[House Hearing, 119 Congress]
[From the U.S. Government Publishing Office]
A GOLDEN AGE OF DIGITAL ASSETS: CHARTING A PATH FORWARD
=======================================================================
HEARING
before the
SUBCOMMITTEE ON DIGITAL ASSETS, FINANCIAL TECHNOLOGY, AND ARTIFICIAL
INTELLIGENCE
of the
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINETEENTH CONGRESS
FIRST SESSION
__________
FEBRUARY 11, 2025
__________
Serial No. 119-3
Printed for the use of the Committee on Financial Services
[GRAPHIC(S) NOT AVAILANLE IN TIFF FORMAT
www.govinfo.gov
U.S. GOVERNMENT PUBLISHING OFFICE
59-598 WASHINGTON : 2025
HOUSE COMMITTEE ON FINANCIAL SERVICES
FRENCH HILL, Arkansas, Chairman
BILL HUIZENGA, Michigan, Vice MAXINE WATERS, California, Ranking
Chairman Member
FRANK D. LUCAS, Oklahoma SYLVIA R. GARCIA, Texas, Vice
PETE SESSIONS, Texas Ranking Member
ANN WAGNER, Missouri NYDIA M. VELAZQUEZ, New York
ANDY BARR, Kentucky BRAD SHERMAN, California
ROGER WILLIAMS, Texas GREGORY W. MEEKS, New York
TOM EMMER, Minnesota DAVID SCOTT, Georgia
BARRY LOUDERMILK, Georgia STEPHEN F. LYNCH, Massachusetts
WARREN DAVIDSON, Ohio AL GREEN, Texas
JOHN W. ROSE, Tennessee EMANUEL CLEAVER, Missouri
BRYAN STEIL, Wisconsin JAMES A. HIMES, Connecticut
WILLIAM R. TIMMONS, IV, South BILL FOSTER, Illinois
Carolina JOYCE BEATTY, Ohio
MARLIN STUTZMAN, Indiana JUAN VARGAS, California
RALPH NORMAN, South Carolina JOSH GOTTHEIMER, New Jersey
DANIEL MEUSER, Pennsylvania VICENTE GONZALEZ, Texas
YOUNG KIM, California SEAN CASTEN, Illinois
BYRON DONALDS, Florida AYANNA PRESSLEY, Massachusetts
ANDREW R. GARBARINO, New York RASHIDA TLAIB, Michigan
SCOTT FITZGERALD, Wisconsin RITCHIE TORRES, New York
MIKE FLOOD, Nebraska NIKEMA WILLIAMS, Georgia
MICHAEL LAWLER, New York BRITTANY PETTERSEN, Colorado
MONICA DE LA CRUZ, Texas CLEO FIELDS, Louisiana
ANDREW OGLES, Tennessee JANELLE BYNUM, Oregon
ZACHARY NUNN, Iowa SAM LICCARDO, California
LISA McCLAIN, Michigan
MARIA SALAZAR, Florida
TROY DOWNING, Montana
MIKE HARIDOPOLOS, Florida
TIM MOORE, North Carolina
Ben Johnson, Staff Director
------
SUBCOMMITTEE ON DIGITAL ASSETS, FINANCIAL TECHNOLOGY, AND ARTIFICIAL
INTELLIGENCE
BRYAN STEIL, Wisconsin, Chairman
TOM EMMER, Minnesota, Vice Chairman STEPHEN F. LYNCH, Massachusetts,
BILL HUIZENGA, Michigan Ranking Member
WARREN DAVIDSON, Ohio BILL FOSTER, Illinois
JOHN ROSE, Tennessee JOSH GOTTHEIMER, New Jersey
WILLIAM TIMMONS, South Carolina SEAN CASTEN, Illinois
MARLIN STUTZMAN, Indiana AYANNA PRESSLEY, Massachusetts
BYRON DONALDS, Florida RITCHIE TORRE, New York
ZACH NUNN, Iowa SYLVIA GARCIA, Texas
TROY DOWNING, Montana BRITTANY PETTERSEN, Colorado
MIKE HARIDOPOLOS, Florida BRAD SHERMAN, California
TIM MOORE, North Carolina SAM LICCARDO, California
C O N T E N T S
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TUESDAY, FEBRUARY 11, 2025
OPENING STATEMENTS
Page
Hon. Bryan Steil, Chairman of the Subcommittee on Digital Assets,
Financial Technology and Artificial Intelligence, a U.S.
Representative from Wisconsin.................................. 1
Hon. Stephen F. Lynch, Ranking Member of the Subcommittee on
Digital Assets, Financial Technology and Artificial
Intelligence, a U.S. Representative from Massachusetts......... 3
STATEMENTS
Hon. Maxine Waters, Ranking Member of the Committee on Financial
Services, a U.S. Representative from California................ 4
Hon. Tom Emmer, Vice Chairman of the Subcommittee on Digital
Assets, Financial Technology and Artificial Intelligence, a
U.S. Representative from Minnesota............................. 69
.................................................................
WITNESSES
Mr. Jonathan Jachym, Deputy General Counsel and Global Head of
Policy & Government Relations, Kraken Digital Asset Exchange... 5
Prepared Statement........................................... 7
Mr. Ji Hun Kim, President and Acting CEO, Crypto Council for
Innovation (CCI)............................................... 12
Prepared Statement........................................... 14
Mr. Coy Garrison, Partner, Steptoe LLP........................... 22
Prepared Statement........................................... 24
Mr. Jose Fernandez da Ponte, Senior Vice President and General
Manager of Blockchain, Crypto and Digital Currencies, Paypal... 32
Prepared Statement........................................... 34
Mr. Timothy Massad, Research Fellow and Director of Digital
Assets Policy Project, Kennedy School of Government, Harvard
University..................................................... 42
Prepared Statement........................................... 44
APPENDIX
MATERIALS SUBMITTED FOR THE RECORD
Hon. Maxine Waters:
Better Markets............................................... 102
Defense Credit Union Council (DCUC).......................... 110
Independent Community Bankers of America (ICBA).............. 113
Public Citizen............................................... 115
RESPONSES TO QUESTIONS FOR THE RECORD
Written responses to questions for the record from Representative
Maxine Waters
Mr. Jonathan Jachym.......................................... 122
Mr. Ji Hun Kim............................................... 123
Mr. Coy Garrison............................................. 124
Mr. Jose Fernandez da Ponte.................................. 125
Mr. Timothy Massad........................................... 126
Written responses to questions for the record from Representative
Bill Foster
Mr. Jonathan Jachym.......................................... 127
LEGISLATION
H.Res.----, Expressing Support for Blockchain Technology and
Digital Assets................................................. 130
H.R. 9633, the Securing Innovation in Financial Regulation Act... 133
H.R. 10544, the New Frontiers in Technology Act.................. 144
H.R. 9579, the Bridging Regulation and Innovation for Digital
Global and Electronic (BRIDGE) Act............................. 151
H.R. 9758, the Evaluating DeFi Opportunities Act................. 159
H.R. ----, the Stablecoin Transparency and Accountability for a
Better Ledger Economy (STABLE) Act of 2025..................... 165
A GOLDEN AGE OF DIGITAL ASSETS:
CHARTING A PATH FORWARD
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Tuesday, February 11, 2025
U.S. House of Representatives,
Subcommittee on Digital Assets,
Financial Technology,
and Artificial Intelligence,
Committee on Financial Services,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:31 p.m., in
room 2128, Rayburn House Office Building, Hon. Bryan Steil
[chairman of the subcommittee] presiding.
Present: Representatives Steil, Huizenga, Emmer, Davidson,
Rose, Timmons, Stutzman, Donalds, Nunn, Downing, Haridopolos,
Moore, Lynch, Waters, Sherman, Foster, Pressley, Torres,
Garcia, and Liccardo.
Also present: Representative Casten.
Chairman Steil. The Subcommittee on Digital Assets,
Financial Technology, and Artificial Intelligence will come to
order.
Without objection, the chair is authorized to declare a
recess of the committee at any time.
The hearing is titled ``A Golden Age of Digital Assets:
Charting a Path Forward.
Without objection, all members will have 5 legislative days
within which to submit extraneous material to the chair for
inclusion in the record.
I now recognize myself for 4 minutes to give an opening
statement.
OPENING STATEMENT OF HON. BRYAN STEIL, CHAIRMAN OF THE
SUBCOMMITTEE ON DIGITAL ASSETS, FINANCIAL TECHNOLOGY AND
ARTIFICIAL INTELLIGENCE, A U.S. REPRESENTATIVE FROM WISCONSIN
Mr. Steil. Good afternoon and welcome to the first hearing
of the House Financial Services Digital Assets, Financial
Technology, and Artificial Intelligence Subcommittee. Today, we
resume the work that this subcommittee started last Congress
under the then-leadership of subcommittee Chairman French Hill.
I am grateful to the now full committee chairman for trusting
me to pick up the mantle and continue our legislative work to
provide clarity for the digital assets ecosystem.
Digital assets present a clear opportunity for the
advancement of financial services in the United States. This
technology has the potential to modernize our financial
infrastructure, enhance the dollar's dominance in global
markets, increase the efficiency of payments, both domestically
and abroad, and provide American businesses and consumers with
a faster, cheaper, more transparent way to transact in an
increasingly digital economy.
Under the Biden Administration, we saw regulatory overreach
and a pattern of enforcement-driven actions that stifled
innovation, especially in the digital assets ecosystem. Instead
of working with Congress to establish clear guidelines, the
Biden Administration opted for an unpredictable and hostile
approach that left American entrepreneurs, businesses, and
consumers in a state of uncertainty. Agencies took
inconsistent, often contradictory, actions pushing innovators
offshore and threatening Americans' leadership.
This lack of regulatory clarity not only hurt American
investment, but it also impacted everyday Americans. Let us be
clear. The Biden Administration's approach opened the door to
bad actors and left consumers more vulnerable to fraud.
While the European Union (EU) and United Kingdom (U.K.) and
even developing economies have advanced regulatory frameworks
in digital assets, the United States has fallen behind. Our
government's failure to act could mean that the benefit of
digital assets and blockchain technology will be realized
elsewhere, while American consumers, entrepreneurs, and
financial institutions are left navigating an uncertain
landscape.
Under the Trump Administration, we will course-correct by
creating a workable pathway for responsible digital asset
companies to set up operations here in the United States.
Encouragingly, several positive steps have already been taken.
President Trump issued an executive order on digital assets.
The Securities Exchange Commission (SEC) repealed Staff
Accounting Bulletin (SAB) 121. The Federal Deposit Insurance
Corporation (FDIC) has announced that it is reevaluating its
supervisory approach to crypto-related activities. Both the SEC
and Trump Administration have stood up working groups to tackle
these challenges.
Last Tuesday, the White House's artificial intelligence
(AI), crypto czar, David Sacks, joined Chairman Hill, Thompson,
Bozeman, and Scott for a press conference, where they all
agreed that it is time for both regulators and Congress to get
this done.
Last week, the chairman and I released the Stablecoin
Transparency and Accountability for a Better Ledger Economy
(STABLE) Act, a discussion draft to provide a clear regulatory
framework for the issues of payment stablecoins. We appreciate
the feedback from all relevant stakeholders.
The reality is that the status quo for digital assets is
untenable. Regulatory and legislative clarity is needed now.
Together we can ensure that stablecoin issuers, digital asset
firms, and blockchain developers operate under fair,
transparent, and predictable rules in the United States. That
means working together--the Trump Administration, Congress,
regulators, and market participants--to craft thoughtful
policies that uphold our national security, protect investors,
and encourage the responsible development of digital assets in
the full ecosystem.
Today's witnesses bring a wealth of knowledge and
experience on these issues. I look forward to hearing their
insights on how we can learn from the mistakes of the past to
strike the right balance between innovation and consumer
protection. Thank you. I look forward to your testimonies.
The chair now recognizes the ranking member of the
subcommittee, the gentleman from Massachusetts, Mr. Lynch, for
4 minutes for an opening statement.
OPENING STATEMENT OF HON. STEPHEN F. LYNCH, RANKING MEMBER OF
THE SUBCOMMITTEE ON DIGITAL ASSETS, FINANCIAL TECHNOLOGY AND
ARTIFICIAL INTELLIGENCE, A U.S. REPRESENTATIVE FROM
MASSACHUSETTES
Mr. Lynch. Good afternoon, and thank you, Mr. Chairman. Let
me be the first to congratulate you on your selection as chair
of this subcommittee. I do look forward to our partnership this
Congress. With the wide subject matter jurisdiction, digital
assets, financial technology (fintech), and artificial
intelligence, this committee provides considerable opportunity
for collaboration.
I also want to thank our witnesses for your willingness to
help the committee with its work.
The Trump Administration and House Republican leadership
have clearly demonstrated their eagerness to enact crypto-
friendly laws and regulations. As you noted, Mr. Chairman, one
of President Trump's first executive orders established a
digital asset working group that will be comprised of
regulators handpicked by the crypto industry. In addition, just
days before taking office, President Trump also issued a meme
coin to further his own financial interest, so he is all in.
The crypto industry spent $119 million in this last
election lobbying Congress, and proposals such as a
cryptocurrency stockpile and the prohibition of a central bank
digital currency speak to the crypto industry's powerful
influence. Not surprisingly, House and Senate Republicans have
also announced plans to make digital assets a legislative top
priority.
Nonetheless, cryptocurrencies remain highly volatile and
speculative instruments that if poorly handled have the
potential to destabilize our economy. I continue to have
serious concerns about crypto scams, money laundering, and
illicit finance uses. In 2023, Americans lost over $5.6 billion
to such scams, and illicit addresses received approximately
$40.9 billion in cryptocurrency.
On the advent of this golden age of crypto, I remind my
colleagues of the crypto winter in which major companies,
including Future Exchange Trading Ltd. (FTX), BlockFi Lending
LLC, and Celsius Network LLC collapsed, and Sam Bank Freedman
was convicted of massive fraud. Fortunately, because of our
robust securities and consumer protection laws, most of the
victims of those scams were not U.S. citizens. Similarly, the
damage caused by the failures of Silicon Valley and Signature
Bank did not spread to our broader financial system.
I agree with most of my colleagues that a regulatory regime
is needed, but not one that reflects a wish list from industry
advocates. As this committee considers legislation to address
stablecoins and the market structure, I hope we can have
collaborative and bipartisan discussions.
We must seek input from law enforcement, the Financial
Crimes Enforcement Network (FinCen) academics and other experts
to ensure robust consumer protection, anti-money laundering,
and illicit finance safeguards are in place. I worry that by
allowing the digital assets industry to access our banking
system, we invite the next financial disaster.
I served on this committee during the 2008 financial crisis
and watched American taxpayers be forced to bail out major
financial institutions that made risky decisions in the name of
innovation. The digital assets industry has had years to prove
its use cases. Promises of financial inclusion, lower costs,
and faster payments are better achieved through public policy
solutions.
This subcommittee should focus its time on exploring
legitimate innovations that have the potential to expand
economic access. Last Congress, I was encouraged by the
bipartisan approach to exploring artificial intelligence
through the Working Group on AI, which I co-led alongside Chair
Hill, and a roundtable I hosted at Massachusetts Institute of
Technology (MIT), with faculty and experts. We found shared
policy goals.
The emergence of international competitors such as DeepSeek
demonstrate that we must move quickly to ensure U.S.
competitiveness.
Additionally, I hope to continue working with my colleagues
on fintech policy issues we seem to agree on. These include
addressing financial data privacy, expanding data portability,
reducing the cost of payments, and encouraging innovation that
expands economic access and financial inclusion.
Mr. Chairman, I look forward to continuing the important
work we began last Congress, and I yield back.
Chairman Steil. The gentleman yields back.
I too look forward to working with you, Representative
Lynch. I think we have a great opportunity in front of us.
The chair now recognizes the ranking member of the full
committee, Ms. Waters, for 1 minute.
STATEMENT OF HON. MAXINE WATERS, RANKING MEMBER OF THE
COMMITTEE ON FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM
CALIFORNIA
Ms. Waters. Thank you very much.
While Republicans want to discuss charting a path forward
on digital assets, Co-President Elon Musk and Trump continue
their hostile takeover and illegally shut down the Consumer
Financial Protection Bureau. I find it somewhat disheartening
to hear my colleagues talk about guardrails for stablecoins or
digital assets as the agency that has clawed back $21 billion
from predatory companies for harm to consumers is being
dismantled.
That being said, I unveiled the fruits of nearly 3 years of
work between former Chair McHenry and myself, stablecoin
legislation that was jointly drafted by my staff and Chair
McHenry's. I believe that this legislation provides the best
foundation for moving forward to getting a Federal framework
signed into law.
I thank you, and I yield back.
Chairman Steil. The gentlelady yields back.
Today, we welcome the testimony of Mr. Jonathan Jachym, the
Deputy General Counsel and Global Head of Policy and Government
Relations at Kraken Digital Asset Exchange; Mr. Ji Kim,
President and Acting CEO at the Crypto Council for Innovation;
Mr. Coy Garrison, Partner at the law firm Steptoe; Mr. Jose
Fernandez da Ponte, the Senior Vice President and General
Manager of Blockchain, Crypto, and Digital Currencies at
PayPal; and Mr. Timothy Massad is a Research Fellow and
Director of Digital Assets Policy Project at the Kennedy School
of Government of Harvard University.
We thank each of you for taking your time to be here. Each
of you will be recognized for 5 minutes to give an oral
presentation of your summary. Without objection, your written
statements will be made as part of the record.
Mr. Jachym, you are recognized for 5 minutes for oral
remarks.
STATEMENT OF JONATHAN JACHYM, DEPUTY GENERAL COUNSEL AND GLOBAL
HEAD OF POLICY & GOVERNMENT RELATIONS, KRAKEN DIGITAL ASSET
EXCHANGE
Mr. Jachym. Chairman Steil, Ranking Member Lynch, committee
Ranking Member Waters, thank you for the opportunity to testify
today. My name is Jonathan Jachym, and I serve as Global Head
of Policy and Government Relations at Kraken. Our business was
founded in San Francisco over 13 years ago and has steadily
grown into one of the world's largest and most trusted digital
asset exchanges.
I have served in my current role for over 3 years and spent
the prior 15 years in private sector roles based in the United
States and Europe, including over a decade of experience with
two of the largest traditional market infrastructure groups.
Kraken has invested heavily in supporting effective policy
outcomes around the globe. This includes engagement with
governments, regulators, and our industry partners across the
United States, EU, U.K., Canada, Australia, and many other
developed and emerging markets.
Here in Washington, we have continued to support our
leaders in Congress in passing foundational market structure
legislation necessary to regulate centralized intermediaries
and secondary market transactions.
Kraken's role in the digital asset ecosystem is diverse.
Today we serve over 15 million customers around the world. We
custody over $42 billion in assets on our platform. We have a
team of over 2,000 professionals across 60 countries that
support the 24/7/365 global nature of the users and markets
that we serve.
We advance our mission to expand the adoption of
cryptocurrencies in 3 key areas. First, we operate a
centralized exchange for crypto markets. We offer a staking
program and related products and services.
Second, we power traditional market investment allocation
into digital assets. This includes derivatives offerings in
eligible jurisdictions, the world's leading benchmark provider,
which powers a majority of the exchange-traded products that
have been approved for trading here in the United States and
other major markets. We also operate a novel State-chartered
bank, which offers institutional custody under an innovative
Wyoming legal framework.
Third, our on-chain's business includes our wallet and
Layer 2 blockchain called Ink, which serves as a seamless
bridge to decentralized finance (DeFi) for our new frontier of
innovative developers and users.
Despite the growth in our markets and years of bipartisan
work in Congress, the United States has fallen behind other
jurisdictions in passing fundamental rules for centralized
intermediaries. The opportunity and urgency for legislative and
regulatory clarity is here.
Meaningful progress has been made despite the failed and
harmful policy approaches we saw in the last administration,
which included regulation by enforcement and downward pressure
through the banking system. This slowed or halted responsible
growth and deterred investment, job creation, and innovation in
the United States.
Among many important topics, I would like to highlight a
few key components that are central to effective market
structure policy frameworks. First, Congress should grant spot
market authority to the Commodities Futures Trading Commission
(CFTC) to regulate centralized intermediaries and secondary
market transactions in digital commodities.
Second, effective disclosure requirements will provide
transparency and customer protection.
Third, we must avoid blunt application of centralized rule
books to decentralized protocols that do not have centralized
governance systems, infrastructure, or management. Policymakers
must continue to evaluate and craft best practices and distinct
policy approaches to address DeFi.
The leadership from many distinguished members of this
committee has proven that good crypto policy is not partisan.
Speaking from my own experience the last several years and on
behalf of my colleagues at Kraken and around the industry, we
are incredibly encouraged to see Congress and the
administration now working together toward regulatory clarity.
The United States must pass rules that are fit for the U.S.
markets, but there is often great value in learning from other
jurisdictions that have already advanced foundational rules of
the road for centralized intermediaries.
As we look ahead, U.S.'s leadership and international
cooperation will be necessary to avoid market fragmentation and
support the inherently global nature of the digital asset
ecosystem. Industry consensus and nonpartisan collaboration is
critical for the United States to accelerate toward these
goals. We look forward to continuing to support these efforts.
Again, I thank you for the invitation and look forward to
our discussion.
[The prepared statement of Mr. Jachym follows:]
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Chairman Steil. Thank you, Mr. Jachym.
Mr. Kim, you are recognized for 5 minutes.
STATEMENT OF JI HUN KIM, PRESIDENT AND ACTING CEO, CRYPTO
COUNCIL FOR INNOVATION
Mr. Kim. Thank you, Chairman Steil, Ranking Member Lynch,
and members of the subcommittee, for the opportunity to testify
today on how the United States can best chart its path forward
to ensure a golden age for digital assets. I believe that
achieving this goal will require a comprehensive Federal
legislative framework for digital assets.
I am pleased to represent the Crypto Council for
Innovation, CCI, a global alliance of industry leaders across
the digital asset space. CCI is grateful that so many Members
of Congress recognize the need for United States to lead when
it comes to digital asset innovation.
Under the leadership of this committee, we experienced
great bipartisan progress during the 118th Congress. I
respectfully submit that it is critical for Congress to
continue such efforts to provide the digital assets industry
with the needed clarity to ensure continued growth and
leadership in the United States.
Over the past 15 years, digital assets have evolved from a
topic of curiosity to transforming financial services and how
we architect future economic systems. The approvals of spot
bitcoin and Ethereum Exchange-traded Funds (ETFs), growing
retail and institutional participation, and increased adoption
of digital assets signal an industry not only meeting its
potential but changing how we live.
Indeed, the global digital asset market has seen
substantial growth, with a market cap that currently exceeds $3
trillion. The stablecoin market alone has gone to over $200
billion, demonstrating the increased use of digital rails for
payments.
Tokenized assets and new blockchain-based transaction rails
can improve financial access and inclusion, reduce counterparty
risk, improve operational efficiencies and lower cost. The
industry is working to improve the legacy financial system and
software gaps that have harmed historically disadvantaged
populations.
Against this backdrop, other major jurisdictions have
recognized that we are in a race to the top in harnessing and
benefiting from this new technology. These jurisdictions are
delivering exactly what the U.S. digital assets industry has
been requesting, regulatory clarity through a thoughtful,
tailored regulatory regime that recognizes the potential of
digital assets.
To that end, it is imperative that the United States build
upon the progress made during the 118th Congress and ensure
U.S.'s leadership in digital assets at the global level.
Increased clarity regarding regulatory expectations will
unleash further innovation and ensure that American markets
remain the envy of the world.
CCI is encouraged by this administration's early efforts to
catalyze further digital asset development in the United
States, including recognizing digital assets as a national
priority in the recent executive order. More still needs to be
done, however, to unwind the significant damage and uncertainty
caused by a regulation-by-enforcement approach under the prior
administration.
Unfortunately, during Chairman Gensler's tenure, the SEC
brought over 125 enforcement actions related to digital assets
but issued no clear guidance or rulemaking to clarify when an
asset is, in fact, a security. This lack of regulatory clarity
has driven companies offshore to jurisdictions with more
defined rules and less ambiguity. If a regulatory approach is
pushing lawful businesses to move offshore, this must change,
and we believe that change has begun.
In the interest of time, I will briefly outline the
specific steps I view as critical to achieving the golden age
of digital assets in the United States.
First, Congress must pass market structure legislation to
clarify when a digital asset is a commodity or security and to
give clear statutory authority to the CFTC to regulate the spot
markets for digital commodities. Legislation should also
address risks associated with digital assets markets,
technology and provide key consumer protections.
Second, Congress should establish a comprehensive framework
for the regulation and supervision of stablecoin issuers. Such
a bill should also consider rationally integrating effective
State-based regulatory models. Accomplishing this would realize
the powerful potential of dollar-backed stablecoins and
providing individuals with more choice in payments while
further solidifying the global role of the U.S. dollar.
Finally, Congress and the administration should prioritize
supporting the development of decentralization and DeFi
technologies. Policymakers should recognize the importance of
self-custody solutions and software which enable individuals to
securely manage their own digital assets.
Congress can unleash digital asset innovation through
forward-leading legislation. This is the surest way to
guarantee that the United States commands the digital asset
future while best protecting consumers and fostering economic
growth.
Thank you so much again for the opportunity to testify, and
I look forward to your questions.
[The prepared statement of Ms. Kim follows:]
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Chairman Steil. Thank you, Mr. Kim.
Mr. Garrison, you are now recognized for 5 minutes.
STATEMENT OF COY GARRISON, PARTNER, STEPTOE LLP
Mr. Garrison. Thank you, Chairman Steil, Ranking Member
Lynch, committee Ranking Member Waters, members of this
subcommittee, for inviting me to testify today.
My name is Coy Garrison. I am a Partner in Steptoe's
blockchain and cryptocurrency practice, where I have advised
clients for the last 3 years.
Prior to joining Steptoe, I was an attorney at the SEC for
about 9 years. I had the honor of serving as Counsel to
Commissioner Hester Peirce and also serving in multiple roles
within the Division of Corporation Finance. I testify here
today on my own behalf, not on behalf of the firm or its
clients.
Congress and this Trump Administration have a tremendous
opportunity to work together to bring sensible regulation to
the digital asset industry. New leadership at Federal financial
regulators are already beginning to reverse the failed crypto
policies of the last 4 years. The SEC, in particular, has a
heavy burden to undo the harmful policy decisions that former
Chair Gensler brought, and they have begun the hard but
necessary work of rulemaking and providing actual guidance.
However, regulatory actions alone will not be sufficient to
stand up a comprehensive regime. Congress needs to fill
regulatory gaps by passing legislation for both digital asset
market structure and dollar-denominated payment stablecoins.
First, I want to underscore that the moment for action is
now. The open hostility of the prior administration toward this
industry has resulted in a marketplace with no Federal
regulator, no protections for token holders and fewer U.S.-
based projects.
Fortunately, we live in a very different world today. The
change at the SEC in particular is a breath of fresh air.
Acting Chairman Mark Uyeda recently announced the formation of
a crypto task force and appointed Commissioner Peirce to lead
its efforts. Results were immediate. The SEC rescinded the
widely maligned Staff Accounting Bulletin 121. Their work,
however, is just beginning and was recently previewed by
Commissioner Peirce's announcement of 10 different work streams
for the task force.
What can the SEC actually accomplish? I offer the following
suggestions, which I believe are consistent with Commissioner
Peirce's 10 priorities.
First, the SEC should articulate a sound legal
interpretation for when digital asset transactions are subject
to the securities laws. A clean break is needed from the
Gensler era's legal imprecision and sweeping assertion that
nearly all digital assets are securities. The interpretation
should begin with an acknowledgement that the digital asset
itself is not a security. A disciplined transaction-by-
transaction analysis must be used to determine whether an
investment contract is present, because it is required by case
law and should be adhered to by the Commission.
Second, the SEC should consider withdrawing Gensler-era
litigation alleging unregistered exchange, broker-dealer, and
clearing agency activities. As a preliminary matter, it is far
from clear that these transactions meet the elements of the
Howey test. Even if the new SEC believes that it has
jurisdiction over secondary market transactions, consideration
should be given to whether beginning a rulemaking process would
be a more productive pathway to the registration of covered
entities. In an encouraging sign, I note that just yesterday
the SEC and Binance filed a joint motion to stay their
litigation for 60 days.
Third, the SEC should consider how to better facilitate
token offerings in the United States by amending existing
exemptions and dusting off Commissioner Peirce's token-safe
harbor proposals.
While the SEC can consider these and many other actions,
Congress continues to have a vital role in establishing a
workable framework.
With respect to market structure, I urge the subcommittee
to consider the following principles for inclusion in any
legislation: The need to establish clear lines between the SEC
and the CFTC and a process to determine which transactions are
subject to the different agencies' jurisdictions; requiring
disclosures that are tailored to the needs of digital asset
holders; allowing for disintermediated trading and real-time
settlement of digital assets; imposing similar types of
corporate controls and risk management requirements that exist
today for securities and derivatives intermediaries, as well as
requiring segregation of customer assets and prohibiting the
commingling of funds.
A second regulatory gap that requires congressional action
is Federal oversight of dollar-denominated stablecoins. The
discussion draft of the STABLE Act provides appropriate
protections for consumers and establishes a regulatory
framework for the issuance and operation of dollar-denominated
payment stablecoins.
In conclusion, the timing is right for Congress and the
administration to work together to implement much-needed
regulatory reform. Thank you for your leadership on this
important topic, and I look forward to your questions.
[The prepared statement of Mr. Garrison follows:]
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Chairman Steil. Thank you, Mr. Garrison.
Mr. Fernandez da Ponte, you are now recognized for 5
minutes.
STATEMENT OF JOSE FERNANDEZ da PONTE, SENIOR VICE PRESIDENT AND
GENERAL MANAGER OF BLOCKCHAIN, CRYPTO AND DIGITAL CURRENCIES,
PAYPAL
Mr. Fernandez da Ponte. Thank you.
Chairman Steil, Ranking Member Lynch, committee Ranking
Member Waters, and members of the subcommittee, thank you for
the opportunity to testify today.
My name is Jose Fernandez da Ponte, and I serve as Senior
Vice President and General Manager of PayPal's blockchain,
crypto, and digital currency business. I appreciate the
invitation to address the subcommittee regarding PayPal's
vision for the future of digital payments.
Today, I would like to focus my remarks on how responsible
innovation can enhance payments infrastructure and make the
digital economy more efficient for all participants.
Twenty-five years ago, PayPal embarked on a journey to
digitize payments and take them from offline to online. Now, we
continue the journey by moving payments online to onchain.
Our customers can today buy, sell, and hold four types of
commonly used cryptocurrencies: bitcoin, bitcoin cash, Litecoin
and Ether. Our customers can also choose to check out with
crypto and use crypto as a payment method with millions of
merchants today.
In 2023, we launched PayPal USD, or PYUSD, a fully backed,
regulated stablecoin issued in the United States by Paxos and
developed for commerce and payments. Our objective to engage in
the digital asset space and bring PYUSD to market is twofold:
leverage the latest innovations to provide a faster, cheaper,
stable payment instrument and ensure that it has utility for
mainstream commerce and payments.
With PYUSD, consumers are able to conduct faster and
cheaper transactions, send money to loved ones, buy goods and
services online, and settle those transactions quickly.
Businesses of all sizes can use the stablecoins to enable
cross-border payments, open new markets, and manage their own
treasury more effectively.
I would like to share two specific examples of how our
customers are using PYUSD today. The first one is on domestic
business-to-business payments. Large enterprises and SMBs,
small and mid-size businesses, rely on PayPal to securely offer
fast and low-cost transfers for business-to-business payments.
Today, PYUSD is available to them through more than 25
partners. It has been used, among others, by our own venture
affiliate, PayPal Ventures, to fund portfolio companies during
weekends and outside of banking hours. It has started to be
integrated into popular enterprise resource planning systems,
and we use it ourselves to conduct payments to some of our
vendors today.
Second, let me talk about international transfers to
businesses and consumers. Stablecoins like PYUSD can enable
efficiencies for cross-border payments. International payments
incur significant costs as they move through the corresponding
banking network. To address that, we have enabled U.S.
customers of our Xoom product to fund millions of dollars of
remittances with PYUSD at a lower cost. When a Xoom user
chooses PYUSD as a funding instrument, there are no Xoom
transfer fees that are incurred.
In addition, on the wholesale side, we have enabled several
of our disbursement partners to settle directly with us using
PYUSD on the back end of transactions, reducing costs and
increasing the speed of those settlements.
At every stage of our cryptocurrency journey, beginning
with our Buy/Hold/Sell Product, the launch of crypto transfers
and the go-to-market of a stablecoin, we have been deliberate
and methodical in our approach, building trust with customers,
regulators, and law enforcement at each step.
In terms of policy, we believe that predictable market
policy is necessary for the crypto industry to grow and thrive
in the United States. We recommend several policies that can
help make the United States a leader in this technology.
First, we urge Congress to pass legislation providing
stablecoin markets and trading frameworks for the industry.
Second, a State pathway is critical for the continued
growth of the industry. State licensing is the approach that
most crypto companies have taken, and it leverages the
expertise developed over the years by the State of New York
Department of Financial Services and others.
Third, Federal and State charters can work simultaneously
under a core set of standards. In both State and Federal
regimes, the requirements for reserve asset management,
governance, disclosures and prudential risk management should
be fit for the purpose of payments.
Finally, any legislation must recognize that the business
of payment and stablecoin issuance is the business of payments
and is not the business of banking and that payment stablecoins
are not securities.
In conclusion, the current environment offers an important
moment for the United States to benefit from a thoughtful and
proportionate legislative approach. We look forward to working
with you to complete this important task. Thank you.
[The prepared statement of Mr. Fernandez da Ponte follows:]
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Chairman Steil. Thank you.
Mr. Massad, you are now recognized for 5 minutes.
STATEMENT OF TIMOTHY MASSAD, RESEARCH FELLOW AND DIRECTOR OF
DIGITAL ASSETS POLICY PROJECT, KENNEDY SCHOOL OF GOVERNMENT,
HARVARD UNIVERSITY
Mr. Massad. Chairman Steil, Ranking Member Lynch, committee
Ranking Member Waters, members of the subcommittee--
Chairman Steil. Mr. Massad, if you could just double-check
that your mic is on. We can hear you, but the live feed may not
pick you up.
Mr. Massad. Is it Okay now? Okay.
I am honored to testify before you today. The views I
express are my own and do not represent the views of the
Harvard Kennedy School.
It was in 2014 under my leadership that the CFTC declared
bitcoin a commodity. Since that time, for over 10 years, I have
been calling for strengthening regulation.
We hear a lot of calls for clarity, and everybody can be
for that, but you can have bad rules that have clarity. We need
a regulatory framework that truly encourages responsible
development of this technology and not just more of the
speculative activity and the abuses that we have seen far too
much of to date.
I am going to focus on stablecoins. It is the most useful
application of technology to date, and I applaud the committee
for prioritizing that.
The STABLE Act has many features I support, such as full
reserves for tokens, limitations on the activities of an
issuer, but there are many areas where it is deficient. It is
substantially weaker than what was negotiated between the
former committee chair and the ranking member last fall, which
the ranking member introduced yesterday.
I want to highlight five issues. These are discussed as
well as others in more detail in my testimony.
First, the legislation provides for Federal and State
chartering, but there is far too much risk of weak State
standards, an inadequate review process, and there is no
ongoing Federal supervision of State issuers. That is a
prescription for a mess. We want people to have confidence that
any stablecoin is truly stable and worth a dollar, regardless
of what State it comes from. We do not want to provide
insurance for that as we do with bank deposits, so we have to
do it through sufficient national standards and supervision.
Second, the legislation does not address the bankruptcy of
a stablecoin issuer. If an issuer fails, the standard corporate
bankruptcy process would likely apply. That means you have the
automatic stay, holders will not get their money quickly, the
process could take years, and there could be contagion and
significant collateral damage. The legislation needs to create
a dedicated resolution process that minimizes those risks.
Third, I do not think it does enough to address the risks
of financial crime and evasion of sanctions. It says issuers
are subject to the Bank Secrecy Act. That is a good thing, but
the Bank Secrecy Act (BSA) relies on centralized
intermediaries. Stablecoins can be transferred and traded
without going through a centralized intermediary, and they can
be transferred through an intermediary that does not even
comply with the BSA. We need to extend the regulatory perimeter
and be more creative in tackling these risks.
Fourth, the Act is a bit like putting the lock on the barn
door after the horses have left. When you think about the
market today, because it is not clear to me, it would even have
much of an impact on Tether. The legislation says it is
unlawful to issue a stablecoin that is not chartered, but there
is no enforcement mechanism for that and no penalties. It needs
to have those and an explicit territoriality provision.
Finally, there are simply many ways the Act does not give
regulators enough authority and discretion, given that this
could become a very significant market and it will evolve in
ways we cannot predict.
I want to turn from stablecoins and briefly discuss
decentralization and market structure. I am pleased to see the
subcommittee propose that the SEC and the CFTC work together on
these issues. I have recommended joint approaches for years
now.
The challenge with the term ``decentralization'' and
``DeFi'' is that they are used to describe a lot of things that
are not that decentralized or that still have elements of human
control and discretion. We need to make sure key regulatory
objectives, like consumer protection, are achieved even if in a
different manner. Decentralization is also not a good criteria
for distinguishing securities from commodities.
For these and other reasons, I am strongly opposed to the
Financial Innovation Technology for the 21st Century (FIT21)
Act. It is complex. It will generate more confusion than
clarity and could undermine our capital markets, and it is
snowing outside. There is often a lot of snow in this room
about this issue, because the notion of security versus
commodity and people say well, a digital token can never be a
security if it is not part of an investment contract. If I have
a digital token that represents a share of GM stock, that is a
security regardless of how it is sold or transferred.
There are better ways to address market regulation. I
discuss those in my testimony. Thank you, and I am happy to
take your questions.
[The prepared statement of Mr. Massad follows:]
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Chairman Steil. Thank you very much.
We will now turn to member questions.
The chair recognizes himself for 5 minutes for the purpose
of asking questions.
Last week, during a press conference with Chairman Hill,
Thompson, Scott, and Bozeman, the White House's AI and crypto
czar, David Sacks, said the administration is committed to
working with Congress on a market structure and stablecoin
framework.
While financial market regulators have the power to clear
up some of the regulatory ambiguity related to the digital
asset ecosystem, there are some obvious gaps where no regulator
has jurisdiction.
I want to start with you, Mr. Garrison. We will kind of
jump around, just a little rapid-fire to stage-set here.
Can you help me describe some of those gaps and explain how
the ecosystem has been impacted by them? For example, does the
crypto spot market lack a clear Federal regulator?
Mr. Garrison. Yes, it does lack.
Chairman Steil. Is there a regulatory framework for
stablecoin and stablecoin issuers?
Mr. Garrison. There is not.
Chairman Steil. Is DeFi even contemplated by existing law?
Mr. Garrison. It is not.
Chairman Steil. The ambiguous legal classification of
digital assets, is it a security, is it a commodity? That is an
open question.
Mr. Garrison. Correct.
Chairman Steil. Okay. Then, Mr. Garrison, in your view,
what would be the outcome to the digital asset ecosystem if
Congress cannot get these gaps filled? Will companies move
offshore to jurisdictions with regulatory certainty or because
of possible enforcement actions?
Mr. Garrison. Yes. I think we see that today.
Chairman Steil. Would you agree with that, Mr. Kim?
Mr. Kim. Absolutely, Chairman. We are seeing a lot of
American businesses moving offshore due to the lack of clarity
in the United States.
Chairman Steil. Do you see the same thing, Mr. Jachym?
Mr. Jachym. Absolutely. Regulatory clarity drives
investment and growth for businesses like ours.
Chairman Steil. Would you foresee the United States having
to import regulatory standards and market practices from other
countries if the United States fails to act, Mr. Garrison?
Mr. Garrison. Yes, that is a likely outcome.
Chairman Steil. Do you think we are already lagging behind
in the space today?
Mr. Garrison. Yes. Other jurisdictions, including the
European Union, United Arab Emirates, and Hong Kong, are
further ahead.
Chairman Steil. I want to come back to you. With there
being no standards in the United States for some of these
crypto companies, consumers who are trying to vet different
projects, different tokens, how is that altering the market
with a lack of regulatory clarity in the United States?
Mr. Garrison. There is a lack of consistency in the types
of disclosures that are provided and how. There is a lack of
consistency in the protections that are provided to persons
engaging in digital asset trading.
Chairman Steil. Let me now jump to you, Mr. Kim, and say,
what if we did put in place a framework for stablecoin, for the
ecosystem to have a Federal regulatory framework governing
stablecoin issuances. Would those stablecoin ecosystems
actually develop with established legacy financial institutions
taking part?
Mr. Kim. Absolutely, Chairman. A comprehensive stablecoin
framework will provide certainty and clarity to the industry,
allow for U.S. innovation and leadership and, most importantly,
protect consumers and investors by giving them various
standards and requirements to best protect customers as well.
Chairman Steil. Mr. Fernandez da Ponte, would you agree
with that?
Mr. Fernandez da Ponte. I would. It is a strange
circumstance that today the majority of dollar-denominated
stablecoins are actually issued outside of the United States,
and there are many jurisdictions that are moving fast in that
space.
Clarity on the regime in the United States would enable
American issuers to compete, accelerate financial innovation
for the benefit of American businesses and consumers.
Chairman Steil. If we provided that regulatory standards
for stablecoins, we would be eliminating a major gap in the
ecosystem. Is that accurate?
Mr. Fernandez da Ponte. It is, yes.
Chairman Steil. Okay. Let me continue on. I am going to
come back to you, Mr. Jachym. How do you envision the digital
asset ecosystem will change if a Federal regulatory framework
for digital asset market structure were enacted by Congress?
Mr. Jachym. I think in the first instance, it will allow
businesses to plan and invest. It will drive consistency.
I think it is also important to keep the international
landscape in view. Other jurisdictions have moved forward, and
I think as we have seen in other financial market reforms. Let
us take the Dodd-Frank reforms, for example. Jurisdictions
moved in different substantive directions on somewhat similar
timelines.
The most challenging part of those post-2008 crisis reforms
were trying to rationalize cross-border market access for large
infrastructure players. These turned into bilateral and
geopolitical challenges, and I think we have an opportunity
here to avoid those. I think it is very important that the
United States puts a leadership seat at the table.
Chairman Steil. Thank you.
In our final 30 seconds, with new technology, people
identify potential risk. I think we see digital asset skeptics
claim that the industry is rife with fraud, with abuse. Could
you just very briefly comment on how you are monitoring anit-
money laundering (AML) and Know Your Customer (KYC)?
Mr. Jachym. Kraken invests heavily in the personnel tools
and technology to detect and prevent illicit finance and any
illicit finance being conducted on our platform. We create a
very strong ecosystem, where we not only monitor and KYC check
everyone coming into our environment, but in terms of
transactions that come in and out and off of our platform, they
are subject to sanctions screenings and other compliance tools.
Chairman Steil. Thank you very much. I yield back.
I now recognize the gentleman from Massachusetts, Mr.
Lynch, also the ranking member of the subcommittee.
Mr. Lynch. Thank you, Mr. Chairman.
Mr. Massad, I do not think we should overlook the lessons
of the failure of Silicon Valley Bank. In that case, we had a
stablecoin issuer who had a huge amount of deposits in a single
bank, most of which was uninsured. Just months before the
collapse of Silicon Valley Bank and Signature Bank, the Federal
Reserve System (Fed), the FDIC, and Office of the Comptroller
of the Currency (OCC), released a joint guidance cautioning
banks about the volatility and vulnerability of crypto assets.
The everyday American was largely insulated from the
fallout of these bank failures, likely because crypto
companies--likely because of the risk management systems and
heightened capital reserve requirements to insulate most banks.
Crypto companies had limited access to the banking sector.
I have deep concerns about opening the floodgates for
nonbank companies to our payment systems or offering Fed
accounts. Additionally, allowing crypto companies free rein
could put pensions, retirement accounts, and other typically
safe investment accounts at risk. The next crypto crash could
have disastrous effects on the wider economy.
Mr. Massad, what additional risks should this committee
consider as it crafts legislation to protect our broader
economy and our traditional finance system from the volatility
and instability of crypto assets? What safeguards would you
recommend, especially with regard to the volatility of crypto,
to perhaps take down the entire financial industry?
Mr. Massad. Thank you for the question, Representative
Lynch.
First of all, I think with respect to the banking system,
we certainly do not want banks investing in crypto on the asset
side of their balance sheet, meaning buying crypto or otherwise
making investments.
I think with respect to other issues, like services that
are for a fee, like custody or payroll services, I think,
assuming that we put in a good comprehensive framework on
stablecoin issuers, so they manage their risks and on crypto
trading platforms, so they manage their risks. I think those
kinds of banking services can be done.
Mr. Lynch. Having a firewall between the crypto side and
traditional--
Mr. Massad. Absolutely. Absolutely, we need to address
affiliations and so forth. Your point on the concentration of
deposits, that is why it is not enough for a stablecoin issuer.
The STABLE Act says you can have bank deposits. You can have
all these things, but it does not have any rules on
concentration or customer concentration. I am quite concerned
about that.
I think this all comes back to looking at this
comprehensively and looking at the fact that we really do not
have a regulatory framework for a lot of these crypto firms. We
have seen a lot of fraud and manipulation and problems as a
result of that.
I think it has to be done in building blocks. I applaud the
committee for starting with stablecoins. I would get that piece
done and then turn to the market structure issues because those
are a little more complicated. I think we will learn a lot by
getting the stablecoin piece done.
Mr. Lynch. What about the contagion piece of this where you
have banks that have access to the discount window, you have
FDIC insurance. Then on the other side of the house, if you
have volatility and instability, you have sort of commingling
or association between various crypto companies so that there
is a domino effect that could result. It actually--
Mr. Massad. There clearly is.
Mr. Lynch --runs into the traditional finance system.
Mr. Massad. Right, two things. One, that is because of the
lack of transparency in this industry. Sure, the blockchain is
transparent in the sense that it is pseudonymous, but you do
not know exactly what a lot of the relationships are and who
has exposure. There is a lot of leverage in the crypto
industry, and we do not track that. Even in the ETF, exchange-
traded funds, market, there is a lot.
Mr. Lynch. Do you think there should be a prohibition on
government bailouts of crypto firms?
Mr. Massad. Certainly. Certainly, there should be.
Mr. Lynch. Okay.
Mr. Massad. The other thing I would comment on is with
respect to the banking sector; we really do not want banks
exposed to the credit of this industry. That is why I would
limit it to sort of services that are fee-based or taking
deposits that are in dollars as long as, again, we have some
concentration limits.
Mr. Lynch. Thank you, Mr. Chairman. I yield back.
Chairman Steil. The gentleman yields back.
The gentleman from Michigan, Mr. Huizenga, is recognized
for 5 minutes.
Mr. Huizenga. Thank you, Chairman Steil.
I do want to extend my congratulations to you as well on
becoming Chairman of the Digital Assets Subcommittee and having
been the former Chair of the Capital Markets Subcommittee where
a lot of these issues were housed. I know this is complicated
and well-deserved, though, on your part, but also
congratulations to Chair Hill for seeing that we needed to
break this out. I think this is a very positive thing, so I
look forward to working with you all.
Mr. Garrison, Mr. Jachym, let me start with you. Digital
asset market participants have rightfully criticized the lack
of predictability and certainty. Going back to 2019, SEC Chair
Jay Clayton actually attempted to provide some clarity by
releasing a framework for investment contract analysis of
digital assets.
As we have just seen and just exited the last 4 years where
former Chair Gensler famously told crypto firms to come in and
register, whatever that meant exactly. They provided very
little direction or a way for that to actually happen. Instead,
it seemed what firms received was a threat of enforcement for
doing so.
Is it fair to say that the SEC has thus far not produced
desirable or discernible standards for digital asset ecosystem
that facilitate consistent application of the rules? Mr.
Jachym? Mr. Garrison?
Mr. Jachym. Congressman, thank you for the question.
That is absolutely true. There has just been a complete
lack of policymaking. It has been a regulation-by-enforcement
regime using a decades-old jurisdictional test to try to
shoehorn the diverse set of digital assets in the market into
the securities--
Mr. Huizenga. Let us just be clear. Regulation through
enforcement is a bad thing, right?
Mr. Jachym. It is a bad thing. And--
Mr. Huizenga. Okay. Sometimes some of my colleagues and
friends do not always see it that way. They just think that is
another tool in the toolbox. That lack of predictability, I
would think, would be very harmful.
Mr. Jachym. It has been in stark contrast, Congressman. We
have watched in many major markets around the world a
constructive policymaking process where jurisdictions have
crafted definitions, passed legislation, and passed regulation.
We are in the implementation phase. It has been the exact
opposite experience here in the United States.
Mr. Huizenga. Mr. Garrison, I want you to answer this: What
must be done to ensure consistent guidance regarding the
classification of digital assets?
Mr. Garrison. I think the SEC needs to take a deep breath
and start afresh on its guidance. The 2019 guidance that you
mentioned, while well-intentioned, has over 60 factors and no
way to actually weigh the different factors. That is simply not
actionable. There is a--
Mr. Huizenga. I think the good news is, Acting Chair Uyeda
is seemingly doing that. He is taking a very different
approach. One of his first was to rescind the Staff Advisory
Bulletin 121 (SAB 121) followed by the creation of a crypto
task force headed by a fellow commissioner, Hester Peirce.
Additionally, we have seen the SEC pause some of their
pending crypto-related enforcement actions, citing a desire for
a potential resolution.
Mr. Kim, beyond these examples, what other actions could
the SEC pursue as far as low-hanging fruit to improve its
approach in digital asset regulation that Congress could
legislate?
Mr. Kim. Thank you very much for your question.
First of all, I want to just reiterate that it has been so
encouraging for the industry to have the SEC crypto task force
and the new SEC leadership who are welcoming and willing to
work with industry.
In addition to pausing or withdrawing enforcement actions
based solely on registration violations without any allegations
of fraud or egregious conduct, it is clarifying some of the
issues that the industry has been requesting: What is a
security? Clarifying and confirming that a stablecoin that is
backed one-to-one U.S. dollar-denominated is not a security and
just continuing to work with industry. The industry wants to
work with our regulators to make sure that we can enhance
clarity and provide for U.S.'s leadership.
Mr. Huizenga. I have about a minute left. I want to try to
hit a couple of quick things. Mr. Jachym, in 2023, the SEC went
after Kraken's staking program. You operate in 200, over 200
countries. Is that correct?
Mr. Jachym. That is correct.
Mr. Huizenga. Okay. That is a fair number. Being a member
of the Foreign Affairs Committee, I know that constitutes much
of the known digital world on that.
Did any other regulator around the world shut you down as
former Chair Gensler did?
Mr. Jachym. No, Congressman. I think, to put our global
operations in context, in those jurisdictions that have
advanced clear rules of the road, we have worked with
regulators to put those in place, and we are regulatory
compliant.
There are a lot of jurisdictions that have not, and markets
operate on a reverse solicitation basis. Most of our business
is across North America and Europe where we see regulation
moving forward.
Mr. Huizenga. My time is expired, but I will put in a
question to you all about whether U.S. lawmakers should be
concerned that Europe was first out of the gate with some of
their regulations and their framework, and what lessons can the
United States learn from Markets in Crypto-Assets (MiCA).
With that, Mr. Chair, I yield back.
Chairman Steil. The gentleman yields back.
The gentlewoman from California, Ms. Waters, who is also
the ranking member of the full committee, is recognized for 5
minutes to ask questions.
Ms. Waters. Mr. Massad, consumer protections are under
attack in this country, and this will have profound
consequences for all of our constituents. As Elon Musk and the
Trump Administration try to delete the Consumer Financial
Protection Bureau (CFPB), Republicans on this committee have
offered stablecoin legislation that is also light on consumer
protections.
In the legislation I released, there are robust protections
for consumer wallets, including risk management and financial
resource requirements, to ensure consumers do not lose their
payment stablecoins to the scams and fraud that have plagued
the crypto industry for far too long.
What will it mean for consumers if these protections are
stripped away, as Republicans on our committee have suggested?
Mr. Massad. I think you are exactly right, Congresswoman,
that we could see a lot of consumer harm. Today stablecoins are
not stable because we do not have this framework around them.
It is not enough just to say okay; you have to have full
reserves for tokens. We do need to go beyond that, and you have
noted some of the ways.
Also, your point about wallets, I think, is very good. We
have to look at this. Extend the perimeter here in terms of
regulation and look at how these things are transferred. They
can be transferred on self-hosted wallets, which raises a lot
of issues of evasion of sanctions and financial crime. Unless
we really put in a comprehensive framework, we are going to
have these problems.
I think the bill-that the legislation that you negotiated
with the former committee chair does a lot of this. It has
stronger Federal standards, it has standards that go to
wallets, and it has a dedicated resolution process. It has a
number of features, I think, that it would better ensure
protection of consumers.
Ms. Waters. Thank you.
Days before being inaugurated, President Trump followed in
the footsteps of his Co-President Musk to profit off of meme
coins. When Trump launched his own meme coin, I warned of the
speculative dangers and myriad risks for investors who would be
blocked from class action lawsuits if they were swindled.
Trump's profiteering also challenges critical national security
and anticorruption laws.
Now, we are seeing reports that after Trump's token
crashed, a large number of investors suffered over $2 billion
in losses. According to Chainalysis data, $100 million in
trading fees have gone to the Trump family and his partners.
While pump-and-dump schemes run rampant with meme coins, it is
clear that early traders, Trump's family and their partners,
have been the biggest winners at the expense of hundreds of
thousands of investors.
When I heard about this meme coin, I asked, ``what is it?''
They said, ``it is not an investment. It is not a contribution
to the campaign.'' It is all about the President of the United
States and then his wife and now his children all being
involved in creating their own coins and making money. Those
who understand what it means to have the rug pulled out from
those who are unsuspecting, this appears to have happened.
What do you think about this?
Mr. Massad. I think it is plainly wrong, and I do not think
you need to be an expert about crypto to know that. I mean,
look, this is like paying to join a fan club, except it is a
digital token that then you trade. You buy it to trade because
you hope that somewhere and someone at some time will pay more
for it than you paid.
It is clearly contrary to the spirit of the executive
order. It is clearly a conflict of interest. It will create
ongoing conflicts of interest because companies and countries
may now try to buy the coin to curry favor with the
administration, and they are going to continue to release
additional coins.
I think it is a black eye for digital assets. It is exactly
the kind of behavior we should be trying to tamp down.
Ms. Waters. Just quickly. Upon taking office, President
Trump signed an executive order banning the creation and
issuance of a U.S. Central Bank Digital Currency also known as
CBDC. The United States is now the only country in the world to
impose a Presidential ban on CBDC while China and Europe are
free to lead the global competitive landscape.
I just get that in there because of our central bank--why
do they not want our central bank involved?
Mr. Massad. If I can just add a couple thoughts to that. I
mean, look, I know there are a lot of pros and cons about a
retail CBDC, but we need the Federal Reserve to continue doing
research and development in the area of digital assets.
If you want digital assets and tokenization to really grow
as a sector, then the Federal payments infrastructure must be
geared to handle that. That is why we need the Federal Reserve
to continue to do work in this area. Unfortunately, the
executive order suggests it cannot.
Chairman Steil. The gentleman's time has expired.
Mr. Massad. Sorry. Thank you.
Ms. Waters. Thank you very much.
Chairman Steil. The gentlewoman's time has expired.
The gentleman from Minnesota, Mr. Emmer, is recognized for
5 minutes.
STATEMENT OF HON. TOM EMMER, VICE CHAIRMAN OF THE FINANCIAL
DIGITAL ASSESTS, FINANCIAL TECHNOLOGY SUBCOMMITTEE, A U.S.
REPRESENTATIVE FROM MINNESOTA
Mr. Emmer. Thank you to you, Chairman Steil, and to
Chairman Hill, for your tremendous leadership and partnership
on digital asset legislation. I am honored to serve as the vice
chairman of this subcommittee, and I am humbled by the great
work already done by your subcommittee.
Under President Trump, promises made are promises kept. A
new day for crypto innovation, opportunity, and excellence has
finally arrived. Crypto technology shifts economic power from
centralized institutions back into the hands of the people. It
is transformation.
The wrong leadership, our past administration, feared this
transformation. They did everything they could to kill it. The
right leadership, the Trump Administration, welcomes this
transformation and will do everything in their power to make
the United States the crypto capital of the world.
For this reason, we are in a moment to drive real change,
to legally anchor the digital asset community, to unlock a
peer-to-peer internet with an abundance of opportunity, to be
globally competitive with our regulations, to expand the status
of the dollar as the world's reserve currency, and to foster in
the golden age of America.
Doing this requires leading with two priorities. First, we
must ensure crypto policy remains nonpartisan. Republicans and
Democrats have a 10-year history of working productively
together on solutions in this space. That kind of teamwork must
remain the status quo.
Second, we must craft statutory regulations that honor the
core American values that are enshrined in digital asset
technology, privacy, individual sovereignty, and free market
competitiveness.
I am encouraged by the strong nonpartisan coalition of
members on this subcommittee and this full committee who have
put American values at the forefront of crypto policymaking.
This Congress, I look forward to supporting this
subcommittee as its vice chair in drafting and passing
stablecoin legislation and market structure legislation.
I also look forward to passing the CBDC Anti-Surveillance
State Act, which bans the government from ever creating a
central bank digital currency, the Blockchain Regulatory
Certainty Act, which gives entrepreneurs the legal clarity they
need to innovate right here in the United States, and the
Securities Clarity Act, which codifies in law that a token is
separate and distinct from an investment contract.
This committee has long been at the forefront of innovative
policymaking for the digital asset ecosystem. In this Congress,
I am excited to see the legislative products of our labor pass
and get signed into law.
Thank you again, Chairman Steil, Chairman Hill, and my
colleagues across the aisle, for your longstanding partnership
in good faith to unlock an abundance of economic opportunity
for our constituents.
We have a lot of work ahead, but our constituents can trust
that a great bipartisan team here in Congress will bring this
across the finish line and deliver for the American people.
Again, I am honored to serve as your vice chairman, Mr.
Steil, and I yield back the balance of my time.
Chairman Steil. We are honored to have you as our vice
chair. We look forward to your participation.
The gentleman yields back.
The gentleman from Illinois, Mr. Foster, is recognized for
5 minutes.
Mr. Foster. Thank you, Mr. Chair, and congratulations.
Thank you to our witnesses, particularly Mr. Massad. Your
testimony was really excellent. I read it twice, and I urge
anyone who wants to understand the issues here to have a long
read on your testimony.
One of the points you made in this is the inadequacy of the
current corporate bankruptcy codes for resolving--for
stablecoin.
I was wondering if the other witnesses have any comments on
that. Do you view the current bankruptcy code as adequate for
resolving failed stablecoins, or do you think we need a
separate resolution regime for stablecoin issuers?
Anyone who wants to--just raise your hand. If you think the
current regime is adequate and we do not need a new one, just
raise your hand.
Okay. It looks like all of you agree that we need some kind
of a new resolution regime for bankrupt issuers of stablecoin,
so that really should be on our to-do list on here.
Let us see. Mr. Jachym, you emphasized regulatory oversight
over your platform, but, as Mr. Massad points out, that is only
half the battle. If you accept crypto assets that have been
self-hosted, you must need some mechanism to make sure that
they have not been used for fentanyl purchases or North Korean
missiles. All these sorts of things that are really key to
having that--how do you ensure that the crypto assets that you
bring on board have not been used for these illicit purposes?
Mr. Jachym. Thank you for the question, Congressman.
Kraken employs a zero-tolerance policy for illicit finance.
If you think about our ecosystem, there are KYC and AML checks
for every user that comes on board--
Mr. Foster. Okay. Just to be specific, let us say you have
bitcoin that is going through these washers and transferred to
other anonymous currencies and then it shows up in your
platform from a self-hosted wallet. How do you have any idea
where that money has been?
Mr. Jachym. Thank you for the question, Congressman.
This is the beauty of blockchain technology, and I think
this is where the blockchain analytical tools really power this
ability to surveil, detect, and prevent this type of behavior.
We employ these tools to ensure that not only are all the
transactions within our environment and on our platform are
subject to these screens but also onboard, off-board, and if we
are interacting with other centralized intermediaries, self-
hosted wallets that are owned by our customers, those are
subject to sanctions--
Mr. Foster. ``That are owned by your customers''--yes, I am
not worried about your customers, the people you KYC'd. I am
worried about people that are out there on the dark web trading
anonymously with self-hosted wallets to buy fentanyl precursors
or all the things that are killing Americans or the North
Korean nuclear missiles that threaten us.
Mr. Jachym. And--
Mr. Foster. It seems like--or, if you have a solution that
actually works, I have been asking for it for 10 years and have
not received it. If you could for the record, say exactly how
you can guarantee that, when you bring on a crypto asset, that
value has not been used in an illicit transaction. If you could
answer that for the record, I would appreciate it.
It is one of the two things that--one of the reasons why we
have actually over the last 10 or 12 years, passed exactly zero
legislation on crypto is that the two fundamental issues are
anonymity and finality.
Just for an example on the finality and why that is so
tough. If you are self-hosting and someone comes and puts a gun
at your head, drags you into an alley, says, ``Get out your
cell phone, transfer all your crypto to me,'' Is it your view
that you are just screwed? That money has disappeared into
another self-hosted wallet, wandered off to the dark web or do
you think that we need some way of tracking it down to find out
where it went?
Mr. Jachym. Congressman, I think it is really important to
put the market into context here. The crypto markets have
reached over $3.5 trillion. Eighty-five to 90 percent of that
activity today goes through centralized intermediaries like
Kraken and other--
Mr. Foster. Then it is the 15 percent that is threatening
us with nuclear missiles we cannot stop from North Korea, all
right? I am not worried about the 85 percent, and I am not
even--anyway.
If you have a solution--
Mr. Jachym. Congressman, if I may, I think the 85 to 90
percent is what we are here to talk about today. That is why it
is so important for the United States to move forward with
market structure regulation.
There are many issues to debate over the next several
years, but we need to move now and put that basic foundation in
place--
Mr. Foster. Okay. Unless that 85 percent is used as an on-
ramp for the 15 percent that is killing Americans.
Mr. Massad, you look like you wanted to say something.
Mr. Massad. I was just going to say, When I hear the
industry defend it this way and yet at the same time, they want
to promote DeFi--so you might say, well, okay, are you willing
to somehow restrict DeFi and have everything go through
centralized intermediaries so we can have BSA checks?
Mr. Foster. Okay. Thank you.
My time is up. I yield back.
Chairman Steil. The gentleman yields back.
The gentleman from Ohio, Mr. Davidson, who is also the
Chair of the Subcommittee on National Security, Illicit
Finance, and International Financial Institutions, is now
recognized for 5 minutes.
Mr. Davidson. Thank you, Chairman, for holding today's
hearing, ``A Golden Age of Digital Assets.''
Given the title, I think I will get a question in at least
on gold-backed stablecoins, but I want to strongly support
legislation that provides legal clarity for payment
stablecoins.
First, traditional stablecoins are priced at $1 per token,
and they are backed by custody of $1 of either cash or cash
equivalents like U.S. Treasurys. As the name implies, a gold-
backed stablecoin is backed by physical custody of gold.
Consequently, with a claim to the gold that is on deposit, each
token reflects the market price of gold.
Similar commodity-backed stablecoins are obviously viable,
but why would anyone prefer a stablecoin of any kind to a
traditional bank deposit?
First, banks have fractional reserves, and although the
risk of a bank default is normally small, cases like Silicon
Valley Bank exist. Stablecoins are fully reserved, and they
have audited balances of one-to-one. In the case of dollars, it
is $1 per dollar, or in the case of something like gold, it
would be 1 ounce per token.
The other thing is self-custody. While people--the skeptics
keep trying to undermine the market, the whole point is self-
custody, permissionless--which is no intermediary--payments.
The idea that you have to go through an intermediary to be
trusted basically says that, unless the government grants you
permission, we just assume you are a criminal, that you are
trying to do everything that we want to criminalize.
There is no decentralized finance without the decentralized
part. If you do not protect self-custody, you essentially do
not have--all you really do is change which intermediaries are
involved. You do not really do that much truly interesting
work, so I do not think any serious piece of legislation to try
to chart a path for a, ``Golden Age of Digital Assets'' could
possibly exclude serious protections for self-custody.
I was really pleased to hear you highlight that, Mr. Kim.
Mr. Jachym, Kraken lists some advantages of gold-backed
stablecoins. You obviously have them available. Do you agree
that there are advantages to using a gold-backed stablecoin to
other stablecoins?
Mr. Jachym. Thank you for the question, Congressman. To
touch on your prior point, thank you for your leadership in
terms of helping others understand the importance of self-
custody in the crypto markets.
With respect to stablecoins, we believe a robust and
healthy and competitive stablecoin market is going to be
important. We have seen instances where the market, either due
to regulation or other forces, has been dominated by a couple
players. Again, in Europe, let us look to this example. We have
seen the emergence of, as rules have been put in place, new
issuers register and competitive forces at play. I think that
is what we all want for the market.
This includes gold-backed stablecoins. I think there is
going to be a lot of innovation in this space, but it is
important for the United States to put rules in place for
issuers. Right now, we see other jurisdictions moving forward,
which require every global stablecoin issuer to consider
registration in one jurisdiction or another. And--
Mr. Davidson. I think that is a good point.
I think the big thing the committee has tried to do--and we
had witnesses, including Director Harris from New York is we
have had legal clarity in America for years now, we just have
not made it Federal. Some people want to make it only Federal
and essentially nuke what has worked successfully with the
regulatory regime in New York. Look, New York rarely gets
regulatory frameworks right in a way that I will applaud, but
this is one that seems to have been pretty effective. A lot of
times it seems very heavy-handed, but this seems to have
worked. We have got people that do not want to recognize that
and basically want to eliminate the State-backed stablecoin
path.
One of the other things that we talked about was legal
clarity. One of the first bills I introduced in this space was
the Token Taxonomy Act, and it gets at this idea that there has
to be a bright-line test.
I am going to rapidly run out of time, but, Mr. Massad, is
there any place that really does not look like a Jackson
Pollock painting? I mean, that everyone looks at it and says,
this is really a bright-line test, this is a security and this
is not.
Mr. Massad. Congressman--thank you for the question--it is
very tough. I think we need to remember that other
jurisdictions are struggling with this ``security versus
commodity'' or ``security versus something else'' also. Europe
has this, too, whether it is a crypto asset or a financial
instrument.
The difference is, they have, in some of these other
jurisdictions--because this also exists in Hong Kong and other
places--they have more unitary regulation, so it is a little
bit easier to--
[Crosstalk.]
Mr. Davidson. It is the challenge before us--
Mr. Massad. Second--
Mr. Davidson [continuing]. and we have to get a bright
line. I am sure others will highlight it.
Sadly, my time has expired, and I yield back.
Mr. Massad. If I can just add, though, on New York--
Chairman Steil. The gentleman's--
Mr. Massad [continuing]. if all 50 States follow New York--
Chairman Steil. The gentleman's time has expired.
Mr. Massad [continuing]. I am fine with the----
[Crosstalk.]
Chairman Steil. The gentleman's time has expired. You can
enter it for the record.
[The information referred to was not received prior to
printing.]
Chairman Steil. The gentleman's time has expired.
The Representative from Massachusetts, Ms. Pressley, is
recognized for 5 minutes.
Ms. Pressley. Thank you to our witnesses for joining us
today.
There is so much excitement around digital assets,
especially cryptocurrency, understandably so. Cryptocurrency is
the new thing, it is shiny, it is flashy. People on the
internet are always telling stories about how much money they
are making on their investments in the latest coin.
The stories that stick with me the most are not on social
media posts. They are the ones that I hear in the community or
that come to my office as casework, like the college student
whose digital wallet was drained and they do not know who to
turn to for help, or the elder who lost everything when
responding to text messages from a number that was pretending
to be their grandchild in order to set up a crypto access
account.
These stories and many more are the heartbreaking reality
of crypto scams, and I believe we all, government and industry,
should do everything we can to stop them.
Mr. Kim, you are the President and Acting CEO of Crypto
Council for Innovation. Do you think it is important for
government to play a role in reducing scamming and fraudulent
activity through cryptocurrency?
Mr. Kim. Thank you very much for your question,
Congresswoman.
As a general matter, it is extremely important for any
counter-illicit activity to be stopped, and CCI is committed to
coming up with policy solutions.
My opinion is that the best way to accomplish this is
through a comprehensive Federal framework for both [inaudible]
and payment stablecoins to make sure there are consumer
disclosures, that there are consumer protection standards. All
of this information can help prevent scams. At CCI, we run
different types of educational aware campaigns with our members
to make sure these types of scams do not come to be.
In the United States, centralized exchanges, as my
colleague to the right of me mentioned, they are subject to
robust AML and Countering the Financing of Terrorism (CFT)
oversight. No amount of counter-illicit activity is acceptable,
and CCI is committed to working with you and your office to
make sure that we promote awareness and education to best stop
consumer scams.
Ms. Pressley. Thank you.
Actually, my next question is for the entire panel of
witnesses. Please raise your hand if you oppose crypto scams
and support protecting consumers.
Excellent. Let the record reflect that every single witness
today raised their hand. I am glad we can all agree on that.
It is not enough to simply talk about it, we need to be
about it. That is why I want to bring attention to the Consumer
Financial Protection Bureau. This small but mighty government
agency is one of the top watchdogs fighting hard for working-
class people and their bank accounts. That is precisely the
reason Elon Musk is trying to kill it.
If you are not familiar, the CFPB has put 21 billion--that
is with a ``B''--dollars back in people's pockets. When it
comes to digital assets, CFPB collected data from consumers and
found that 40 percent of crypto asset complaints were about
fraud and scams. They then used that information to develop
resources for consumers and prioritize regulations for crypto
firms to reduce predatory behavior.
The agency is now under attack. Elon Musk and his so-called
``Department of Government Efficiency (DOGE) bros'' have kicked
out the employees, locked the door, and stopped all the work
from continuing. They did it with the blessing of our scammer-
and harmer-in-chief, Donald Trump.
Earlier this year, Trump launched his own cryptocurrency
meme coin. He promoted it on social media, and people invested
in it, but then it quickly lost value, roughly 40 percent, when
Trump insiders pulled their money for a profit, resulting in
working-class people stuck with the losses. It was a scam.
Let us be clear. On one hand, Donald Trump will steal from
people through a crypto scam. On the other hand, the
hardworking staff at CFPB will fight to get people their money
back. That is why we need this essential agency to be reopened
to finish its necessary work.
Mr. Massad, the Consumer Financial Protection Bureau,
before it was attacked by Elon Musk and DOGE, proposed that
crypto payments are subject to the Electronic Fund Transfer
Act. Why do you think that is important?
Mr. Massad. I think--Congresswoman, thank you for the
question. I think we have to have a complete framework of
regulation, particularly given the fact that the industry likes
to push back against whatever regulator is trying to do.
To your point about shutting down the CFPB, we cannot build
strong financial markets if we are going to sort of regulate by
a pendulum swing--sort of go way over here to one
administration and then go way over here to the other
administration. I mean, reasonable people can disagree with
some of their rules, but you do not shut down the agency.
Ms. Pressley. Thank you.
I yield back.
Chairman Steil. The gentlewoman yields back.
All members are reminded to refrain from engaging in
personalities toward the President.
The gentleman from Tennessee, Mr. Rose, is now recognized
for 5 minutes.
Mr. Rose. Thank you, Chairman Steil, and thank you, Ranking
Member Lynch, for holding this hearing.
Thank you to our witnesses for taking time to be with us
today.
One aspect of stablecoins that interests me greatly is
their utilization for business-to-business transactions.
Mr. da Ponte, why are stablecoins a better tool than
traditional settlement rails for domestic business-to-business
transactions?
Mr. Fernandez da Ponte. Thank you so much for the question.
We have been active in the space of crypto for the last 5
years and in the stablecoins for the last year and a half, and
the reason that we are there is because we are a payments
company, not a blockchain company. We see the potential of
technology to bring the next generation of payment rails, and
we believe that business-to-business payments are one of the
places where we will see that adoption first.
In terms of domestic payments, there is a very clear
advantage that, even in places that have adopted real-time
payments and more traditional rails, through transactions with
the stablecoins and blockchain, businesses can transact outside
of banking hours, outside of Monday to Friday, outside of 9 to
5.
We see that, for many small businesses that we serve, that
means that they can get their payments in 2 days earlier, they
can get their payments in without waiting for an Automated
Clearing House (ACH), transfer to settle. We see fundamental
advantages in reducing financial costs for those businesses.
Mr. Rose. Thank you.
Recently, I had a constituent express a great deal of
frustration regarding the cost and difficulty of conducting an
international wire transfer to pay an invoice.
Mr. da Ponte, do you see similar benefits when stablecoins
are used for international cross-border payments between
businesses?
Mr. Fernandez da Ponte. Thank you so much for the question.
If there is value on the domestic side, there is even more
value on the international side.
The cost of sending an international wire is in the range
of $50. The time that it takes to settle is in the range of 3
to 5 days and there might be other costs associated for the
receiving party internationally.
When we can do transactions that are fast, cheap and can
settle 24/7, and can settle in minutes, we are saving those
businesses at least in 3 ways. We are putting 5 days of money
back on their balance sheet, because they do not need to pre-
fund the money. In many cases, they can get better exchange
rates, because they can time when they do the transaction. They
are also reducing the counterparty risk, because they do not
need to have pre-funded money with their disbursement partners.
I have the luxury of being able to engage with our
consumers and businesses, and I remember, a few weeks ago, I
was talking to one of our small businesses, a pottery business
out of Texas, who was very clear that the main reason that she
was excited about this technology was not the need to reduce
the cost of payments but to grow her business. She said that
she had to decline a significant order from overseas, from the
Middle East, because they could not figure out the way to make
the payment.
If we can provide this fast and cheap and 24/7 settlement
vehicle, we will be helping her grow her business and other
millions of other American businesses.
Mr. Rose. Thank you. I think you shed great light on that.
I would like to shift gears now and discuss the benefits
that stablecoins offer to consumers, not just businesses.
Mr. Kim, I understand that traditional financial
institutions charge 5 to 12 percent for remittances. How can
stablecoins be used to lower those costs for consumers looking
to make remittance payments?
Mr. Kim. Thank you very much for this important question,
Congressman.
You are absolutely right, traditional institutions can
charge anywhere from 5 to 12 percent for cross-border
remittances. Stablecoins can reduce that to 1 percent or lower.
I am from New York, and New Yorkers send $10 billion
overseas on remittances. We are talking about $500 million that
could be spent on the local economy and other good reasons.
This is why it is so important to have a comprehensive
Federal framework for stablecoins to further spur this
innovation and leadership in the United States when it comes to
stablecoins, Congressman.
Mr. Rose. Thank you.
I fear that a lack of strong communication between the CFTC
and the Securities and Exchange Commission has been why the
Biden-Harris Administration was so unsuccessful in
appropriately regulating digital assets.
Mr. Kim, would you be supportive of a joint advisory
commission between the SEC and the CFTC to help harmonize them
and resolve the jurisdictional overlap?
Mr. Kim. Absolutely, Congressman. Interagency collaboration
and cooperation are critical to getting this right for the
United States. We need clear delineation of responsibilities
between the two agencies, and this is something that the
President is working--the President's executive order also
recognized by establishing the working group. I want to thank
you, Congressman, for your leadership with the Bridging
Regulation and Innovation for Digital Assets (BRIDGE) Act, as
well.
Mr. Rose. Thank you.
I have full faith that, this Congress, we will pass
legislation regarding both stablecoins and market structure for
digital assets. As we blaze a path forward, it cannot be done
without cooperation and communication between the SEC and the
CFTC.
Thank you, Mr. Chairman. I yield back.
Chairman Steil. The gentleman yields back.
The Representative from New York, Mr. Torres, is now
recognized for 5 minutes.
Mr. Torres. Thank you, Mr. Chair.
I feel we in Congress should neither romanticize nor
demonize emerging technologies like blockchain. Like all
technologies, blockchain has constructive uses and destructive
uses.
I feel like our mission should be to develop a regulatory
framework that maximizes the best uses and minimizes the worst
uses. Without a bipartisan agreement, we will continue to have
a dangerously deregulated status quo that benefits offshore,
overleveraged, deregulated actors. For me, a bipartisan
agreement would be a fundamental improvement upon the status
quo.
I want to follow up on Congressman Rose's questions on
remittances. I represent the Bronx, which is one of the poorest
counties in America. I have constituents who pay exorbitant
fees simply to transfer their own money to their loved ones
abroad, whether it be Mexico or the Dominican Republic.
My first question would be for Mr. da Ponte.
PayPal is obviously one of the largest payment processes in
the world. What is the cost of transferring money via the
conventional payment system versus the crypto or stablecoin
payment system?
Mr. Fernandez da Ponte. Thank you for the question,
Congressman.
The cost of sending money overseas varies widely by
corridor, but information coming from sources like the World
Bank would put the average cost in the range of around 6
percent, with a target of--I think that the desired target for
the World Bank is to bring that down to 3 percent. The current
average, I think, is in the range of 6 percent.
When you are doing those transactions on stablecoins today,
if you are doing that purely from a stablecoin wallet to a
stablecoin wallet, depending on the protocol that you are
using, it can be as low as 1 cent per transaction in some of
the most efficient wallets.
That still would not address part of the complexity,
because then you would need to explain to the person on the
other side they need to get a crypto wallet, they need to find
an exchange, so there is still some friction there.
We are finding experiences that combine fiat and
stablecoins for the benefit of the user. For instance--
Mr. Torres. I just want to simplify it, so the average cost
of remittances is 6 percent. The World Bank has a
sustainability development goal of 3 percent. What is your cost
with stablecoin?
Mr. Fernandez da Ponte. When somebody on Xoom, our
remittance product--we have enabled stablecoin as a funding
instrument. When somebody sends a remittance funded by PYUSD,
we do not charge any transfer fees, so the transfer fee that is
charged to the user is zero. There is still a component on the
foreign exchange's (forex's) spread depending on where that
corridor came from.
Mr. Torres. Okay, it is zero when it comes to the
transaction fees. Then if you factor in the spread for the
foreign currency exchange rate, what would it be?
Mr. Fernandez da Ponte. That--I would need to come back to
you for follow up, but I--
Mr. Torres. Is it less than 3 percent?
Mr. Fernandez da Ponte. In many cases, it would be less
than 3 percent.
Mr. Torres. Okay.
We are living in a time when foreign demand for U.S.
stablecoins is on the--I am sorry--foreign demand for U.S.
Treasurys is on the decline. It appears to me that stablecoin
issuers are becoming the largest purchaser of U.S. Treasurys.
It would seem to me that the proliferation of stablecoins
can dramatically expand the market for U.S. Treasurys. What
impact would that have on the cost of U.S. debt?
Mr. Fernandez da Ponte. Thank you, Congressman, for the
question.
U.S. Treasurys are definitely being established as one of
the assets that are being preferred for the servicer of
stablecoin. As the market grows, that will inevitably drive
demand, especially as American issuers are able to issue more
here inside of the United States and they are able to provide
that increase in the market.
I do not have an opinion on what that would make for the
cost of debt of the United States but definitely is one of the
aspects where net demand for Treasurys could grow.
Mr. Torres. Or, it would seem to me, economics would
dictate that growing demand for U.S. Treasurys would lower the
cost of U.S. debt, but--
Mr. Massad, do you feel stablecoins should be regulated in
the same manner as banks?
Mr. Massad. Not quite in the same manner, but with some
similar principles, such as some of those in the STABLE Act,
like full reserves, capital and liquidity requirements, risk
management measures, and so forth.
I have been calling for this for years because--not just to
address the risks--
Mr. Torres. You would concede that a stablecoin issuer that
has no fractionalization of reserves--
Mr. Massad. Correct. Agreed.
Mr. Torres [continuing]. in their lending--
Mr. Massad. They are not creating--
Mr. Torres [continuing]. functions qualitatively different
from a bank----
Mr. Massad. They are not creating----
Mr. Torres [continuing]. and, therefore, should have its
own regulatory framework?
Mr. Massad. Absolutely.
Mr. Torres. Okay.
I see my time is about to expire, so I will leave it at
that. Thank you.
Chairman Steil. The gentleman yields back.
The chair now recognizes the chair of the full committee,
the gentleman from Arkansas, Mr. Hill.
Chairman Hill. Thank you, Chairman Steil and thank you for
your leadership of our important work in the 119th Congress on
digital assets.
I appreciate the questions of my fellow committee members,
and I appreciate all the witnesses being with us today.
Mr. Garrison, today's investors make investments in digital
asset projects through a series of exemptions that the SEC has
crafted, each with their own advantages and limitations.
Could you take a minute and discuss the different
exemptions that digital asset projects are currently using to
raise money with investors and what the principal obstacles are
to that process?
Mr. Garrison. Certainly.
The primary exemption that most digital asset issuers rely
on is Regulation S, which is a safe harbor for offshore
transactions to prevent U.S. investors from even participating.
As a starting point, many U.S. investors are just kept out.
For those that do issue to U.S. investors, you typically do
so through the Regulation D safe harbor, which can only be sold
to wealthy investors. You have to have over $200,000 in income
or a million dollars' net worth to participate in that.
In the United States there really is no straightforward way
to get digital assets out to retail investors in an either
registered or exempt offering.
Chairman Hill. Yes. That is helpful to me because this is--
what I think the ecosystem has to understand that not all these
needed activities can be taken care of by the commission by
itself without Congress.
What would be, in your view, the key features of a workable
exemption-type system that SEC could add to that without
Congress?
Mr. Garrison. Certainly. The SEC could use its exemptive
authority to add a new exemption similar to Commissioner
Peirce's token safe harbor proposals from a few years ago, for
example.
A few features that could be helpful there are: The ability
to access retail investors, as well as tailored disclosure
items for this industry, right? So, token-holders have
different interests than a shareholder in a company. The types
of disclosures that are needed are completely different in this
situation.
Chairman Hill. Yes.
Mr. Garrison. Providing that type of information, you can
pair that with many investor protections, individual
limitations on how many people can participate, how much they
can participate of their net worth.
Many of the same concepts and existing securities law
exemptions can be grafted over in a way that makes it a
balanced approach.
Chairman Hill. Thank you. I think we have worked,
certainly, with that concept as we drafted our FIT21 bill in
the last Congress.
Bitcoin clearly is the most popular digital asset in the
ecosystem, and it is one example where both the SEC and the
CFTC have agreed that it is not a security, along with ether.
Do you think, under the current securities laws, it would
be possible for a national security exchange to list bitcoin
and a security alongside each other? Is that possible, do you
think, under current--
Mr. Garrison. No. No, it is not.
Chairman Hill. Not? You do not believe it is?
Mr. Jachym, do you agree with that? Do you think--
Mr. Jachym. I think there--Congressman, thank you for the
question. I think there could be exemptions put in place.
It is our view that, rather than do this piece by piece
through exemptive relief or no action from the agency, it is
really important for Congress to set a clear statutory
framework and do that across both agencies. We have seen prior
examples where markets have dual registrations at the SEC and
CFTC.
The fact of the matter is, the rest of the developed world
and most other emerging jurisdictions have just called these
crypto assets, and you have one regulator, one registration
framework. We have to work within our unique legal system, but
I think, in order for our framework to be durable and keep pace
with the innovation, the tests and the jurisdictional lines
need to be clear and simple.
Chairman Hill. Mr. Garrison, do you agree with that?
Mr. Garrison. Yes. There is, without a doubt, a need for
clear jurisdictional lines and clarity.
Chairman Hill. You have advocated for a joint Self-
regulatory Organization (SRO) to oversee digital assets as a
convenient way to sort of sidestep these questions. Are you
still advocating for that?
Mr. Garrison.
Mr. Garrison. I am sorry. Clarification, for a joint SRO--
Chairman Hill. Yes.
Mr. Garrison [continuing]. to oversee SEC and CFTC trading?
Chairman Hill. Yes. Yes.
Mr. Garrison. Yes, I think that could potentially work
great. Any type of communication between the two agencies and
coordination on regulations would make sense.
Chairman Hill. My time has expired, Mr. Chairman. I yield
back.
Chairman Steil. The gentleman yields back.
The Representative from Texas, Ms. Garcia, is recognized
for 5 minutes.
Ms. Garcia. Thank you, Mr. Chairman and thank you to all
the witnesses.
I want to do some follow-up to the questions that Mr.
Torres was asking you, Mr. da Ponte.
The crypto industry has always boasted about the easier
access and the savings of using crypto or stablecoins in lieu
of remittances, and they talk about all these prices. The
reality is, do we have that many migrants using crypto or
stablecoins to transmit remittances?
Mr. Fernandez da Ponte. There are no--thank you for the
question so much.
The use of remittances--the use of stablecoins broadly for
remittances or for other types of payments is still in the
early stages. The vast majority of the use case for stablecoins
today, where stablecoins have been adopted, is mostly on crypto
and trading markets.
We see some early stages in which both consumers and
businesses are using that for cross-border, peer-to-peer (P2P)
payments or for business-to-business payments, but it is still
in very early stages.
Ms. Garcia. What percent of remittances today do you think
are being transmitted with crypto or stablecoins?
Mr. Fernandez da Ponte. I do not have data for that, but my
best estimate would be that it is going to be in the low single
digits. It is still a very small amount.
Ms. Garcia. It is very small, right. Because, frankly, at
least when--I still remember the first hearing we had on this
topic, and I questioned the witness at the time, and he, too,
could not give me a single instance where he had seen it done.
As a practical matter, yes, it may be easier to transmit, but
the receiving party has to have the capacity to receive it. It
is not something you can just get, go to the market, and buy
your milk.
Likewise, do you have any data on the breakdown by income
of the buyer, customer, consumer, and the investor that does
use stablecoin or does invest in stablecoin or crypto?
Mr. Fernandez da Ponte. I do not know that we have that
data, but I can consult with our team and come back--
Ms. Garcia. Again, it is a question that I have been asking
now, it seems like, for 5 years, and no one seems to be able to
answer that question, even some of these working groups that
are put together.
Experts come, and you all like to talk about how inclusive
this can be and that this will help the unbanked. It is
laudable goals, but the reality is, unless you are really very
rich, you are not doing any of this.
The average American just seems to be overwhelmed with this
discussion, that they do not really even understand what we are
talking about, that I think it is going to be really hard for
us to get past some of those hurdles. When you talk about the
underbanked, those with limited English proficiency, I think it
is getting--there are a lot of dubious people know about what
this really means.
We know cash. Cash is king. We really do not want, at least
in my district, anybody competing with the U.S. dollar. I think
there is a big hurdle here that we have to use, but we also
have to make sure that, whatever we are doing, that we do have
a framework to protect the consumer and that we can make sure
that they also have remedies for justice if they get scammed,
as Ms. Pressley mentioned.
Mr. Massad, do you think the governmentwide mandate to
eliminate diversity, equity, and inclusion efforts will change
the crypto industry in the long run?
Mr. Massad. That is a good question, Congresswoman. I am
sure it will.
I think it is very unfortunate to eliminate these programs
entirely. Even if you can find examples of how they have been
used that you think are an overreach, the notion that we should
eliminate these things, I think, is not good policy. Again--
Ms. Garcia. It is part of the branding of this industry
from the beginning, as I said, ``We will be there for the
unbanked, for the poor person to send a remittance, for
everybody--we will include everybody. We are not going to be
like the banks.''
Mr. Massad. No, I agree with you that the industry likes to
talk about inclusion. I do not think we have seen that much of
that.
To your question about stablecoins, who is using them for
remittances and so forth we might see that use case develop.
The fact is, stablecoins are mostly used today for trading
crypto.
Now, if we had a regulatory framework with sufficient
protections that people could have confidence that a stablecoin
was really worth a dollar, then we might see people use
remittances.
I agree with Mr. Fernandez da Ponte that the cost of
remittances is very, very high, and we should be looking for
ways to bring it down. There are other companies trying to
bring it down through non-blockchain technologies, and they are
making progress in that regard.
Ms. Garcia. Thank you.
I yield back.
Chairman Steil. The gentlewoman yields back.
The gentleman from South Carolina, Mr. Timmons, is
recognized for 5 minutes.
Mr. Timmons. Thank you, Mr. Chairman, and I want to thank
the witnesses for being with us today.
Over the past 4 years, under the Biden Administration and
Chair Gensler, innovation within the digital asset sector has
been driven out of the United States. Numerous groundbreaking
blockchain companies with potential to transform our economy
have relocated to jurisdictions with well-established
regulatory frameworks. Meanwhile, international competitors
have gained a distinct competitive advantage while American
businesses in this space were essentially dismissed by the
administration, with the message to simply go away.
Mr. Fernandez da Ponte, as an American company, how has
PayPal's digital currency business been affected by the absence
of regulatory certainty over the past several years?
Mr. Fernandez da Ponte. Thank you so much for the question.
We have been in the industry--we have been in the payments
industry for 25 years, and we have been--we are regulated in
many, many jurisdictions, and we take that regulation very
seriously.
When we decided that we were going to enter this space, we
went to the highest regulatory standards that we could go. We
obtained the first provisional BitLicensing in New York. We
obtained the first upgrade for BitLicense in New York. We
obtained a limited purpose trust charter out of New York as
well.
We have gone the State route in the place in which the
regulation was available to us and where we could interact with
the system.
Definitely, there are constraints on how products are
designed that derive from that lack of clarity and that lack of
understanding of when one specific token would be considered a
security or not. We support a very small number of tokens in
our platform--
Mr. Timmons. Thank you.
Mr. Fernandez da Ponte.--and are mainly driven by--
Mr. Timmons. A quick follow up question. How could clear
legal guidelines for digital assets and blockchain technology
help non-bank entities like PayPal compete more effectively on
the global stage?
Mr. Fernandez da Ponte. We believe that, as the world moves
to the next generation of payment rails, it is incredibly
important for a payment company like us to be involved. As the
world moves toward mobile money wallets internationally and
toward networks that will interoperate with each other, we see
an increasing volume that is going into those rails. We need to
have an ability to compete in that international market,
because it is happening outside of the United States before it
is happening in the United States.
Mr. Timmons. Thank you for that.
Mr. Fernandez da Ponte. Thank you.
Mr. Timmons. Mr. Jachym, how about for Kraken? What would
your answer be? How would clear legal guidelines help assist
competitiveness of the U.S. economy?
Mr. Jachym. Thank you for the question, Congressman.
The clarity needed and provided by the legislation that has
advanced over multiple congressional cycles would solve for a
key foundational piece of this puzzle, which is regulation for
centralized intermediaries. That will allow investment and
growth.
Now, if you look at the trend that has happened here, both
at the level of the project development teams and the
innovators through to the investing community and then to the
centralized markets, we have lacked that clarity in the United
States, which has pushed innovation and pushed development
offshore.
It is not just the legal bills. It is the distraction of
management and board and our businesses to think proactively
about investing.
We are very excited for the change in tone and the
cooperation, and we think that is going to drive new innovation
here in the United States.
Mr. Timmons. Thank you for that. I can assure you; help is
on the way.
Last Congress, I introduced the New Frontiers in Technology
Act with my colleague from New York, Mr. Torres. The aim of
that bill is to provide clear definitions within the expanding
and often ambiguous digital assets regulatory landscape.
As you may know, non-fungible token creators and
marketplaces have faced challenges for years due to unclear
regulations, while countries like Japan, Singapore, and South
Korea have created favorable conditions that have allowed Non-
Fungible Token (NFT) companies to thrive.
I was encouraged to see a discussion draft of my bill
included in today's hearing, and I look forward to advancing
this important work later in this Congress.
Mr. Kim, can you describe some of the regulatory ambiguity
regarding the treatment of NFTs and explain why these assets
need to be approached in a different manner than, say, bitcoin
or ethereum?
Mr. Kim. Absolutely. Thank you for your question,
Congressman.
It is important to clarify the non-security status for NFTs
such as artwork, collectibles, and nonfinancial applications.
Imagine an artist looking to hire a securities attorney--
apologies to my colleague to the left of me--before selling
this art piece.
This is why your bill is so important. Thank you to you and
Congressman Torres for your leadership there to clarify this
important issue.
Mr. Timmons. Thank you for that.
I am particularly interested to see how NFTs can
revolutionize various sectors but particularly real estate. I
think that there are a lot of efficiencies long-term that we
can use the blockchain, and this legislation would help go a
long way in that endeavor.
Congress has an obligation to make sure the U.S. economy is
the best place in the world to start and build a business. That
is what we are working on in this subcommittee, and I am
optimistic we will get it done this Congress.
Thank you.
I yield back.
Chairman Steil. The gentleman yields back.
The Representative from California, Mr. Liccardo, is
recognized for 5 minutes.
You may be able to pull the mic over--
Mr. Liccardo. Oh, here. Got it. Thank you. My mistake.
Wrong button. Thank you.
Thank you, Mr. Chairman. Congratulations, as well.
I appreciate the testimony of the witnesses. Thank you all
for being here.
I hope that we do move a stablecoin bill out with
bipartisan support. I appreciate the hard work that has been
done on all sides, and I also particularly appreciate our
ranking member's work late last year to try to achieve a
compromise, which I think was a good bill.
I am interested--and perhaps I will start with you, Mr.
Fernandez da Ponte, since your company is a well-known national
brand even to those who are not familiar with crypto, and you
happen to be headquartered in the great American city of San
Jose.
I wanted to ask, given the focus that you have, and your
company has on having a stable payment system--in your
testimony, you wrote on page 5 that ``regular and predictable
market policy is necessary for the crypto industry to grow and
thrive.'' That is certainly understandable. You clearly support
State regulation--an option for State regulation, but I noticed
that you also encourage that there be uniform standards, for
example, around reserve requirements, around risk management,
and governance.
Then, do you share the concern that Mr. Massad has, that
there ought to be some Federal regulation or oversight over
what the standards ought to be if we are going to have a State-
chartered stablecoin?
Mr. Fernandez da Ponte. Thank you, Congressman, and thank
you for your leadership in our home city. It is a great city,
indeed--
Mr. Liccardo. Thank you.
Mr. Fernandez da Ponte.--in San Jose.
Yes, we advocate for the need for legislation, and we
advocate for the State path. The reason that we advocate for
the State path is that, when we look at it from our
perspective, we are a payments company, and payments are
regulated at the State level. We strongly believe that fully
backed, fiat-backed, one-to-one reserve stablecoins are--and
the issuance of those payment stablecoins is the business of
payments, not the business of banking or fractional reserve or
the points that were made here.
We do believe that it is important to maintain a State
path.
I think that the point on the standards is that a State
path can coexist with a Federal path. We see the advantages of
having a Federal path as well. We do believe that there should
be that general set of standards, that it is important that we
have equitable standards in terms of reserve management between
any Federal path and any State path. We also believe that it is
important to not have a duplicity of regulation.
This idea that they can coexist and share common standards,
we think, is an important one.
Mr. Liccardo. Thank you very much.
Mr. Jachym, do you also agree that there ought to be some
baseline standards set even if there is a State charter
stablecoin?
Mr. Jachym. Absolutely, Congressman. Thank you for the
question. I think, if you look in the stablecoin space, again,
with the goal of encouraging a healthy, vibrant, competitive
stablecoin market, both State and Federal pathways are
important, and there should be minimum standards set.
I think from our standpoint as a centralized intermediary,
it is slightly different. If you look at how markets are
regulated in traditional markets, whether they are derivatives
or equities, a unified Federal framework is essential.
Today, we operate with over 40 State money transmission
licenses. There are only a handful of States that have put in
place crypto-focused regulations for centralized
intermediaries, so we believe it is imperative to advance and
finalize as soon as possible the market structure bill which
puts a clear Federal framework in place for exchanges like us.
Mr. Liccardo. Going to Mr. Massad's concerns on the STABLE
Act about extraterritorial enforcement, should we not give the
Attorney General the authority to enforce and explicitly ensure
there is extraterritorial application, since we clearly have--
many of these entities are abroad?
Mr. Jachym.
Mr. Jachym. I think it is important, first and foremost, to
get a stablecoin bill done. In terms of the cooperation and
international cooperation with other jurisdictions, I think
that is the most important first step.
We have seen stablecoin rules finalized in the European
Union, and we have seen the results of those stablecoin rules
now go into effect. In fact, those stablecoins that have not
taken steps to register as issuers and bring themselves within
the regulatory perimeter are being delisted from major
exchanges.
I think, again, that is just a case in point of why it is
so important to move this forward as quickly as possible.
Mr. Liccardo. Thank you.
I yield.
Chairman Steil. The gentleman yields back.
The Representative from Indiana, Mr. Stutzman, is
recognized for 5 minutes.
Mr. Stutzman. Thank you, Mr. Chairman.
Thank you to the panel for being here. Today, I think this
has been a very informative hearing and one that, obviously, I
am excited about the future, and, obviously, a lot is
happening.
I was actually--I served 8 years ago, and I remember when
this committee had its first hearing on cryptocurrency back in
2014, and Mr. Huizenga was the chairman of the committee. Fast-
forward to 2025, and this House has taken substantial steps
regarding a Federal framework for how digital assets can be
incorporated into our financial ecosystem.
Despite the substantial work my colleagues have done on
market structure, we saw an administration over the last 4
years that chose regulation by enforcement over permanent
statute. The Biden Administration engaged in an all-out assault
on digital asset firms, token issuers, and blockchain
developers.
Furthermore, the SEC and the CFTC were in a turf war over
their jurisdictions over these tokens. It is my understanding
that there was a lot of confusion that resulted in a lack of
unity and regulation by enforcement, which harmed emerging
technologies and U.S.'s supremacy in digital asset technology.
While the confusion--since the Trump Administration,
thankfully, has taken over, Commissioner Peirce has unveiled a
10-point action plan for the SEC's new Crypto Task Force. I
would just share with my colleagues on the other side of the
aisle that it is a really good read, and I would encourage you
all to read it.
One of the points that the Commissioner makes is, ``Where
Congress has directed the Commission to impose requirements on
market participants, SEC rules will not let you do whatever you
want, whenever you want, however you want. Some of these rules
will impose costs and others compliance burdens that some may
find irritating, and the Commission will use its enforcement
tools when necessary to pursue noncompliance.''
It goes on to talk about the direction that it is going and
then, of course, lists 10 different directives or plans of
action.
Mr. Garrison--and I would offer to anybody else if they
would like--if you could briefly summarize some of the most
important points in the action plan and explain some of the
impact that you think that they will have on digital assets if
they are accomplished.
Mr. Garrison. Certainly.
The first two priorities, I think, are incredibly
important. The first is clarifying the status of digital assets
under the securities laws, as well as, the second, scoping out
activities that are outside the scope of Federal securities
laws.
I think that really is the foundational question that the
SEC has to tackle, creating a very clear interpretation of how
the SEC views when a digital asset that is sold pursuant to an
investment contract fits under the securities laws. Everything
else flows from that.
Another maybe bucket, I would say, for the 10 priorities is
writing rules and providing guidance on how regulated
intermediaries by the SEC can touch digital assets. Now, that
would apply both in the context of digital assets that are not
securities as well as digital assets that are securities, like
a tokenized stock.
Providing a clear pathway for broker-dealers, investment
advisors, clearing agencies, and transfer agents to be able to
engage will really allow the ecosystem to flourish, will allow
it to do so in a regulated way and in a way that is compliant
and safe.
Mr. Stutzman. Yes.
Anybody else like to comment quickly?
Mr. Massad. Yes, if I could. I think it is a very
thoughtful plan. I have great respect for Commissioner Peirce
and Acting Chair Uyeda.
I think, given that and given the legislation that you all
have noticed to create a joint committee, I would urge you to
let the commissions work on this for a while and get stablecoin
legislation in place--let us learn from that--but not rush on
market structure. Because I think we could easily screw things
up through the market structure legislation more than help.
Mr. Stutzman. Thank you.
I have 45 seconds. Anybody else want to comment?
Mr. Kim. Yes, just very briefly, Congressman.
I think, again, at the risk of repeating myself, it just
reflects the new SEC leadership and administration, which wants
to work with industry, which is extremely encouraging.
I think it was Mr. Garrison's written testimony where he
had a great line which said the industry is not looking for
special treatment, just fair treatment.
We look forward to working with the task force on next
steps.
Mr. Stutzman. Okay.
Mr. Jachym. Congressman, if I may add, one subject that has
not been mentioned is clarity around staking, which
Commissioner Peirce does outline in that plan. We think it is a
very important part of the ecosystem. It is a lesser-known
component, but it is unique to the crypto ecosystem. It is
something we are looking forward to getting regulatory clarity
here on in the United States.
Mr. Stutzman. My time has expired, but I would be curious,
at some point, somehow, just some specific elements from
successful regulatory frameworks that other jurisdictions have,
what you all would recommend would be something that we keep in
mind.
Thank you.
I yield back.
Chairman Steil. The gentleman yields back.
The gentleman from California, Mr. Sherman, is recognized
for 5 minutes.
Mr. Sherman. The ranking member made it--I think
demonstrated how the Trump coin was pumped up to $75 and now
dumped down to $17 and chiefly was owned by 40 wallets: could
be only one family; could be the Trump family. It is called the
Trump coin.
I want to focus on dogecoin. On November 5, everybody knew
that election was going to be good for crypto, and bitcoin went
up 22 percent. One coin, dogecoin, went up, in 1 week, six
times as fast as bitcoin. Then, after 1 week, they named a big-
time department after the coin, and the coin still uses the
dogecoin dog as its emblem.
Somebody knew for a week that, as long as Trump had been
elected, there would be this new entity called DOGE and that
would popularize the coin, drive its price up. Now, I do not
know who would have known that this new commission would be
called DOGE. I do not know whether Mr. Musk or Mr. Trump knew,
but they did give it the name exactly 1 week after the
election.
Mr. Massad, assuming the dogecoin is not a security, is it
subject to insider trading laws?
Mr. Massad. No, it is not.
Mr. Sherman. By arguing that it is not a security, you can
engage in knowing a week in advance that it is going to be
popularized through a government action creating a well-known
and very popular commission, trade on that, make a lot of
money. They say that Musk is not smart.
I will point out that Trump used to--well, has just
recently threatened the Brazil, Russia, India, China and South
America (BRICS) countries if they dare try to compete with the
U.S. dollar, while favoring the crypto bros who have announced
that the purpose is competing with the U.S. dollar, all while
trying to pass laws preventing a central bank digital currency
because that would allow the dollar to compete with crypto.
I want to focus a little bit on stablecoin. Most
stablecoins are tied to the U.S. dollar. Say we are thinking
about one of those. The question is, how is a stablecoin
different from a money market mutual fund? Now, it is cooler
because it is called a coin, and being a cool thing, it can
dream of a functionality it does not have, just as my Ford
Fusion is dreaming of self-driving.
In terms of current functionality and putting aside just
how cool it is to tell people you do not have a money market
fund, you have got a stablecoin, what does a stablecoin tied to
the U.S. dollar offer the investor that old-fashioned, boring
mutual funds--that money market funds do not offer?
Mr. Massad. Thank you for question, Congressman.
I think the way I think about stablecoins is, they should
not be an investment vehicle. They should not pay interest.
And--
Mr. Sherman. Not even the little bit of interest I get on
my money market fund?
Mr. Massad. Not to start out with. I think were--
Mr. Sherman. Okay.
Mr. Massad [continuing]. are better off restricting that.
So, they are----
Mr. Sherman. So, it is worse--
Mr. Massad. They are a payment mechanism.
Mr. Sherman [continuing]. than a money market fund. My
money market fund is absolutely stable, strongly regulated, and
pays little interest. You are talking about a stablecoin that
may or may not be stable and would pay no interest at all.
So what is the advantage that it has, assuming I am not
trying--
Mr. Massad. Again--
Mr. Sherman [continuing]. to avoid the anti-money-
laundering statutes, assuming I am not a tax evader, and I am
not hiding money from my spouse?
Mr. Massad. I think it is the--
Mr. Sherman. What advantage does it have?
Mr. Massad. I think it is the potential that technology
does provide certain cost savings in terms of how these can be
moved--
Mr. Sherman. In some day in the--but why invest in it now?
That is like buying a Fusion--
Mr. Massad. Again, I do not view it as an investment,
Congressman. I do not want it to be an--
Mr. Sherman. So why would anybody--
Mr. Massad [continuing]. investment. I want it to be a
payment mechanism.
Mr. Sherman. Why would anybody buy a stablecoin, which
today is a worse payment system for any honest person, on the
theory that someday in the future it may have a greater
functionality than it has today?
Mr. Massad. I think--
Mr. Sherman. Why would anybody own a stablecoin now,
assuming they are not a drug dealer, a terrorist, or a tax
evader?
Mr. Massad. Congressman, I think the question is, if we
create a framework that addresses the risks, will stablecoins
become a means of payment generally used? That question is not
clear yet, but--
Mr. Sherman. The money market mutual fund already is.
Mr. Massad. No, that is an investment, in my mind. I do
not--
Mr. Sherman. I am sure I could--
Mr. Massad. I do not use that to pay for my coffee.
Mr. Sherman. I am sure I could find a money market fund
that pays zero interest if--
Mr. Massad. No.
Mr. Sherman [continuing]. I hated the concept of the world
investment, but--
Mr. Massad. I am not--but there is a transfer agent. There
are lots of reasons why I do not use a money market fund to go
buy a pair of jeans or pay for dinner. A stablecoin----
Mr. Sherman. You are saying you cannot use a stablecoin to
do that. I would assert that we are creating a stablecoin to
facilitate those who are trying to hide assets.
I will yield back.
Chairman Steil. Does the gentleman yield back?
Mr. Sherman. I do.
Chairman Steil. The gentleman yields back.
The gentleman from Florida, Mr. Donalds, is recognized for
5 minutes.
Mr. Donalds. Thank you, Chairman.
That was a very interesting dialog. My statement is not to
be disrespectful. It is to be factual about where we are going.
I think, based upon the previous conversation, the question
could be, why did they decide to make calculators when an
abacus can do? That is just simply because technology is taking
us to a place where it is far more functional. You can do so
many other things. It is far more interactive, it is far more
user-friendly, and it actually speaks to the experience that
people are choosing to operate in.
No difference with how you choose to do calculations or how
you choose to exchange. Whether it is a currency, a stablecoin,
a cryptocurrency, et cetera, it is really the medium of holding
value and/or exchange that people choose to engage in.
Obviously, with where people are going, not just in the
United States but in the world, stablecoins, crypto and
blockchain technology are not going away. They are the modes of
storing value and/or transacting into the future, and so it
would behoove us in Congress to make sure that we have a
framework that allows for the proliferation of what human
beings, especially Americans, choose to want to invest in and
want to do going forward.
That said, Mr. Fernandez da Ponte, the U.S. dollar is the
asset that basically underlies 98 percent of transactions in
stablecoins. As stablecoin use flourishes in countries around
the globe, so does the U.S. dollar.
Would you describe the role that stablecoins play in
supporting U.S. dollar dominance, particularly given the
current global landscape?
Mr. Fernandez da Ponte. Thank you for the question,
Congressman.
The role of the U.S. dollar as a global reserve currency is
a fundamental strength of the U.S. economy, and I do not think
that we should take it for granted if this technology ends up
generating that next generation of payment rates.
As you said the vast majority of stablecoins today are
denominated in U.S. dollars. I do not think that we should take
that for granted. The reason for that is because the preeminent
use case today is crypto trading, and the crypto trading
markets are denominated against the U.S. dollar.
As the use of stablecoins make their way into mainstream
commerce and payments, I do believe that we will see the
appearance of stablecoins that are denominated in other
currencies. Therefore, it is very important that the
stablecoins that are denominated in U.S. dollars and issued in
the United States are able to compete with those stablecoins
that are going to emerge outside.
Also, I think that it is important that we have a situation
in which not the vast majority of those dollar-denominated
assets are issued by companies outside of the United States and
sometimes maybe backed by reserves that are not dollar-
denominated either. We think that a clear framework for the
stablecoin issuers in the United States will contribute to
maintaining the U.S. position and the U.S. dollar position
externally with a strong competition driven by American
companies.
Mr. Donalds. All right. Thank you for that.
Mr. Garrison, as we consider legislation to provide
regulatory clarity to the digital assets industry, what role
could self-regulation play in the larger market structure?
Mr. Garrison. I think self-regulation is an important layer
of the overall sector, right. I think we see that in the
financial services world, and it works as a good model. Self-
regulatory organizations have existed in the securities context
since the beginning of our framework.
We currently have the Financial Industry Regulatory
Authority (FINRA). I mean, even the national securities
exchange system is a group of-each one a self-regulatory
organization. You see that on the derivative side as well with
the National Futures Association (NFA). There is absolutely no
reason why porting that concept over into the digital asset
space would not make sense.
Mr. Donalds. Okay. Thank you for that.
Lastly, Mr. Jachym, quick question for you. This kind of
doubles back to the U.S. financial system's dominance. What is
your view in terms of stablecoins really being an additive
toward not just U.S. market dominance but also U.S. dollar
dominance on the world stage?
Mr. Jachym. Yes. Thank you for the question, Congressman.
There is wide variety of use cases that have been proven
out, some that have not yet been proven out. It is very clear
that stablecoins are going to improve efficiency in cross-
border admittance, and I think we have heard that from the
panel today.
It is going to be really important that the United States
leads in terms of putting rules in place. Other jurisdictions
have done this, not just for stablecoins but for centralized
markets. They go hand in hand.
If you look at the top 4 percent of assets on our platform,
it represents over 60 percent of the volume, right. Two of
those are stablecoins. If you look at the top 10 percent,
right, that represents almost 80 to 90 percent.
Again, let us focus on passing rules for the most important
pieces of the market today.
Mr. Donalds. Thank you, gentlemen.
Thank you, Chairman. I yield back.
Chairman Steil. The gentleman yields back.
The gentleman from Illinois, Mr. Casten, is recognized for
5 minutes.
Mr. Casten. Thank you.
Thank you all for staying here so late. There has been a
lot of conversation about the serious end of crypto,
stablecoins. I am going to focus on the silly end, the meme
coins.
It is funny, we have all these rules of decorum, and it is
hard to talk about meme coins with the language that the
industry uses to talk about them. I see you all smiling. We
will refer to them as fecal coins for the purpose of this
hearing.
Is it safe to say from your smiles that you generally share
the view of the industry that this is not something that has
any innate value, is meme coins?
Mr. Massad. Yes.
Mr. Casten. Yes. All right. Have any of you invested in--
again, this starts to get a little bit colorful language--the
Hawk Tuah girl's coin? Have any of you invested in that?
No. Okay.
Mr. Massad. They are fan clubs, which is really what they
are.
Mr. Casten. Yes. I say that to raise a more serious point,
that, as several of my colleagues have noted, the President of
the United States issued something that has no innate value. It
does not have the value that maybe a Bible, a pair of sneakers,
a steak or a bottle of water has. It has no innate value.
It hit, I think, $75 at its peak the day before the
inauguration, on the 19th. Anybody know what it is trading at
today?
Mr. Massad. It is a lot less, but I would have to check. It
was like--
Mr. Casten. Just under $16 when I was just checking here a
moment ago. Like the Hawk Tuah girl coin, it is really
volatile. You boost your Q score, and it bounces up, and then
people realize they are holding something worthless.
The rise in value when it popped up, according to
Chainalysis, said that it appeared to include a significant
profit to Chinese traders, that 50 of the largest investors on
the coin have made profits in excess of $10 million each, and
the crash in the coin's price has caused more than 800,000
wallets to lose $2 billion combined.
Now, as I understand the work that Chainalysis does, they
do not capture any off-chain transactions, so stuff happening
at Kraken or otherwise.
Mr. Jachym, is it reasonable to assume that the $2 billion
in on-chain transactions is much less than the total loss that
has actually been experienced from meme coin investors?
Mr. Jachym. Congressman, thank you for the question.
I cannot speak to the specifics of on-chain versus off-
chain. I know for our markets, again--
Mr. Casten. I am just making the point that, like, the
Chainalysis reports, they are tracking on-chain trades, right,
and so, we know--I mean, there has been like National Bureau of
Economic Research that said that for bitcoin maybe 10 times the
volume is off-chain.
If we know it is $2 billion on-chain and there is all this
off-chain volume, safe to assume that the total losses are more
than $2 billion, right?
Mr. Jachym. Potentially, Congressman. I think, when it
comes back to your question of the role, the value, I think
value is in the eye of the beholder. A lot of these are
sentiment-driven assets.
Mr. Casten. Fine. They do not have any value.
Now, I think there is a lot of conversation we can get into
about what is the net worth and obviously like the Trump family
and the entities they control has gained a lot on this.
But because we allow--we still have rules that commingle
brokers and issuers and dealers, the reports are that--and,
again, according to Chainalysis, is that entities that the
Trump family controls has made perhaps $100 million on trading
fees for these coins, setting aside what the value of the coin
is. Again, that is just based on the on-chain transactions that
they track.
Mr. Massad, you say you have a comment there. I am assuming
that you would agree with me that the Trump family has probably
made more than $100 million in broker's fees. We just cannot
track it.
Mr. Massad. We cannot track it, but, Congressman, you are
raising so many good points. The thing about these is that the
industry talks about securities versus commodities
distinctions. If I were at the CFTC today and someone came--or
2014, someone came to me with the Dogecoin instead of bitcoin,
I would not have declared that a commodity, okay? It should not
be traded as a commodity. It should not be regulated by the
CFTC. Maybe by the CFPB, but that is the kind of speculative
stuff--
Mr. Casten. There is rich investor protection here, but I
am running out of time.
Mr. Massad. Yes, we need it.
Mr. Casten. I want to get to another point. If you have
something that is hard to track, that has no innate value, that
does not require you to give something, like a sneaker or a
Bible, in exchange for goods and services, is not this just a
way to transfer money to people? And if we know that foreign
governments----
Mr. Massad. Yes.
Mr. Casten [continuing]. are participating in these
markets, is not this a violation of the Emoluments Clause of
the Constitution?
Now, I know we have had conversations about engaging in
personalities. This is not partisan. This is a question of do
we in Congress think that the Constitution is worth defending.
If the President of the United States is putting out something
that has no innate value and is getting foreign entities to pay
him for it, is not that a direct violation of the Emoluments
Clause? If we are taking an oath to defend the Constitution,
should we not care about that?
I yield back.
Chairman Steil. The gentleman yields back.
The gentleman from Iowa, Mr. Nunn, is recognized for 5
minutes.
Mr. Nunn. Thank you, Chairman Steil, for convening this
very exciting and important discussion on where we are going.
This is something that is going to change the landscape of the
country not just in the next years to come but in the months
ahead.
As a member of both the Financial Services Committee and
the Agriculture (Ag) Committee, we have dual jurisdiction here,
one that we have talked about before between both the
commodities and the securities place. However, after this past
election, I believe we have turned a page here. I cannot
emphasize how different the atmosphere in D.C. feels,
particularly when it comes to our transitioning back from an
SEC chair who claimed jurisdiction over every single token out
there, except for maybe bitcoin, and the launching of a crypto
task force this past year.
Together, I believe that we are going to have the
opportunity to really cement the future of America being a
destination for crypto and digital assets moving forward,
something in the last 4 years we have remained highly
rudderless.
First and foremost, American leadership. I believe with
this new administration we can anticipate a wave of innovation,
particularly in blockchain products. This comes after losing 2
percent of market share per year in blockchain development.
This has been over the course of the last half decade.
I want to qualify this for everyone who is paying
attention. That is a market share drop from 40 percent to 29
percent, the United States losing out as a global leader in a
space where just years before we had pioneered, and now we are
seeing immediate competition coming out of Beijing.
I believe strongly that it is not too late, Mr. Chairman.
We have the opportunity to reverse course with this
congressional session.
With that, Mr. Jachym, first off, thank you for fighting
back against the SEC's regulatory overreach consistently over
the past 4 years. I want to talk to you about how do you see
the new SEC and CFTC addressing previous conflicts regarding
confusion on where this jurisdiction would lie. Do you see this
as a reset opportunity, first and foremost?
Mr. Jachym. Thank you for the question, Congressman.
Absolutely, we see this as a reset moment. Again, I think
the urgency is very clear if we look around the rest of the
world and see what other jurisdictions have done to provide
regulatory clarity.
Our company was sued for our staking service. We settled.
We testified before Congress. The next day, the SEC called and
said they are going to sue us again.
Mr. Nunn. That is right.
Mr. Jachym. This has been the threat the past 3 years of
our story while we have engaged other governments and
regulators in moving through the legislative regulatory process
and providing clear rules of the road.
I think with respect to your question on cooperation, these
things are not mutually exclusive. I know there have been
discussions of let us wait. Let us move stablecoins first. Let
us wait on market structure. We cannot wait any further.
Congress does not need to move a market structure bill that
solves every single problem in the ecosystem. We are talking
about the most basic foundational rules of regulating
centralized exchanges, and these two agencies can continue to
work in tandem while Congress advances the bill in this cycle.
Mr. Nunn. Could not agree more. Clearly, we are not waiting
in London or in Singapore or in the United Arab Emirates (UAE)
to move forward on this. We have seen some take it in the wrong
direction, I would say the EU, but they have moved out. The
United States should not be sitting on its hands as this has
developed.
I would like to talk on the national security side here.
You are going to be talking to a number of national security
professionals here, but over the past few years we have ceded
technological leadership to China, creating a significant risk
to our national security and economy, particularly in this
area.
That is why in the last Congress I took lead on: the
Financial Technology Protection Act, which creates a new
working group specifically targeting illicit finance in this
area; Stop Americans from Scammers Act, which empowers law
enforcement to address and tackle things regarding blockchain
tools; and the Creating Legal Accountability for Rogue
Innovators and Technology (CLARITY) Act which keeps blockchain
made here in America, not cede that power out.
I look forward to working with this team as being a leader
in this Congress on making sure these things are enshrined in
law, building on executive orders (EOs) that are already moving
out.
I would like to talk to you, Mr. Kim, about not only your
efforts in pushing this, but how can Congress ensure that we
balance our innovation as well as our national security to
combat these bad actors while not squelching new technology?
Mr. Kim. Thank you so much for your question, Congressman.
As I mentioned earlier today, countering illicit finance
and national security are key priorities, including for CCI and
our members.
I would encourage additional public-private partnerships. I
know CCI would love additional opportunities to engage with all
of you and be a resource on any policy issue, including
national security.
In order to ensure U.S.'s leadership and innovation, we
need to, again, establish comprehensive frameworks for both
market structure and stablecoins but also ensure national
security to your point, Congressman.
Mr. Nunn. We have a real opportunity here, Mr. Chairman, to
make sure this is not only made in America but that the best
practices to drive the resourcing, the security, and the
onshore investment can happen right here in main streets from
Iowa all the way to New York City.
With that, thank you very much, Mr. Chair. I appreciate it.
Looking forward to stablecoin made in America.
Chairman Steil. The gentleman yields back.
The gentleman from Montana, Mr. Downing, is recognized for
5 minutes.
Mr. Downing. Thank you, Chairman Steil, and thank you to
the witnesses.
I represent Montana's Second Congressional District, which
is rural and sparsely populated. Some of the counties in my
district have under a thousand people. Actually, there is one
that has just over 500 people, so it is very, very sparse.
Geographically, we are very large.
Blockchain technology is not something that only highly
populated and tech-heavy areas should be concerned with. Rural
communities can also reap the benefits of this technology, and
I am really excited about it, actually.
I am just going to start out with Mr. Kim. Can you describe
the benefits that digital assets and blockchain technology are
bringing to rural communities like my district, and explain why
rural users might want to use a blockchain-based financial
product over something more traditional?
Mr. Kim. Thank you so much for this important question,
Congressman.
As I have mentioned throughout today, blockchain and
digital assets allow for more efficient, seamless, low-cost and
pricing mechanisms, including for payment purposes.
I think we have talked a lot today about the potential.
What are the use cases? How can this grow? In order for us to
really unlock this potential innovation even more, again, we do
need a comprehensive framework to ensure United States can lead
when it comes to digital asset innovation, including in your
district, Congressman.
Mr. Downing. Thank you.
Mr. Fernandez da Ponte, anything to add to that?
Mr. Fernandez da Ponte. Thank you for the question,
Congressman.
I subscribe to the potential to drive additional
flexibility on payments. In many rural areas, there is a
scarcity of traditional payment institutions or financial
institutions and banking branches. This ability to be able to
have payment instruments that are fast and effective and can
circulate widely, we believe that would benefit substantially
residents in rural areas.
Mr. Downing. Thank you.
Several of my colleagues have mentioned countries around
the world are well on their way to establishing regulatory
frameworks for digital assets and payment stablecoins. If the
United States does not embrace this technology and provide a
clear regulatory framework, we will fall behind. Right now, the
largest digital asset trading platform and stablecoin issuers
are based outside of the United States.
I will go back to Mr. Kim. What are the implications of the
United States ceding leadership to other countries in digital
assets and blockchain technology?
Mr. Kim. Thank you, Congressman. As I mentioned in my
written testimony, it is a race to the top. A lot of other
leading jurisdictions are racing to establish the regulatory
frameworks, and it remains critical and imperative for the
United States to lead in all of this.
Due to the past 4 years of a regulation-by-enforcement
approach, as we have talked about throughout today,
responsible, established American companies have had to open
offices and pursue licensure elsewhere in other jurisdictions.
Time is critical. Congress, as I have mentioned respectfully,
needs to come up with a comprehensive framework to ensure that
leadership innovation stays here in the United States, both for
stablecoins but for many other digital asset companies and
intermediaries.
Mr. Downing. Thank you.
Switching gears a little bit, Montana was part of a multi-
State enforcement action under the National Aeronautics and
Space Administration (NASA) against FTX. I understand the FTX
debacle and other hacks and scams in the digital asset
ecosystem have made some people skeptical about this
technology. There are legitimate concerns that bad actors in
the space are not being held accountable and investors are
being defrauded. We can preserve the promise of this technology
while weeding out the bad actors. I have always said bad actors
are bad for business. Nobody wants that.
As Montana's former regulator for securities and insurance,
I did just that. It was my job to go after fraudsters while
making sure Montana remained the place where entrepreneurs came
to thrive.
Mr. Garrison, can you explain why someone who is skeptical
of digital assets would want Congress to provide regulatory
certainty to the digital asset ecosystem through legislation
rather than deferring to the regulators?
Mr. Garrison. It is because the regulators have failed to
act that you have situations like FTX, right. This is an
example of fraud not coming from the technology but from
centralized bad actors.
Right now, there is no current Federal regulator overseeing
the spot trading of digital assets; so, therefore, there is no
one for FTX to report to in the United States.
Mr. Downing. Thank you.
Mr. Jachym, anything you want to add to that?
Mr. Jachym. Thank you for the question, Congressman.
It is important from a centralized market standpoint we
have clear Federal rules. We have tried to navigate this
patchwork of multi-State licenses. I think the States will
continue to have an important role to play for consumer
protection, as you know from your previous roles. As we have
seen in the equities and derivatives markets, a clear unified
Federal framework is essential in order to protect customers
and continue innovation in the United States.
Mr. Downing. Thank you all for being here, and thank you,
Mr. Chair. I yield my time.
Chairman Steil. The gentleman yields back.
The gentleman from Florida, Mr. Haridopolos, is recognized
for 5 minutes.
Mr. Haridopolos. Thank you, Mr. Chairman. I appreciate
this. It is always eye-opening as we are getting started in the
committee and as a new member.
I wanted to pick up where Chairman Hill left off. Mr.
Massad, you, in past testimony have advocated for joint SRO to
oversee digital assets as a convenient way to sidestep the
questions of whether or not an asset is a security or a
commodity. In today's testimony, you are advocating for
locating authority to regulate nonsecurity digital asset spot
markets at the CFTC through legislation.
You were clear that security tokens should be removed from
the CFTC's jurisdiction. It seems you have punted on any actual
factor of what makes a token a security token, only offering
vague hand waves that the agency should consult and there
should be provisions to deal with disagreements.
My question, sir, is, how does this actually solve the most
pressing issues Congress is currently facing if at the end of
the day no one knows who is regulating what?
Mr. Massad. Thank you for the question, Congressman.
I would say a couple things. First of all, what I advocated
before--and I did this with the former Republican Chair of the
SEC, Jay Clayton--was a joint approach, because it is very
difficult to draw this line.
Having said that, what I would say today is this, if
everyone up here thinks it is so easy and Congress should do
it, why not let the SEC and the CFTC do it? They are now going
to be chaired by Republican appointees. They have the
expertise. They only have to get 3 votes of Republican members
to adopt something. They do not have to get 60 votes in the
Senate.
If it is so easy, it would be a lot faster to have them do
it. The thing is--and I have confidence that they can come up
with some interesting ideas. This is a very difficult issue to
address, and I am worried that if Congress tries to do it, we
will undermine our securities markets more than answer any
questions.
Mr. Haridopolos. I appreciate your answer. I believe in
democracy, but I appreciate your answer.
That said, I wanted to get into the question with Mr.
Jachym with Kraken. Good customer service is always nice. It
seems like when you all attempted to work with the government
in good faith--you are in 200 countries I think you had
mentioned before, and you are obviously not a fly-by-night
company.
Could you describe to a new Member like myself what it was
like to deal with the SEC and other government agencies? You
attempted to find commonsense regulation.
Mr. Jachym. Congressman, thank you for the question.
Again, with our global business footprint, about 90 percent
of that is North America and Europe. If you look at Canada, the
U.K., the EU, we have worked very constructively with the
legislatures and the regulators to move regulatory clarity
forward, and these jurisdictions are ahead.
Regarding our engagement experience with the SEC, we and
others, other industry leaders devoted a significant amount of
time and resources to put legal, and policy thought to the
agency. We were met with lawsuits.
Again, we are now turning a new page, and we commend the
SEC, the leadership of the Crypto Task Force. This work and the
evaluation are important, but it cannot slow down the great
work that has been done in Congress.
We have seen bipartisan work over the last several
congressional cycles. Again, this is not solving every problem
in the ecosystem, but statutory authority is needed to put
basic rules in place to give the CFTC spot authority and create
a comprehensive regime for customers in the United States.
Mr. Haridopolos. Thank you for your candid answer.
With that, Mr. Chairman, thanks again for your leadership
on this. I look forward to working with you and the other side
of the aisle in solving this issue.
I think this is an issue that Congress should address and
not leave it to regulators exclusively, because administrations
change. I think that might be an important part.
Thank you, and I yield back, Mr. Chairman.
Chairman Steil. The gentleman yields back.
The gentleman from North Carolina, Mr. Moore, is recognized
for 5 minutes.
Mr. Moore. Thank you, Mr. Chairman.
To our witnesses, again, I want to echo what the other
members have said. Thank you for your testimony today.
I wish some of the Members on the other side were still
here, because I remember when our meeting started out, there
were some unfortunate comments made by one of the senior
Members on the other side of the aisle taking shots at the
President and at Elon Musk, and I think that is very
unfortunate. I think this should not be a political enterprise
in the sense of this testimony today. This is so important.
Digital assets are not a thing of the future. We are not
talking about the Jetsons. We are talking about something that
is actually a real thing that roughly 90 million people in this
country either invest in, use or both.
The blockchain technology and digital assets hold so much
potential to transform our financial system, offering greater
efficiency, transparency, and accessibility. Some of the
arguments that I would hear from the other side of the aisle
were there was worry about fraud so it could not be used.
I am just, before I got here, a small-town lawyer from
rural North Carolina, but the best analogy I would know would
be someone saying, you should not use a $20 bill because there
might be a counterfeit one out there somewhere.
The reality is in anything you have there are going to be
fraudsters and criminals who try to come in and abuse the
system. I appreciate what the industry has done to try to deal
with it, but I do believe that it is very important, Mr.
Chairman, and members of the committee, that we as Congress
move forward with a very strong, solid system in place to make
sure there are guideposts in place, just like FIT21 and what
the industry has worked on.
I had a series of questions, but I think you all have
covered most of that, but I did want to follow up on one thing.
Mr. Jachym, I believe you are a NC State, North Carolina State,
grad, in fact, so you are having a better season than my Tar
Heels, so I will give it to you this year on that one.
I did want to ask this. My understanding is that--and I
think Representative Haridopolos mentioned this just a moment
ago, about last year some of the issues you dealt with, Mr.
Gensler. Basically, it sounds like your company was being
targeted. It sounded like a lot of that happened after you
brought testimony before the committee.
I am just curious, how did this regulation, how did these
actions by them affect your company but, more importantly, the
digital asset community and investment in digital assets? I
think it is unfortunate, but I think folks need to hear how
that impacted you.
Mr. Jachym. Thank you for the question, Congressman.
As a Wolfpack fan, you have to believe, and we believe and
are confident that this Congress is going to get a bill done on
market structure.
Regarding our experience, again, we were sued once on one
of the programs we offered. Again, there was no clear path to
registration for staking. There still is no regulatory clarity.
We have seen the U.K. move forward with legislation on staking.
We have seen other jurisdictions do this. We know the United
States can do it, and that is one priority for us.
Kraken did testify in Congress, and the next day we got a
phone call that said you are getting sued on another business.
I made sure not to wear that same tie for that hearing.
It is important that we move past that. I know we want to
make sure actions of the past administration are held to
account, but we are looking forward, and we think there has
been a lot of bipartisan support that is necessary to get this
bill done in this Congress.
Mr. Moore. I am glad to hear that. To all of the panelists,
I really appreciate your expertise and your commitment to this
and look forward to your suggestions as we move forward on this
legislation.
Mr. Chairman, I yield back.
Chairman Steil. The gentleman yields back.
This concludes our portion of the questions. I would like
to thank our witnesses for their testimony today.
Without objection, all members will have 5 legislative days
within which to submit additional questions for the witnesses
to the chair. The questions will be forwarded to the witnesses
for their response. I ask our witnesses to please respond no
later than March 31.
[The information referred to can be found in the appendix.]
The hearing is adjourned.
[Whereupon, at 4:58 p.m., the subcommittee was adjourned.]
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