDC are both kind of protocols 
and are a form, a representation, a form factor for a dollar. 
And there are network effects there, just like there are 
network effects in other internet protocols that we use for 
things, and I think that is significant.
    To the second question, I think in some ways it is a 
question of semantics. When I use the IOU settlement system of 
a Visa card, I am not actually spending dollars, per se. There 
are a bunch of IOUs that are on a centralized ledger that are 
keeping track of things, and then, ultimately, underneath, 
there is a Fedwire that goes from one bank to another. We 
experience it as, well, that is just this card and there is a 
whole elaborate kind of system underneath that, that charges 
fees.
    I think well-regulated stablecoins are an upgrade to those 
kinds of payment systems to be ready for the internet therein.
    Mr. Hollingsworth. I appreciate the Chair's indulgence.
    Chairwoman Waters. Thank you. The gentleman's time has 
expired.
    The gentlewoman from New York, Ms. Ocasio-Cortez, is now 
recognized for 5 minutes.
    Ms. Ocasio-Cortez. Thank you, Madam Chairwoman, and thank 
you to all of our witnesses who are here today at this hearing.
    Before I get into the heart of my questions today, there 
was a slight discrepancy in some of the testimony and 
questioning from earlier today that I wanted Ms. Haas to 
clarify very quickly. Earlier in the hearing, Representative 
Velazquez asked about proprietary trading on the Coinbase 
platform, and in that moment, I believe you told her that, 
``Coinbase does not engage in proprietary trading on our 
platform. All prices are established, et cetera.''
    However, in looking at the Coinbase rules under Section 
3.21 of Coinbase corporate ops, it says that Coinbase, Inc., 
which owns and operates Coinbase Pro and Exchange, also trades 
its own corporate funds on Coinbase Pro and Exchange, and I 
just wanted to give you, briefly, the opportunity to clarify.
    Ms. Haas. Thank you so much for the opportunity to clarify. 
There are a few things that we do in our business. One is, we 
do have a corporate investment portfolio that every month we 
make an investment in crypto and add to our balance sheet. We 
have not sold that. We don't trade it actively, but we do 
increase the investment on a monthly basis on pre-established 
investment protocols. We do buy those on our exchange.
    Ms. Ocasio-Cortez. Got it. Understood. Thank you very much.
    So, to the heart of the matter, crypto, as we know, is a 
growing industry. It is rising in market value from $500 
billion last year to more than $3 trillion as of November of 
this year, 2021. There are a lot of advocates, proponents of 
the cryptocurrency industry who discuss the creation of new 
digital currencies, I should say, and then building safer, more 
inclusive systems, outside of the traditional financial sector.
    But I kind of want to explore this assertion a little bit 
more. Mr. Allaire, a substantial portion of the buying and 
selling of cryptocurrencies is done with stablecoins, correct?
    Mr. Allaire. A significant amount is traded with 
stablecoins, yes.
    Ms. Ocasio-Cortez. It is about 75 percent. Does that sound 
about right to you?
    Mr. Allaire. I don't have the data in front of me, but it 
does sound roughly correct.
    Ms. Ocasio-Cortez. Okay. And these stablecoins are designed 
to be backed by certain reserve assets, whether they are 
primarily USD or safe, highly-liquid cash substitutes; 
essentially, a coin to be stable in value so that people can 
kind of use it in a larger world of crypto where other coins 
could perhaps be a little more volatile in their value.
    Mr. Allaire. I can certainly speak to the design of USDC. I 
can't really speak to others. So, yes, USDC is designed as a 
payment instrument under electronic money law in the United 
States. So, it is cash and short-duration U.S. Government 
Treasuries, which are the underlying instruments for the stored 
value.
    Ms. Ocasio-Cortez. And, in fact, your firm recently 
announced a transition to 1:1 backing in dollars of USD coin 
after it was found that only 60 percent of the coin was backed 
by cash or cash substitutes. So, if the cryptocurrency 
industry, hypothetically, lost its ability to use stablecoins 
as a bridge to trade in and out of dollars tomorrow, would that 
cause a significant shift? It seems as though it would not be 
able to work the way that it does currently, correct?
    Mr. Allaire. I think a primary reason why stablecoins are 
so powerful is that they are a superior form of settlement. And 
the existing banking system moves slowly. Funds take several 
days to move, and there are significant fees and the access to 
that can be limited, whereas, blockchains operate continuously 
and settlement happens at the speed of the internet.
    And so, I think it is important that payments and 
settlement in these new forms of internet financial products 
and services can operate at the speed of the internet. So, I 
think it is essential.
    Ms. Ocasio-Cortez. I see. Thank you.
    Lastly, what would you say to some of the folks who are 
listening today, not just here on this panel, but in the larger 
world? What do you say to the folks who say, basically, this 
doesn't seem like a new financial system, per se, but really an 
extension or perhaps expansion of our present one?
    Mr. Allaire. I would disagree with that. I think what I 
believe we are seeing is a new open infrastructure layer on the 
internet, a missing infrastructure layer of the internet that 
is designed around value exchange and economic coordination 
that is rooted in immutable data, the ability to interact with 
counterparties in a very, very safe way that hasn't existed 
before on the internet. And, really, many of the efficiencies 
that the internet brings in terms of moving information brought 
into moving value, but also with greater degrees of security 
than are often offered to the existing financial system.
    So, I really do believe we are building a new global 
economic infrastructure layer and we are--
    Ms. Ocasio-Cortez. And you would argue that that is 
distinct, and not an expansion or an increase in the 
sophistication of our current financial system?
    Mr. Allaire. I believe that for this to take hold, it needs 
to be well-integrated with our existing financial system, and 
we have long believed in a kind of hybrid model that does that.
    Ms. Ocasio-Cortez. Thank you very much.
    Chairwoman Waters. Thank you. The gentlelady's time has 
expired.
    The gentleman from Ohio, Mr. Gonzalez, is now recognized 
for 5 minutes.
    Mr. Gonzalez of Ohio. Thank you, Madam Chairwoman. I truly 
appreciate this hearing. It is a great hearing.
    I want to start with Mr. Brooks. I am going to attempt to 
respond to some of the objections, which I believe demonstrate 
a complete and utter misunderstanding of what we are even doing 
here today. One contention is that the vibe of crypto is a, 
``stick-it-to-the-man'' vibe, but in actuality, it is dominated 
and controlled by Big Tech and Wall Street.
    While the culture may be somewhat accurately described, the 
notion that a handful of big tech leaders and Wall Street banks 
somehow created and now control crypto is absurd on its face 
and, frankly, anyone who would make such a claim, I believe, 
should be ignored on this topic.
    My contention is that Web3 crypto blockchain, et cetera, by 
its very structure has the ability to solve some of the most 
difficult and frustrating problems that the current version of 
the internet and the financial system have, where a narrow set 
of platforms control what we see, how we interact, and what we 
buy, while millions of Americans remain completely disconnected 
from the financial system. Web3 can turn this entire thing on 
its head in a very empowering way.
    So, my question is simple: How, specifically, could you see 
Web3 solving some of these bigger challenges associated with 
the current version of the internet and the financial system?
    Mr. Brooks. Congressman Gonzalez, thanks for the question.
    When I go back to the criticisms that you just were 
recounting, the only part of it that I heard was hip. I am 
going with hip. The rest of it, we can come to.
    But in terms of the problems being solved, I think the 
first issue is that the biggest critics of cryptocurrency have 
been the biggest banks. Those are the people who are the most 
concerned about the entry of stablecoins into the payment 
system, about the ability of crypto assets to build networks 
that are away from the clearinghouse. Those are the biggest 
critics, so I think that tells you a lot of what you need to 
know.
    And the reason is because the way that Web3 solves a lot of 
problems is really twofold. First of all, it eliminates the 
toll-collector role of traditional banks and traditional 
broker-dealers. The main thing that they do is they employ 
large numbers of human beings maintaining ledgers of account 
and allocating credit for a fee. Bitcoin and other 
cryptocurrencies do that without human beings and with no fee 
and the elimination of minimum account balance fees, the $25 
wire transfer fees that your bank charges to give you 3 days to 
send money; those are gone.
    Mr. Gonzalez of Ohio. Thank you.
    Mr. Brooks. That is what is important, but the last part is 
it unlocks value. The traditional economic structures don't 
unlock the creator economy, play to earn in the gaming system. 
Those don't exist.
    Mr. Gonzalez of Ohio. I want to go to Ms. Haas on that. 
Building off of this, in your testimony, you mentioned use 
cases for Web3 in the creator and gaming economies. Could you 
please outline a specific-use case and discuss how Web3 can 
empower creators and artists over mega-tech platforms, which 
was implied earlier, and quickly, please, if you could?
    Ms. Haas. Okay. Let's talk really quickly. I will cite the 
one that we just talked about earlier, which is in the month of 
November, play to earn, so these are where video games, one can 
play a video game and earn non-fungible tokens (NFTs). Those 
NFTs are in-game experiences. So, if anyone here has young kids 
who are playing with Roblox, playing Minecraft, playing with 
these, there are in-game experiences where you can buy avatars, 
and you can buy various things. These can become NFTs.
    These NFTs, then, can be sold for value. And so, what we 
have here is this kind of concept of play-to-earn. You can play 
a video game. You can earn money. You can then monetize that 
back into fiat, and you can create these new economies and 
these new communities that have increasing value.
    Mr. Gonzalez of Ohio. Thank you.
    Mr. Bankman-Fried, I believe you live in Hong Kong; is that 
correct?
    Mr. Bankman-Fried. I'm sorry, can you repeat that?
    Mr. Gonzalez of Ohio. You live in Hong Kong; is that 
correct?
    Mr. Bankman-Fried. I do not anymore.
    Mr. Gonzalez of Ohio. Oh, okay. Well, let me ask the 
question differently.
    Mr. Bankman-Fried. I did, at one point.
    Mr. Gonzalez of Ohio. So, 10 years ago, certainly 20, 30 
years ago, if you wanted to start a major internet company, you 
probably wanted to do it in the United States. You probably 
wanted to do it where you grew up in Stanford, on the coast of 
Silicon Valley, for a whole host of reasons, one of which being 
a very, very conducive, innovative environment.
    When I look at Web3, I see a lot of projects moving 
overseas. To what degree is the current regulatory environment 
in the United States contributing to this change where projects 
are now being built and domiciled in other nations, not the 
United States, whereas, in the previous versions of the 
internet, they were.
    Mr. Bankman-Fried. I do think it has contributed to that. I 
am optimistic that we are going to see changes to the framework 
over the next few years that will bring us into a world that 
can make the United States the source of the deepest and most 
liquid markets in the cryptocurrency ecosystem. I don't think 
we have seen that historically.
    And if you look at the difference between the volume 
distribution of crypto and digital assets versus most other 
industries, you can see that.
    Mr. Gonzalez of Ohio. Mr. Brooks, do you have any thoughts 
on that?
    Mr. Brooks. Congressman, as I said earlier, there are 
certain activities that our G20 partners seem to think are 
perfectly appropriate, legitimate, and subject to regulation 
that we keep resisting. Those have moved abroad.
    Mr. Gonzalez of Ohio. Thank you.
    And thank you, Madam Chairwoman. I yield back.
    Chairwoman Waters. Thank you.
    The gentlewoman from Michigan, Ms. Tlaib, is now recognized 
for 5 minutes.
    Ms. Tlaib. Thank you, Madam Chairwoman, and thank you so 
much to everyone who has been coming forward in regards to this 
important issue.
    Cryptocurrency like Bitcoin currently consumes enough 
energy to power a small nation, and that is something that 
continues to be missed in the debate around this issue. The 
University of Cambridge's analysis estimated that Bitcoin 
mining consumes 121 terawatts hours a year. To put that in 
perspective for everyone, that is more electricity than the 
entire country of Argentina consumes. That is more than the 
consumption of Google, Apple, Facebook, and Microsoft combined.
    One Bitcoin transaction, a single purchase, sale, or 
transfer uses the same amount of electricity as the typical 
U.S. household uses in more than a month. This is really 
astounding to me, and many folks do not know this, many 
Americans and folks who are talking about this issue.
    Ms. Dixon, can you explain why for a cryptocurrency like 
Bitcoin that relies on a proof-of-work model, mining is such an 
energy-intensive process?
    Ms. Dixon. Thank you for the question.
    This is a really important area, obviously, in terms of 
sustainability and the focus on what we do in this space. We 
should always be trying to do it better and much more 
efficiently.
    Bitcoin is the proof--the way that Bitcoin consensus is 
achieved is through really complicated math equations, and so 
there is a lot of energy that is needed to be used to make that 
happen. I know best about the consensus mechanism on Stellar, 
which is the Stellar consensus protocol, which can be done on a 
very small computer, like any of the ones that you have in 
front of you.
    The University of London did a study on the Stellar 
Network, itself, and the network is low in terms of energy 
consumption. It is around .00022 kilowatts per hour for each 
transaction. That is less than a transaction for Visa. That is 
a really important comparison for us all to think about. So, 
not every consensus mechanism is proof of work or proof of 
stake; again, there are many different ones out there and 
depending on the mechanism, it depends on the energy 
consumption. But it is definitely important for us to be able 
to try to do this better, more efficiently, and to consider the 
sustainability concerns around it.
    Ms. Tlaib. No, I am so glad you talked about a model to 
potentially shrink cryptocurrency's enormous carbon footprint. 
I am particularly alarmed that previously-idled, shut-down coal 
plants like the one operated by Greenidge Generation in Seneca 
Falls, New York, are now being brought back online to aid in 
cryptocurrency mining.
    And I don't know if the chairwoman knows this, but in 
Montana, a coal-fired generating station is now providing 100 
percent of its energy to Marathon Digital Holdings for Bitcoin 
mining under the power purchase agreement. Prior to the 
crackdown in China, it was estimated that nearly two-thirds of 
all Bitcoin mining took place in China, included in regions 
with very heavy power generation sets in Mongolia and other 
areas.
    Ms. Dixon, should the world central banks and governments 
be taking a more active role in monitoring and regulating 
cryptocurrency in order to bring energy consumption and carbon 
emissions in line with our own targets here in our country, the 
Paris Agreement, and what would that look like?
    Ms. Dixon. I think it is really important for us, as an 
industry, to really focus on this issue even without 
regulation. I think it is something that you need to always 
balance the value of what you receive in terms of the harm that 
is actually created to the environment. So, we constantly have 
to be doing that kind of analysis.
    I think we all need to focus on minimizing the energy 
consumption as much as possible and then think about how we can 
work with governments to be able to consider the best way to 
achieve the carbon-neutral status that I think a lot of folks 
want us to get to.
    So, I encourage constant discussion. I encourage us to be 
innovative. This is one of the wonderful things about 
blockchain and just innovation generally; you look and you use 
technology to help to solve problems just like this.
    Ms. Tlaib. Yes, and the proof-of-work model, fundamentally, 
is incompatible with the environmental-neutral future. You are 
saying we have to move in this direction, Ms. Dixon, so what 
tools can policymakers like ourselves look at to incentivize, 
to move us away from that model? How can policymakers 
accelerate that transition away from carbon-intensive mining?
    We know our planet is burning. The climate crisis is here. 
And I just want to get the cryptocurrency community to become 
part of the solution and not make this crisis even worse. So, 
can you talk about things that you would suggest for us to be 
working on in regards to this issue?
    Ms. Dixon. I think it is really important. We have actually 
engaged a third party to be able to look at the additional 
energy consumption, not just for what, as I mentioned, the 
University of London did with respect to the work that they 
did, but I do think it is important to be able, and we are 
engaging a third party to look at all of the different 
transactions and how the network actually can even be better 
and better with this, with respect to Stellar.
    I think that same kind of work can be done with all of the 
different types of consensus mechanisms out there. So, I think 
research and more focus on what we can do to achieve 
sustainability and our sustainability goals is an important 
mechanism, and I think it would be really good to continue that 
conversation with you.
    Ms. Tlaib. Thank you.
    And I yield back.
    Chairwoman Waters. Thank you very much.
    The gentleman from Tennessee, Mr. Rose, is now recognized 
for 5 minutes.
    Mr. Rose. Thank you, Chairwoman Waters, and thanks to 
Ranking Member McHenry for holding this hearing.
    And thanks to our witnesses for hanging in with us for such 
a long period of time. Your testimony and participation today 
is very important to helping us understand this area and craft 
the appropriate policies going forward.
    Mr. Bankman-Fried, FTX and FTX US have grown substantially 
over the past several years. Can you tell us about the economic 
impact, from your perspective, that FTX US has in this country?
    Mr. Bankman-Fried. Yes, thank you for the question, 
Congressman.
    In addition to, obviously, the impact in terms of the 
hiring that we are doing and the support of a number of 
initiatives in the country related to job training and 
education, we are also hoping that we can help provide 
financial services to people who have not had easy access to 
those before. If you think about the number of intermediaries 
that are involved in the traditional financial transaction, 
whether it is using a bank or whether it is investing your 
assets, that is a lot of points that can be very difficult to 
navigate for a number of people, both in this country and 
around the world.
    We aim to be able to provide services to everyone here, all 
easy to access on a mobile phone, giving inclusive and 
equitable access to financial markets that have been missing to 
a number of people.
    Mr. Rose. Obviously, you have described a great many 
benefits to the U.S. economy. So, in your view, how do we keep 
this innovation happening in the United States?
    Mr. Bankman-Fried. I think I am optimistic that on the 
regulatory side, we are not that far from that point, and I 
think that there are a few clarifications that could go a very 
long way here. I think that on the market side, having a 
framework with a single regulatory structure, and it might have 
multiple regulators involved in it. The CFTC and the SEC are 
both likely to be involved to some extent, but having a single, 
unified framework for futures and spot digital assets could go 
a long way towards providing the sort of experience that you 
can offer in a lot of jurisdictions today.
    I think that giving clarity on the stablecoin side of audit 
requirements for the reserves, but without sort of squashing 
innovation by requiring only a very limited number of 
institutions to be able to issue them, could go a long way on 
that side.
    And then, the last thing I would say is that moving away, 
hopefully, from a binary distinction of what asset class you 
are part of, where one is very much close to the sentence and 
moving towards a structure where we identify the necessary 
disclosures for certain digital assets related to the issuance 
related to the supply related to antifraud measures so that 
they can all be part of our financial system with appropriate 
disclosures and antifraud mechanisms and regulatory oversight 
would be really valuable.
    Mr. Rose. I want to turn to you, and thank you for a 
moment, Mr. Brooks. If you were king for a day and you were 
going to tell us, here is what you need to do to structure the 
regulatory framework, in a minute and 39 seconds, tell us what 
that would look like?
    Mr. Brooks. I can barely introduce myself in a minute and 
39 seconds, Congressman.
    I come back to the concept of parity. I don't know why we 
believe that incumbent institutions are risk-free and anything 
new is highly risky. So, if I have a platform built on a 
blockchain that is doing lending, I don't know why it is so 
hard for us to say that it can participate in our banking 
system. If I decide that XRP is a security, why won't we let it 
list on a U.S. exchange?
    The problem is that we treat crypto assets differently from 
all other assets, and the answer is to just recognize them for 
what they are. These are assets that represent some underlying 
activity. It could be a network. It could be an application. 
They have a value that people are willing to buy and sell at. 
Let them in. That would be my message: Let them in.
    Mr. Rose. Okay. I am going to ask this question, and then 
ask you all to respond afor the record. I recently read an 
article entitled, ``The Bitcoin Boom and the Quantum Threat.'' 
I bet most of you have read this article by Arthur Herman, who 
is a senior fellow at the Hudson Institute. The article 
discussed the fact that quantum computing could pose a security 
risk to the blockchain technology.
    My friend, Mr. Perlmutter, asked Mr. Bankman-Fried about 
this topic earlier, but I think it is worth revisiting, and I 
would open this question up to all of you and ask you to 
respond in writing. Do any of you worry that in the future, 
quantum computing could be used to compromise the security of 
blockchain technology?
    And I see my time is expiring, so I will just go ahead and 
yield back, Madam Chairwoman. Thank you.
    Chairwoman Waters. Thank you very much.
    The gentlewoman from Pennsylvania, Ms. Dean, is now 
recognized for 5 minutes.
    Ms. Dean. I thank the chairwoman, and I thank all of you 
for being here today and testifying before us.
    I want to start in a general way, and I am thinking, Mr. 
Brooks, of what you said about the practice of law with the 
advent of emails. I was a younger lawyer then and I remember 
all of the fears around it. And so, it has been said, and this 
is really a follow-up to what Mr. Greene asked long ago, hours 
ago, it is obviously, clearly, a fast-growing and a bit 
mysterious market. Looking at the total cryptocurrency market 
cap over the last year, as some here have reported, it exploded 
from about $500 billion a year ago to now almost $3 trillion as 
of last month.
    But it is also, clearly, a volatile, fast-moving market. As 
of last night, the total market cap is back down closer to $2.4 
trillion. Another example of volatility is Bitcoin, which lost 
half of its value over just 2 days in March before rebounding. 
So, to that notion, to the people who find all of this a bit 
mysterious, are we at risk? Do we see warning signs of a bubble 
in this marketplace, if I am allowed to call it that, and what 
do we do to make sure that the industry does not threaten the 
overall stability of our financial system?
    Mr. Brooks, I will start with you.
    Mr. Brooks. Thank you, Congresswoman. It is good to see you 
again.
    I will just give you a very quick anecdote. When I was 
practicing law, I represented one of the largest mutual fund 
complexes in the United States, and in their market room, they 
had a chart, a physical chart showing the U.S. equity market 
from 1792 to the present. What I remember about this room is it 
was a full city block long, and if you stood at the end of that 
room and looked at that chart, it was a straight line and up to 
the right. But if you walked right up close to the chart, you 
could very clearly see the Civil War and the panic of 1907 and 
the Great Depression and all kinds of other volatility along 
the way.
    What I would tell you is in the beginning of a fundamental, 
technological revolution like this, the early days are going to 
see turbulence, but the long chart of crypto in only its 11-
year history is up to the right, just like the U.S. equity 
market. So, what I would say is there are risks. There are 
disclosures that ought to be had. There is framework regulation 
that should be adopted. But the fact that the price goes up and 
down doesn't make it any different from U.S. equity markets in 
the first 100 years of the country's existence.
    Ms. Dean. That is a great comparison and probably a 
metaphor for other things that we are struggling with in our 
democracy. Hopefully, the upward trend is the trend. Let's pray 
that that is so.
    A little more specifically, digital assets clearly don't 
fit into our current fiscal regulatory frameworks, and so we 
are here to try to learn what are the right policies to make 
sure that this is appropriately regulated.
    Do we need to start from scratch and create an entirely new 
framework for crypto with a new regulator, such as has been 
suggested by Coinbase? Ms. Haas, can you talk about Coinbase's 
view that Congress should regulate digital assets under a new 
framework, with a single regulator?
    Ms. Haas. Thank you for the opportunity to clarify. So, 
yes, we do believe that there are benefits to having a single 
regulator that can address the broad strokes of crypto, 
generally. I share a lot of the views that Mr. Bankman-Fried 
had in his written testimony. I also share the views of Mr. 
Brooks that if it is a security token, then it is going to fall 
under the SEC. If it is a commodity token, then it will fall 
under the CFTC. But we also have new tokens here, and when you 
think about NFTs and an NFT marketplace, when you think about 
Bitcoin, itself, when you think about these new protocols where 
all you are doing is getting a right to governance in a 
protocol, they do not fit under the contours of existing 
frameworks and meet definitions.
    So, I think that we benefit from definition taxonomy. I 
think we benefit from clarity on who we go to, to kind of walk 
through these issues and find one voice. And I think we benefit 
from an SRO that can really get into the weeds of these issues 
and help us move with speed in the regulatory speed to keep up 
with the pace of the innovation of the industry.
    Ms. Dean. Thank you very much. I appreciate that.
    Mr. Cascarilla, you also said in your testimony that, ``a 
primary prudential State or Federal regulator should regulate 
digital asset companies and their products.'' Could you 
elaborate on that?
    Mr. Cascarilla. Yes, thank you.
    Paxos was the first company in the entire country to become 
regulated. We operate using a trust company status and the 
reason we do that is because we don't make loans or take 
deposits, so a trust company is actually safer than a bank. And 
so, that is an example of using State regulator authority in 
order to oversee our business.
    And I think having either a primary regulator that is on 
the State basis or on the Federal basis is what will allow 
there to be a consistent application of AML/KYC rules, reserve 
rules, customer-protection rules. And there isn't a clear way 
to be able to do that right now. We feel this, even ourselves 
as a trust company, where we don't have explicit reciprocity on 
a State-by-State basis.
    I think creating a clear parity across-the-board, as Mr. 
Brooks was saying, is very important for the industry.
    Ms. Dean. I thank you, and my time has expired.
    I yield back.
    Chairwoman Waters. Thank you.
    The gentleman from Wisconsin, Mr. Steil, is now recognized 
for 5 minutes.
    Mr. Steil. Thank you very much, Madam Chairwoman.
    As you may know, I serve as the ranking member on the 
Select Committee on Economic Disparity & Fairness in Growth, 
along with Chairman Himes, both of us also members of this 
committee. And we are holding the first of two roundtables 
tomorrow on financial inclusion and access to banking for 
underserved communities, a topic we talk a lot about also in 
this committee, and an issue that is front of mind for many 
underserved communities around the United States.
    And so, Mr. Brooks, I would love to get your thoughts on 
the relevance of today's topic for financial inclusion and how 
the growth in digital assets and decentralized finance can 
actually drive inclusion, and how can underserved communities 
benefit from these developments?
    Mr. Brooks. I love that question and thank you for giving 
me a chance to address it.
    A couple of things, first of all, let's ask, why do we have 
so many underbanked people in the United States, and the answer 
is a combination of minimum-balance fees, monthly account-
maintenance fees, and all kinds of other things that are a 
hallmark of the money-center model that banking is built on.
    If you talk to Mr. Allaire about his product, he would tell 
you they don't have any minimum-balance fees. They don't have 
any monthly maintenance fees. You can keep your assets in a 
tokenized bank deposit for free.
    So, that is the first answer, that there are ten-dollar-a-
month fees. There are twenty-five-dollar wire charges. Those 
things don't exist, that eat away at your life savings, A. And, 
B, the next most important thing about crypto is here you have 
an early-stage asset which, unlike the IPO boom, and unlike 
venture capital, doesn't require that you know a guy or that 
you be well-connected or that you be an accredited investor to 
participate.
    This is a chance for underrepresented communities to be in 
on the wealth-creation stage of some new thing, as opposed to 
coming in at the end. So, what I always say is that is the way 
you solve underrepresentation is through wealth creation. This 
is an opportunity and that is why there are more minority 
investors than White investors in crypto in the United States 
is because--
    Mr. Steil. I appreciate your comments.
    I'm just thinking general technology is one of the key 
aspects that we have to really address some of the underserved 
communities in the United States, and I agree with your 
comments. You may enjoy our hearing tomorrow on the Select 
Committee on Economic Disparity & Fairness in Growth.
    To build further, what do you see as the main regulatory 
impediments to further innovation in this space that we think 
is really going to help us on the inclusionary aspect?
    Mr. Brooks. It is all incumbency protection. The big banks 
don't like this. The big banks have been slow to adopt because 
they make a lot of money on those fees that I just mentioned.
    Mr. Steil. Okay. So, let me keep going with you, Mr. 
Brooks, in the time that we have. In your opening testimony, 
you talked about the, ``do no harm'' approach, and that 
approach helped bring in a period of tremendous growth and 
opportunity in, really, Web1. You mentioned some of the 
countries that U.S. crypto businesses are moving to. What are 
some of the examples of the positive approaches to digital-
asset regulation that you see in those countries, if you had to 
put your finger on it?
    Mr. Brooks. For example, responding to market demand. If a 
whole bunch of customers want to buy a Bitcoin ETF, why is it 
our business to say they can't do it? You see this domestically 
in New York versus the rest of the United States. Lots of 
investors like to buy certain tokens. New York won't let New 
Yorkers buy tokens. So, they are safe in Nebraska, but not safe 
in New York. Why would that be?
    Mr. Steil. Thank you very much.
    I want to shift gears to you, Ms. Haas, if I can. I want to 
ask you about your firm's interactions with the SEC. As you 
know, the SEC blocked Coinbase from launching its lend protect 
earlier this year. Your CEO, Brian Armstrong, has been very 
vocal about his concerns with the SEC's decision and the 
process by which it reached that decision. I think it is 
important that regulators apply standards consistently, and so 
I want to better understand how this played out, to the extent 
you can help us here.
    Has Coinbase had further conversations with the SEC about 
why it was not allowed to offer the lend product?
    Ms. Haas. We have, and we still do not have clarity as to 
why our product was not able to proceed.
    Mr. Steil. How would you characterize the discussions you 
have had with the SEC? Is it a little bit of a black box? I 
don't want to put words in your mouth.
    Ms. Haas. At this time, we have provided a lot of 
information, but not had clarity as to why or why not we can 
offer a product.
    Mr. Steil. Okay. That is helpful. I think it is something 
that this committee needs to consider and look into as to how 
we assist technology being developed here in the United States, 
rather than abroad, and I appreciate your comments there.
    If I can, in my final 1 minute, Mr. Cascarilla, earlier in 
today's hearing you talked about how people around the world 
want the stability of U.S. dollars. We all know of countries 
with out-of-control inflation and autocratic governments. Can 
you talk, just briefly, about how digital assets in Web3 will 
help people dealing with these challenges?
    Mr. Cascarilla. I think it is really important to recognize 
that in the U.S., we have a sophisticated financial system. It 
certainly can be better, but it is sophisticated and relatively 
stable, certainly compared to most places in the world.
    And when you look at the developing world, it is access to 
financial services that is a real problem. And I think in 
significant ways, they want access to U.S. dollars, but they 
also want access to crypto. They want to have the ability to 
protect themselves when they are in either politically unstable 
environments or economically unstable environments or both. And 
this technology creates the capacity to create a global, 
interconnected way of being able to operate on an economic 
basis that hasn't existed before, and that is very powerful and 
the U.S. should take advantage of it.
    Mr. Steil. Thank you very much, Mr. Cascarilla.
    I appreciate all of our witnesses here today.
    Madam Chairwoman, I yield back.
    Chairwoman Waters. Thank you.
    The gentlewoman from Texas, Ms. Garcia, who is also the 
Vice Chair of our Subcommittee on Diversity and Inclusion, is 
now recognized for 5 minutes.
    Ms. Garcia of Texas. Thank you, Madam Chairwoman, and thank 
you so much for this hearing on such a fascinating and critical 
topic. Blockchain technology has the potential to change how we 
transact around the world, not just in the financial sector, 
but across multiple industries.
    Indeed, digital assets have expanded the financial 
marketplace in unprecedented ways already. The Bank for 
International Settlements recently found that decentralized 
finance has grown to an estimated $250 billion worldwide.
    I want to zero in on one part of these transactions that 
has already been talked about a little bit, but I want to build 
on it, and that is the cross-border transactions.
    Ms. Dixon, your company is a nonprofit clearing network 
designed to facilitate financial transactions worldwide. In 
your testimony, you say that your primary focus is to 
facilitate cross-border remittance transactions for over 800 
million people supported by funds by migrant workers. In Texas, 
an estimated 3.1 million immigrant workers comprise about 22 
percent of our labor force. And in my district, in particular, 
we are 77-percent Latino. So, this is of great interest to me 
and to them.
    Many of these workers, however, face the same financial 
struggles, not only the financial struggles, but access to the 
financial-services industry and it is multiplied by cultural 
and language barriers. So, specifically, what is it that you 
think that this sector now will be able to do to be able to 
provide better access to wealth, better access to the financial 
services industry, considering the economic and language 
barriers that many migrants face?
    Ms. Dixon. Thank you so much for the question. This is 
another one of those areas that I love to talk about, because I 
think it is actually--
    Ms. Garcia of Texas. We have limited time.
    Ms. Dixon. There are a lot of important pieces here. The 
interoperability with the existing financial infrastructure 
means that individuals who don't actually have bank accounts, 
but something like a MoneyGram relationship, which is based in 
Texas, that we have on the Stellar Network, allows these 
individuals who have cash, but they might not have a bank 
account, to walk into MoneyGram, convert their cash into a 
digital asset and then send that asset to their family, to 
their friends, or to anyone they choose, using the blockchain. 
And then, those individuals that they sent it to, could send 
those digital assets to a MoneyGram location outside the 
country in those regions that are participating, and then they 
could remove those assets from the blockchain. This is getting 
to the unbanked and the underbanked all over the world.
    Ms. Garcia of Texas. At the receiving end, how do they then 
convert the MoneyGram or, I forget what you called it, into 
their local currency? And is there a fee involved there for the 
conversion, much like there is for traveler's checks?
    Ms. Dixon. It is very important that we--on the network 
layer, the fees are very, very low, but we have pricing 
pressure, created by the fact that these network fees are low. 
So, there is going to be a fee when you have feet on the ground 
and you have an ability to make that transaction.
    The end user who wants to go pick up their fiat at the 
local MoneyGram, for example, will pay a fee, but there are no 
other intermediaries that are layered on top of that, and the 
fees are much lower than those that you see in the traditional 
financial infrastructure. So, I feel like with this particular 
relationship, and also just with this technology generally, 
what it opens up is a world for those users, as Mr. Brooks 
indicated earlier, where they get access to all of the ability 
to hold these assets, to be able to create value for themselves
    Ms. Garcia of Texas. I will follow up in writing with just 
how you are planning to reach those communities, because I can 
imagine many remote villages, many remote rural areas, even in 
the Great State of Texas, where you are not going to have 
access to the place you are supposed to pick up the money at 
the receiving end. So, I have a lot of serious concerns about 
that, but I know that you have reached out to my office and we 
can talk.
    I want to now move on to--I am glad that you all are 
sharing a lot of data and posting things on your webpage. So, 
from each one of you, will you commit to providing transparent 
information not only on your employment numbers--I know that 
Ms. Adams asked about that--but in terms of your leadership, 
your board of directors, and salaries and wages. Because I know 
at least one of you has already had a New York Times review 
that was not very good. And I am not going to pick on anybody. 
I just want a commitment from everyone on diversity and 
inclusion and transparency, and just a yes or no, please.
    Ms. Dixon. We can commit to that.
    Mr. Allaire. Yes.
    Mr. Bankman-Fried. Yes.
    Mr. Brooks. Yes.
    Ms. Haas. As a public company, our data is available.
    Ms. Garcia of Texas. I'm sorry, I can't hear you, ma'am.
    Ms. Haas. As a public company, our leadership and our board 
data is available.
    Ms. Garcia of Texas. I didn't hear from Mr. Cascarilla.
    Mr. Cascarilla. Yes.
    Ms. Garcia of Texas. Thank you. Thank you so much. And I 
have 15 seconds.
    The other thing that I would like to see, and I can follow 
up in writing, is demographic data on your users: how many are 
Latino; how many are African American; and also by income, 
because I want to make sure, again, that the users are diverse 
and that your leadership reflects that. Thank you.
    Chairwoman Waters. Thank you.
    The gentleman from South Carolina, Mr. Timmons, is now 
recognized for 5 minutes.
    Mr. Timmons. Thank you, Madam Chairwoman.
    I want to talk about ransomware. Obviously, we have seen an 
exponential increase in the number of attacks in the last 
months and years and it seems to only be getting worse. I know 
the crypto industry believes it can, and currently does play a 
critical role in preventing illicit finance, including 
ransomware.
    Could you, maybe Ms. Haas or Mr. Bankman-Fried, describe 
for us how your firms take an active role, such as working with 
law enforcement and other market participants when these 
ransomware attacks occur? I would just like to get a better 
sense of the role that centralized exchanges play with the flow 
of funds. For example, how do you keep track of tokens, 
transactions, and wallets, and maybe include in your 
explanation, discuss the Colonial Pipeline attack and how the 
FBI was able to retrieve a substantial portion of the 
ransomware payments made.
    Whomever wants to go first?
    Mr. Bankman-Fried. Yes, I will jump in. We work really 
actively on this. And in addition to all of the standard 
procedures that we have around surveillance of deposits, of 
withdrawals, and of our customer information, we are responsive 
to law enforcement inquiries constantly around this. We are 
helpful whenever we can be, both in terms of information 
related to FTX and our users, but also, we can extend that out 
to blockchain histories. Because it is a public ledger, we can 
trace these assets through and say, hey, you should go talk to 
this place next. This is where it seems like the assets 
probably ended up.
    We have assisted in, I think, somewhere north of $10 
million of successful seizures so far, in cooperation with law 
enforcement, related to this.
    Mr. Timmons. A quick follow-up, if you can get a percentage 
back, why can't you get all of it back?
    Mr. Bankman-Fried. If you can get a certain percentage of?
    Mr. Timmons. Again, with the Colonial Pipeline attack, 70, 
80 percent of the ransom was retrieved, so what is the 
difference in the Bitcoin that was successfully retrieved as to 
the one that was not?
    Mr. Bankman-Fried. We can follow up with specifics on that 
case, but I will say in general that any assets which are on 
our platform, we can retrieve. And, often, you might see a case 
where some of the people involved would send in one direction. 
Others would send it in another direction and those others 
might not be in a trackable way. But anything that is on our 
platform, we can retrieve.
    Mr. Timmons. Sure. Thank you.
    Maybe a follow-up question, do you have any tools that we 
could help put in your toolbox, Congress, legislation that 
would facilitate greater recovery percentages?
    Mr. Bankman-Fried. I think that speed is, frankly, one of 
the more important things here. I think like in any 
investigation, the faster that law enforcement can act on this, 
the greater the chances of recovery are. So, I think that we 
would love to just have standardized open lines with law 
enforcement where they know exactly how to reach out to us. We 
could have phone numbers available because, yes, the faster 
that action can be taken, the greater the odds that the assets 
are retrievable.
    Mr. Timmons. Sure. Thank you.
    Mr. Allaire, one curious statistic regarding the 
cryptocurrency ecosystem I have noticed is its popularity with 
a younger and more diverse demographic. According to P 
research, among African Americans, 18 percent have some level 
of experience with cryptocurrency while among White Americans, 
the comparable figure in the survey was 13 percent; Hispanic, 
21 percent; Asian, 23 percent; and additionally, 43 percent of 
men between the ages of 18 and 29 have invested and traded or 
used cryptocurrency. These numbers are incredibly divergent 
from what we see for traditional finance.
    Why do you believe that to be the case?
    Mr. Allaire. Thank you for the question, Congressman. I 
think what we see with the crypto assets and digital assets 
more broadly is it is a form of finance that makes sense to 
young people. A lot of younger people have grown up with the 
internet. They were born with the internet in their crib, so to 
speak, and I think have an expectation of value being able to 
be used the same way that they can share a JPEG photo or react 
to something. And so, I think there is just a familiarity and 
an expectation that, of course, everything is going to be 
digital.
    And so, I think the expectations are different. I think 
that a component of digital-asset markets is this concept of 
democratizing access to financial markets and digital-asset 
markets do that. There is more democratized access. There are 
fewer barriers to entry for individuals and I think that 
affects the adoption rates in minority communities. It affects 
the adoption rates, more generally, on some of those other 
demographics.
    So, I think those are some of the key contributors.
    Mr. Timmons. Sure. Thank you.
    Madam Chairwoman, I want to thank you for holding this 
hearing. It has been productive, and I think this is a good 
example of how this committee should learn about important 
issues that are facing the American people and we need to 
regulate carefully.
    Thank you, ma'am.
    Chairwoman Waters. You're welcome, and thank you for your 
participation.
    The gentleman from Massachusetts, Mr. Auchincloss, who is 
also the Vice Chair of the committee, is now recognized for 5 
minutes.
    Mr. Auchincloss. Thank you, Madam Chairwoman.
    I appreciate the written and oral testimony from our expert 
witnesses. It is timely.
    The current regime of regulation by enforcement in which 
entrepreneurs must negotiate with the SEC or the CFTC on a one-
off basis is not fair. It is not efficient or conducive to 
U.S.-based innovation. Congress needs to provide clarity and 
predictability by statute and I am ready to work with both my 
Democratic and my Republican colleagues to provide that. The 
rules of the road for Web3 can be a bipartisan initiative.
    The United States needs a primary crypto regulator that is 
tech- and market-structure neutral, and that has three 
imperatives: it compels disclosure and transparency; it 
prevents fraud and abuse; and it promotes the efficiency and 
the resilience of the market. And this primary regulator should 
work with a self-regulatory organization as a counterpart in 
the private sector to establish one light-touch rule book for 
spot and derivatives listings, custody requirements, token 
issuance, asset-servicing and cross-margining settlement, Know 
Your Customer and anti-money laundering disclosure and 
auditing, and, of course, stablecoin standards.
    Mr. Bankman-Fried, on that final point, stablecoin 
standards, which you have identified as perhaps the most 
important crypto innovation--in a recent interview on the, 
``Invest Like the Best'' Podcast, you identified stablecoin 
regulation as a, ``substantial step forward for persisting 
dollar dominance globally.'' And to quote you further, you 
said, ``There are going to be stablecoins in the world, and if 
you ban U.S. Dollar stablecoins, then it is going to be Euro 
coins or it is going to be one stablecoins.''
    And in your written testimony, you propose a seven-part 
framework for stablecoin regulation and I want to thank you for 
the thoughtfulness behind that. Within this framework, can you 
identify the single-most important thing that Congress could do 
right now to regulate stablecoins in order to persist dollar 
dominance?
    Mr. Bankman-Fried. Yes, thank you for the questions.
    I think the single-biggest thing is just to ensure the 
reserves are what they say they are. That is the fundamental 
large portion of the risk that could be posed by them is from 
both, a consumer protection and a systemic-risk perspective is, 
what if there is a trillion-dollar stablecoin with only a 
billion dollars actually backing it?
    And so, I think having daily attestations and periodic 
third-party audits to confirm that the stablecoins are backed 
1:1, with regulatory oversight of that process is by far the 
single-most important piece of that.
    Mr. Auchincloss. Do any of the other members of the panel 
disagree or want to expound on that statement?
    Mr. Allaire?
    Mr. Allaire. Yes, I would like to jump in. I think what Sam 
has outlined is a really productive framework. I think clarity 
on this, on the disclosure and reporting requirements and I 
think also on the reserve and liquidity requirements, and 
having that be a focused set of statutes, could be extremely 
valuable to providing confidence to the market, providing 
confidence to market participants, and allowing dollar digital 
currencies to flourish on the internet.
    Mr. Auchincloss. So, if you say that this stablecoin is 
tethered to the value of the U.S. dollar, you have to disclose 
on a regular basis that you have the liquidity and the reserves 
to match that to reduce run risk, and you have to be willing to 
be audited by a primary regulator.
    Mr. Allaire. Absolutely.
    Mr. Auchincloss. Mr. Bankman-Fried, you have said that you 
think that is the single-most important regulatory step the 
United States could take to persist dollar dominance. And I 
don't want to put words in your mouth, but it struck me from 
the interview you had on, ``Invest Like the Best,'' that it may 
be the most important thing we could do, period, for crypto 
innovation.
    Does anybody on the panel want to expound on that or 
disagree with that statement?
    Mr. Cascarilla. I will add some thoughts here. I completely 
agree that this is the most important thing that the U.S. can 
do. At the moment, it is not clear exactly how you can trust a 
dollar stablecoin, and that is unfortunate. Money is ultimately 
a product, and the way money is working today for people leaves 
a lot to be desired. Being able to put a dollar into a 
blockchain environment would solve so many problems that we 
have been talking about all day, today here and I think that it 
is crucial for us to be able to set a clear regulatory plan in 
place that creates parity across all of these different 
products.
    And so, I think it is really simple, if you have a primary 
regulator, you have clear reserves, you have made sure that you 
have backed them by cash or cash equivalents. That creates a 
very level playing field for all different dollar-backed 
stablecoins, and then they will really be stable.
    Mr. Auchincloss. I appreciate that.
    And this, to me, is an example of why these hearings, Madam 
Chairwoman, are so useful. And I feel like we really have a 
pretty clear path forward for one step that we could take, 
which is Congress should designate a regulator, at least 
initially, the primary regulator, and task them with disclosure 
and auditing requirements for the stablecoin.
    I yield back, Madam Chairwoman.
    Chairwoman Waters. Thank you.
    The gentleman from Texas, Mr. Taylor, is now recognized for 
5 minutes.
    Mr. Taylor. Thank you, Madam Chairwoman. I appreciate this 
hearing.
    Ms. Dixon, I have a question for you. As you know, my home 
State of Texas earlier this year created a more friendly 
jurisdiction for crypto and blockchain in an effort to be a 
leader in that space. And I saw that you have developed a 
partnership with MoneyGram, which has many employees in my 
district, and is headquartered right outside my district, and I 
was just wondering if you could go into further detail about 
what you are doing with MoneyGram?
    And for those who don't know, MoneyGram is one of the 
premier money-transfer operations in the world. There are 
countries where, literally, 20 percent of their GDP is 
transferred in by MoneyGram. So, it is a pretty important 
product for a lot of the world. I was just wondering if you 
could tell us what you are doing with them?
    Ms. Dixon. Yes, thank you so much for the question, and it 
is an important part of what--it demonstrates not just the 
interoperability that blockchain has with the existing 
financial infrastructure, but it also demonstrates that you can 
actually offer services to traditionally unbanked or 
underbanked folks all over the world by leveraging this kind of 
technology.
    And, finally, and I think importantly, from the MoneyGram 
standpoint and from a remitter's standpoint, it actually 
provides instantaneous settlement. So, they don't have IOUs out 
there. They actually have the money in their bank account when 
they are using the stablecoins, which is very important for us 
to be able to get right.
    So, the MoneyGram relationship, which is in pilot right now 
in the United States, allows folks--you don't need to have a 
bank account to be able to get assets put on the blockchain. 
Right now, the hardest part about blockchain is the onramp and 
the offramp. We actually haven't done that exceptionally well 
because it is very, very hard--unless you have a bank account, 
it is very, very hard to be able to get assets into, to get 
money into digital assets.
    The MoneyGram relationship could be one of many that 
actually demonstrates the ease of use that you can have. The 
beautiful thing about this is that MoneyGram, which acted very 
quickly, and in less than 2 months, was able to help to develop 
this technology and this integration with Stellar, but the 
other part of it is, all you have to have is a wallet that is 
Stellar-enabled. So, a wallet anywhere in the world, it doesn't 
have to be a specific wallet, to be able to then walk into 
MoneyGram, and get assets onto the blockchain using your fiat, 
your local fiat. It will convert into USDC, which is Mr. 
Allaire's coin, and then you can have that in your wallet. You 
can generate yield on that. You can do lots of other things 
with respect to the assets that you have.
    You could then send them to family in a different country, 
for example, and once this is global, which will be next year, 
you could then go into participating MoneyGram locations and 
have those assets converted into your local currency, which is 
very important. So, it works very well with the cash economy 
and cash ecosystems and it demonstrates the true 
interoperability with blockchain and the traditional financial 
infrastructure, because that is what MoneyGram is and has done 
exceptionally well, and it demonstrates the value that these 
traditional players bring, because they have created this 
really important ecosystem and network of folks all over the 
world who have feet on the ground, who really work with cash, 
the individuals who have cash to be able to deliver value to 
them, whether to be able to get it from family outside of their 
country or just to be able to convert these into digital 
assets.
    So, it is a really exciting and transformational 
opportunity, in my opinion, for blockchain because of the speed 
of use and the ease at which you can get money on and off of 
the blockchain.
    Mr. Taylor. And just to follow up on my earlier statement 
about Texas and its role, I think all of you have testified 
that you have different State regulatory licensure. Everybody 
here has State licenses and multiple State licenses, right? 
Some of you have licenses in almost every State.
    And so, on some level, you are seeing States, sometimes 
referred to as the laboratories of democracy, come up with 
their own policy sets.
    Ms. Dixon, do you think that is working? Is that effective?
    Ms. Dixon. I think that we actually don't have to have the 
licenses because we are the infrastructure, but I will tell you 
working with companies that have to have that, it is 
complicated for them, to have the individualized different 
licensing structures all over, but I think that folks are doing 
it very well. Many of the individuals on this panel have been 
able to be successful at getting those licenses at the State 
level.
    Mr. Taylor. And one final comment, because it seems to me 
that there is sort of a drive to say you are unregulated. I was 
actually kind of surprised, reading the memo from the committee 
staff saying that this is an unregulated industry. Do any of 
you feel unregulated?
    Ms. Dixon. I think that is an important distinction is that 
the activity, itself, is already regulated. And I think that 
when we focus on activity versus focus on the technology stack, 
you'll see that there is already a tremendous amount of 
regulation here and a lot of protections and we should just be 
looking for those gaps instead of actually trying to create a 
new regulatory framework.
    Mr. Taylor. Yes, I just think it is funny that when I 
asked, ``Are you unregulated?'', everybody laughed. That, 
literally, the concept, almost the memo, unfortunately, is 
almost laughable, at least to the people who are regulated, the 
people who live it every day to say, hey, you guys are a bunch 
of unregulated yahoos, do whatever you want. Like, that is not 
the world that we live in.
    Madam Chairwoman, I really appreciate the opportunity for 
this discussion. Thank you for having us here. I yield back.
    Chairwoman Waters. You are so welcome. Thank you.
    I would like to thank our witnesses for their testimony 
today.
    The Chair notes that some Members may have additional 
questions for these witnesses, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    And with that, this hearing is adjourned.
    [Whereupon, at 2:49 p.m. the hearing was adjourned.]

                            A P P E N D I X

                           December 8, 2021
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