[House Hearing, 119 Congress]
[From the U.S. Government Publishing Office]
AMERICAN INNOVATION AND THE FUTURE
OF DIGITAL ASSETS: FROM BLUEPRINT
TO A FUNCTIONAL FRAMEWORK
DAY 1 AND DAY 2
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HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINETEENTH CONGRESS
FIRST SESSION
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JUNE 4, 2025
JUNE 6, 2025
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Serial No. 119-25
Printed for the use of the Committee on Financial Services
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
60-986 PDF WASHINGTON : 2026
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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
C O N T E N T S
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JUNE 4, 2025
OPENING STATEMENTS
Page
DAY 1
Hon. French Hill, Chairman of the Committee on Financial
Services, a U.S. Representative from Arkansas.................. 1
Hon. Maxine Waters, Ranking Member of the Committee on Financial
Services, a U.S. Representative from California................ 2
STATEMENTS
Hon. Bryan Steil, Chairman of the Subcommittee on Digital Assets,
Financial Technology and Artificial Intelligence, a U.S.
Representative from Wisconsin.................................. 3
Hon. Stephen F. Lynch, Ranking Member of the Subcommittee on
Digital Assets, Financial Technology and Artificial
Intelligence, a U.S. Representative from Massachusettes........ 4
WITNESSES
Hon. Elad Roisman, Partner, Cravath, Former SEC Commissioner,
Washington, DC................................................. 5
Prepared Statement........................................... 7
Mr. Vivek Raman, Founder, Etherealize, New York, NY.............. 13
Prepared Statement........................................... 15
Hon. Rostin ``Russ'' Behnam, Distinguished Fellow, Psaros Center
for Financial Markets & Policy, Georgetown University and
Former Chairman, U.S. CFTC, Washington, DC..................... 29
Prepared Statement........................................... 31
Ms. Katherine Minarik, Chief Legal Officer, Uniswap Labs, New
York, NY....................................................... 36
Prepared Statement........................................... 38
Hon. Timothy Massad, Research Fellow and Director of Digital
Assets Policy Project of the Mossavar-Rahmani Center for
Business and Government, at the Kennedy School of Government at
Harvard University and Former Chairman, U.S. CFTC, Washington,
DC............................................................. 51
Prepared Statement........................................... 53
OPENING STATEMENTS
DAY 2
Hon. French Hill, Chairman of the Committee on Financial
Services, a U.S. Representative from Arkansas.................. 130
Hon. Maxine Waters, Ranking Member of the Committee on Financial
Services, a U.S. Representative from California................ 131
STATEMENTS
Hon. Bryan Steil, Chairman of the Subcommittee on Digital Assets,
Financial Technology and Artificial Intelligence, a U.S.
Representative from Wisconsin.................................. 133
Hon. Stephen F. Lynch, Ranking Member of the Subcommittee on
Digital Assets, Financial Technology and Artificial
Intelligence, a U.S. Representative from Massachusettes........ 133
WITNESSES
Ms. Carole House, Senior Fellow, GeoEconomics Center, Atlantic
Council, Washington, DC........................................ 134
Prepared Statement........................................... 137
Professor Hilary J. Allen, Professor of Law, Washington College
of Law, American University, Washington, DC.................... 144
Prepared Statement........................................... 146
Mr. Bartlett Collins Naylor, Financial Policy Advocate and
Economist, Public Citizen, Washington, DC...................... 159
Prepared Statement........................................... 161
Ms. Amanda Fischer, Policy Director and Chief Operating Officer,
Better Markets, Washington, DC................................. 181
Prepared Statement........................................... 183
Hon. Timothy Massad, Research Fellow and Director of Digital
Assets Policy Project of the Mossavar-Rahmani Center for
Business and Government at the Kennedy School of Government,
Harvard University, and Former Chairman, U.S. CFTC, Washington,
DC............................................................. 197
Prepared Statement........................................... 199
APPENDIX
MATERIAL SUBMITTED FOR THE RECORD
Hon. Maxine Waters:
Minority Day Hearing Continuation Letter..................... 236
Attorney General Letitia James on behalf on the People of the
State of New York.............................................. 239
Americans for Financial Reform................................... 245
RESPONSES TO QUESTIONS FOR THE RECORD
Written responses to questions for the record from Mr. Vivek
Raman
Representative Ann Wagner.................................... 252
Representative Maxine Waters................................. 252
Written responses to questions for the record from Hon. Rostin
``Russ'' Behnam
Representative Maxine Waters................................. 253
Written responses to questions for the record from Hon. Timothy
Massad
Representative Maxine Waters................................. 254
Representative Joyce Beatty.................................. 255
LEGISLATION
H.R. 3633, the CLARITY Act of 2025............................... 258
AMERICAN INNOVATION AND THE FUTURE OF DIGITAL ASSETS:
FROM BLUEPRINT TO A FUNCTIONAL FRAMEWORK--DAY 1
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Wednesday, June 4, 2025
U.S. House of Representatives
Committee on Financial Services
Washington, DC.
The committee met, pursuant to notice, at 10:04 a.m., in
room 2128, Rayburn House Office Building, Hon. French Hill
[chairman of the committee] presiding.
Present: Representatives Hill, Lucas, Huizenga, Barr,
Williams of Texas, Emmer, Loudermilk, Davidson, Rose, Steil,
Timmons, Stutzman, Norman, Meuser, Kim, Donalds, Garbarino,
Fitzgerald, Flood, Lawler, De La Cruz, Ogles, Nunn, McClain,
Salazar, Downing, Haridopolos, Moore, Waters, Sherman, Meeks,
Scott, Lynch, Green, Cleaver, Himes, Foster, Beatty, Vargas,
Gonzalez, Casten, Pressley, Tlaib, Garcia, Pettersen, Fields,
Bynum, and Liccardo.
Chairman Hill. The Committee on Financial Services will
come to order.
Without objection, the chair is authorized to declare a
recess of the committee at any time.
This hearing is titled, ``American Innovation and the
Future of Digital Assets: From Blueprint to a Functional
Framework.
Without objection, all members will have 5 legislative days
within which to submit extraneous materials to the chair for
inclusion in the record.
I now recognize myself for 4 minutes for an opening
statement.
OPENING STATEMENT OF HON. FRENCH HILL, CHAIRMAN OF THE
COMMITTEE ON FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM
ARKANSAS
Good morning, ladies and gentlemen, and to our members on
both sides of the aisle. Today's hearing will continue our work
on digital assets and examining the market structure framework.
I encourage members on both sides of the aisle to use this
hearing as an opportunity for productive dialog. We should aim
to identify areas of consensus within the legislation and
thoughtfully address provisions that may require further
refinement. Digital assets and blockchain technology are
driving the next evolution of the Internet. This technology
empowers individuals, spurs innovation, and creates economic
opportunities, but to fully recognize these benefits, we must
ensure that there is a functional regulatory framework in
place.
Currently, there is no Federal framework for digital
assets. The Securities Exchange Commission (SEC) and the
Commodities Futures Trading Commission (CFTC) do not have clear
jurisdictional boundaries over digital assets, leaving
investors and entrepreneurs in a state of uncertainty and often
discouraging innovation here in the United States. As a result,
American consumers and investors have endured prolonged
confusion and limited protections due to the absence of a
consistent regulatory framework. Companies have asked and even
sued the Securities and Exchange Commission to provide them
with clarity they need to comply with current regulations.
Others have even moved their operations out of the United
States to avoid dealing with the SEC's regulation by
enforcement approach.
I have worked diligently on the CLARITY Act with House
Agriculture (Ag) Committee Chairman GT Thompson and members
from across the House of Representatives that have an interest
in providing much-needed regulatory clarity for market
participants and innovation. Our bill establishes a clear,
codified exemption pathway for digital commodity projects to
raise capital, support secondary market trading of these assets
and enables SEC-registered entities to participate in digital
commodity markets, and much more. Ultimately, this is about
protecting American consumers, encouraging innovation at home,
and ensuring that the United States leads in the future of
digital assets.
We started this Congress with a joint press conference with
Senate Chairs Tim Scott in Banking, John Boozman in
Agriculture, alongside my partner here in the House, Chairman
GT Thompson of the House Ag Committee. We committed to provide
functional rules of the road for the digital asset ecosystem.
The discussion here today is a critical part of that journey,
and I look forward to an informed conversation on how digital
asset market structure legislation can deliver meaningful
protection and benefits for our constituents and for the
innovation technology across our economy. With that, I yield
back.
The chair recognizes the ranking member of the full
committee, Ms. Waters, for 4 minutes for an opening statement.
OPENING STATMENT OF HON. MAXINE WATERS, RANKING MEMBER OF THE
COMMITTEE ON FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM
CALIFORNIA
Ms. Waters. Thank you very much, Mr. Chairman. I, too,
would like to have a productive dialog, but it is very
difficult to do based on what the President of the United
States is doing. As Americans grow poor under Donald Trump's
failed policies, Trump and his family grow richer, $2.9 billion
richer. That is how much his net worth has jumped as a result
of his crypto schemes, and that is only a conservative
estimate. Now, Trump does not just want Americans to use his
crypto, he wants to put our money in his digital wallet while
he guts our financial regulators, the watchdogs that protect
families from financial fraud. To borrow words from Elon Musk,
Trump's crypto con is a disgusting abomination.
As Trump cashes in, America's families are bearing the
cost. They are cutting back on groceries, putting off starting
a family, and abandoning the dream of homeownership. As if his
reckless tariffs and efforts to gut the Federal Government were
not enough, just 2 weeks ago, Republicans passed a massive tax
cut for billionaires while slashing Medicaid, Medicare, food
stamps, and student loan assistance. Trump is not just scamming
everyday Americans with his crypto con; he is even grifting his
own supporters. Two hundred people collectively spent $148
million to attend his shady meme coin dinner with the promise
of an exclusive experience. What did they get? Walmart steak,
Costco freezer aisle halibut, recycled talking points, and just
20 minutes of Trump time. I guess you get what you pay for.
Congress cannot normalize this scam any longer. From his
fraudulent meme coin to his deals in Abu Dhabi, Donald Trump is
using the White House for personal profit by selling influence
to the highest bidder, and Republicans are ignoring these
dangers, even as the crypto industry raises concerns. That is
why I had to introduce Stop TRUMP in Crypto Act of 2025, to
prevent the President, Vice President, Members of Congress, and
their immediate families from engaging in crypto corruption and
blatant conflicts of interest.
Sadly, legitimizing Trump's crypto con is far from the only
terrible thing about this confusing and reckless legislation.
In fact, this bill should actually be called The Complexity
Act. This rushed, overly complicated bill will increase
investor harm, which already runs rampant in today's crypto
market. Some of the riskiest activities are broadly exempted
from the bill, leaving our constituents with no one to turn to
when their money vanishes. The bill puts our national security
at risk and contains no penalties for crypto criminals.
Unsurprisingly, the bill does not even deliver the clarity the
industry has long sought. Instead, the bill creates vague new
definitions that will result in continued litigation in which
the largest players, including big banks, will gain at the
expense of crypto startups. The only thing clear about this
bill is we need to start over.
It is also troubling that the Securities and Exchange
Commission has ignored precedent and refused to share their
full technical analysis of the bill with Democrats, even as
Republicans rush to pass this bill before the SEC Chair is even
invited to testify. We hear a lot of spin from our Republican
colleagues today, but make no mistake, this bill will take us
backward. I yield back.
Chairman Hill. The gentlewoman yields back. The chair
recognizes the Chair of the Digital Assets, Financial
Technology, and Artificial Intelligence Subcommittee, Mr. Steil
of Wisconsin, for 1 minute for an opening statement.
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. Thank you very much, Chairman Hill. Thank you
for your leadership in introducing the CLARITY Act and thank
you for your leadership in bringing us together in a
nonpartisan way, members on both sides of the aisle who have
already come to co-sponsor the CLARITY Act. The golden age of
digital assets is here, and today's hearing brings us closer to
ensuring that America wins the Web3 race. The CLARITY Act will
unleash innovation and ensure U.S. dominance in digital assets,
while protecting consumers from fraud. At the same time, we
must preserve the dynamic and democratic and democratizing
nature of this technology. Many of the most transformative
projects were born in basements and dorm rooms, not in law
firms and boardrooms. They were born in incubators across the
country, and we have an opportunity to make sure that spirit of
creativity and entrepreneurship continues to thrive under a
regulatory framework that is modern, supportive of innovation,
and clear. Mr. Chairman, I thank you for your leadership and
look forward to the hearing. I yield back.
Chairman Hill. The gentleman yields back. The chair
recognizes the Ranking Member of the Digital Assets, Financial
Technology, and Artificial Intelligence Subcommittee, Mr.
Lynch, for 1 minute for an opening statement.
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. Thank you, Mr. Chairman, and to the Ranking
Member and to our witnesses for your willingness to help the
committee with its work. My Republican colleagues, it appears,
are eager to continue doing the bidding of the crypto industry
while conveniently ignoring President Trump's blatant
corruption. The so-called CLARITY Act seems to be the latest
agreement among largest crypto companies on how they would like
to be ineffectually regulated. President Trump's exploitation
of the presidency, along with the volatile and risky nature of
cryptocurrency products, will have a devastating consequence on
Americans' financial lives, and Congress cannot allow it to
continue. The President's infamous meme coin dinner held at his
luxury resort, for which attendees paid $148 million to attend,
makes it clear that President Trump is auctioning off access to
the White House and allowing the highest bidder to write its
own rules. This bill being considered today will only further
President Trump's corruption and expose our financial
stability, national security, and consumer protections to
greater risk. We must stop President Trump from abusing the
presidency by using crypto as his latest scam. Thank you, and I
yield back.
Chairman Hill. The gentleman yields back. Today we welcome
the testimony of Hon. Elad Roisman, who is a partner at Cravath
and a former SEC Commissioner; Mr. Vivek Raman, who is the
founder of Etherealize; Hon. Russ Behnam, who is a
distinguished Fellow at the Psaros Center for Financial Markets
at Georgetown and a former CFTC Chairman; Ms Katherine Minarik,
the Chief Legal Officer at Uniswap Labs; and Hon. Tim Massad,
Research Fellow, and Director of Digital Assets Policy and
Project at the Center of Business and Government at Harvard
Kennedy School of Government, and a former Chair of the CFTC.
We thank you for taking time to be here. You will be
recognized for 5 minutes to give an oral presentation of your
testimony. Without objection, your written statement will be
made part of the record.
Mr. Roisman, you are recognized for 5 minutes.
STATEMENT OF HON. ELAD ROISMAN, PARTNER, CRAVATH, FORMER SEC
COMMISSIONER, WASHINGTON, DC
Mr. Roisman. Good morning, Chairman Hill, Ranking Member
Waters, and members of the committee. Thank you for inviting me
to testify today. My name is Elad Roisman, and I am a Partner
at the law firm of Cravath, Swaine & Moore, and today, I am
presenting my own views and not those of my firm or any clients
at the firm.
Let me begin by saying that the CLARITY Act is important
and reflects thoughtful work by members and staff. It is a
significant step forward to providing the needed clarity to the
digital status of many tokens, market participants, the digital
asset system, and decentralized finance more broadly, under the
securities and commodities laws. My testimony and my views are
informed by nearly 20 years of experience in both the public
and private sectors working on securities regulatory and
compliance matters affecting public and private companies and
other securities market participants.
In my practice, among other things, I advise market
participants in the traditional financial markets and in DeFi,
which includes the digital asset ecosystems. Prior to joining
Cravath, I had the distinct honor and privilege of serving as a
commissioner and acting Chairman of the SEC. I previously
served as Chief Counsel for the Senate Banking Committee, as a
counsel to then SEC Commissioner Daniel Gallagher, as a Chief
Counsel at NYSE Euronext, and as a corporate lawyer in New
York.
I believe that digital assets, blockchain, and
Decentralized Fianace (DeFi) are some of the most interesting
and exciting developments in financial innovation.
Unfortunately, both Congress and Federal regulators have not
kept pace with innovation, and as a result, there is
significant uncertainty regarding the status and regulation of
digital assets. A particular concern for market participants is
the scope of the SEC's remit, authority, and jurisdiction over
digital assets. Although the SEC has made attempts to provide
regulatory clarity, most notably, in recent months, it is
primarily known for enforcement actions. For many in the
digital asset industry, the SEC's focus on enforcement without
first providing clear guidance has been viewed as regulation by
enforcement, but as SEC Chairman Atkins recently remarked, ``It
is a new day at the SEC,'' explaining that policymaking will no
longer result from ad hoc enforcement actions, and that,
instead, the Commission will utilize its existing rulemaking
interpretive and exemptive authorities to set fit-for-purpose
standards for market participants. I applaud Chairman Atkins
for this approach. In addition to the recent efforts of the SEC
and the CFTC, congressional action is needed. The legislation's
name sets forth what it is trying to provide, namely clarity.
The bill will do so by providing statutory definitions to key
concepts and terms, as well as delineating what is in the remit
of the SEC and what is in the remit of the CFTC.
Again, I applaud Congress' attention to these matters.
Thank you for inviting me, and I look forward to your
questions.
[The prepared statement of Hon. Roisman follows:]
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Chairman Hill. I thank the gentleman. Mr. Raman, you are
recognized for 5 minutes.
STATEMENT OF VIVEK RAMAN, FOUNDER, ETHEREALIZE, NEW YORK, NY
Mr. Raman. Chairman Hill, Ranking Member Waters, and
distinguished members of the committee, thank you for the
opportunity to testify. My name is Vivek Raman. I am the Co-
Founder and CEO of Etherealize. We founded Etherealize to
transform U.S. capital markets for the 21st century. Our team
is a powerhouse of Wall Street veterans combined with the best
technologists across the Ethereum ecosystem. We are ready to
push forward new financial innovation in the United States.
Previously, I traded credit on Wall Street at Morgan
Stanley, U.S. Bancorp (UBS), Deutsche Bank, and Nomura. During
my time there, I saw two things: one, that the United States is
the undisputed leader in the global financial system, and two,
much of the system still operates like it is in the Stone Age.
Today it can take days to send money and weeks to finalize
trades. Hundreds of billions of dollars of value still flow
through paper, faxes, and manual spreadsheets. Now at last, the
technology solution for a one-time upgrade to the U.S. capital
markets is sitting right in front of us.
Public blockchains allow for programmable dollars that
settle in seconds for global ledgers, that allow real-time
regulatory oversight, and for global access that extends
opportunity far beyond Wall Street. So, what is the problem?
Over the last several years, blockchain innovation in the
United States was unfairly penalized. That greatly undersold
the potential of blockchains and pushed innovation offshore.
The CLARITY Act can change that trajectory. It gives much-
needed regulatory certainty, including defining investment
contract assets and clarifying SEC and CFTC jurisdiction. It
provides America a launch pad for the next generation of
financial infrastructure and ensures that the payoff stays here
with U.S. jobs, U.S. tax revenue, and U.S. technological
leadership.
The private sector already sees this. BlackRock, Franklin
Templeton, Fidelity, Deutsche Bank, UBS, and many more are
already building on Ethereum because it is the most secure and
most decentralized settlement layer in the world. As a result,
$140 billion of stablecoins, $10 billion of real, useful
tokenized assets and institutional-grade financial applications
live on Ethereum. All of this happened despite regulatory
uncertainty. With the CLARITY Act, we can 100x that innovation.
The CLARITY Act provides an excellent framework for responsible
digital asset innovation in America, and it does so while
preserving the core value of blockchain's decentralization.
What does decentralization really mean? It means a network,
just like the internet, that is owned by none and is accessible
by all. For Ethereum, it means over a million validators all
around the world independently verifying transactions and
ensuring trust without a single point of failure. What does
decentralization mean in institutional terms? It means
resilience, maximum security, and minimized counterparty risk.
We applaud the CLARITY Act for valuing decentralization and its
control and maturity tests. The CLARITY Act also amplifies
America's position as the home for innovation. Previous years
of regulatory uncertainty and hostility have not been great for
America's position in the digital asset space. In 2017, 42
percent of core blockchain developers were U.S. based. By 2025,
we are barely at 19 percent. We need to reverse this brain
drain and bring high-value engineering jobs back to the United
States. We need to keep dollar-denominated stablecoins rather
than digital euros or digital yuan at the center of global
commerce. The CLARITY Act benefits more than just financial
institutions. It also allows for value to flow directly to
consumers rather than just to intermediaries.
Let us take a concrete example: payroll. Right now, payroll
is inefficient. Employees are paid biweekly or monthly,
companies have to wire funds to a payroll provider, and there
are multiple intermediaries. Settlement can take multiple days.
This changes with blockchains. Ethereum enables real-time
automated payments that traditional systems cannot match.
Freelancers and gig workers can now get paid by the second as
they work, no delays, no middlemen. This gives people immediate
access to their earnings, which is powerful for those living
paycheck to paycheck. Multiply this effect across millions of
U.S. businesses, and the impact is enormous, and that is the
power of decentralized programmable finance.
In closing, I would like to emphasize that I could not have
started Etherealize until this year because I was waiting for
regulatory clarity to build here in the United States. My
parents came to America because it is the land of opportunity,
and I want to build in America. We are going to change history
by embracing the next phase of the internet, and it is really
important to get this right. The CLARITY Act recognizes this at
this moment in time. Thank you for your time and for your
commitment to thoughtful, forward-looking policy. I look
forward to your questions.
[The prepared statement of Mr. Raman follows:]
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Chairman Hill. Thanks very much. Chairman Behnam, you are
now recognized for 5 minutes for your oral remarks.
STATEMENT OF HON. ROSTIN ``RUSS'' BEHNAM, DISTINGUISHED FELLOW,
PSAROS CENTER FOR FINANCIAL MARKETS & POLICY, GEORGETOWN
UNIVERSITY AND FORMER CHAIRMAN, U.S. CFTC, WASHINGTON, DC
Mr. Behnam. Chairman Hill, Ranking Member Waters, members
of the committee, thank you for the opportunity to testify
before you today. Between 2017 and 2025, I had the privilege of
serving first as a commissioner, then the Chairman of the CFTC.
During that more than 7-year period, I observed the significant
growth and growing adoption of digital assets by U.S.
investors, both retail and institutional. While I served at the
CFTC, the digital asset market endured multiple periods of
dramatic volatility, often significant in size and scale.
Throughout this time, I publicly stated one consistent message
to Congress: under current U.S. law, there is a gap in
regulation for the non-security digital asset market.
In 2022, a Financial Stability Oversight Council report
highlighted this exact gap. The gap remains today and must be
filled with targeted legislation. The gap has facilitated
countless scandals and fraudulent activity, some very small and
typical in form, others massive in profile. Further, based on
my current observations and those while at the CFTC, I do not
believe public interest for digital assets will wane. Inaction
will only result in greater risk to our financial markets and
investors.
As the digital asset market continues to weave itself into
traditional financial institutions, concerns regarding market
resiliency and even financial stability will grow.
One common refrain in connection with past legislative
efforts to fill the non-security gap suggests that a U.S.
regulatory framework will legitimize the digital asset market,
leaving opportunities for bad actors to capitalize on
regulatory loopholes. I believe this argument is, in fact, a
loophole. It has only left, for far too long, the vast majority
of the digital asset market unregulated and American investors
vulnerable. Between pursuing comprehensive regulation that does
not undermine existing law and preserves the key pillars of
sound market regulation or inaction, I believe there is only
one choice: comprehensive regulation. I have consistently and
publicly called for new legislative authority for the CFTC in
order to provide core customer protections in the non-security
digital asset market.
As this committee and the House Committee on Agriculture
consider a legislative solution, I believe it is critical to
rely on durable legal precedent to define digital tokens as
either securities or commodities. As mentioned, the CFTC and
SEC have a longstanding partnership that facilitates strong,
robust regulation of both securities and commodity derivatives
markets. I hope there will be continued consideration of
measures to more precisely balance the important needs of each
agency to comprehensively regulate their respective markets
while finding ways to avoid unnecessary redundancies. As
Congress continues to consider legislation to fill the
regulatory gap, I would like to focus attention on the
components of a regulatory framework that would ensure U.S.
market regulators have the necessary tools.
The CFTC and SEC have been involved in the digital asset
market for over a decade, at the forefront of many of the most
complex and historic enforcement cases and also working closely
with other State and Federal authorities. The CFTC's
principles-based oversight model has served its regulated
markets well, striking an appropriate balance between outcomes-
based requirements and measured flexibility to meet those
outcomes, serving as a solid foundation to build transparent
and resilient markets. Second, the law and regulations are only
as strong as the agency and personnel that enforce it.
Appropriate funding, which includes technology and human
capital, is necessary to meet the mandate of any legislatively
enacted regulatory program. Third, a sensible disclosure regime
is needed for non-security tokens to ensure investors are aware
of risk of loss. Fourth, a reliable self-regulatory
organization has been critical to the success of both the CFTC
and SEC for decades and should be a component of any framework.
Fifth, it is essential that legislation provide a comprehensive
authority for anti-money laundering, Know Your Customer, and a
customer identification program built off of existing
requirements for market participants. Finally, a comprehensive
education and outreach program to support all investors,
including the most vulnerable among us.
We need to act thoughtfully but with urgency to fill this
regulatory gap. I thank the chairman, ranking member, and
members of the committee for your focus in this area, and look
forward to answering your questions.
[The prepared statement of Hon. Behnam follows:]
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Chairman Hill. Thanks, sir. Ms. Minarik, you are recognized
for 5 minutes for your presentation.
STATEMENT OF KATHERINE MINARIK, CHIEF LEGAL OFFICER, UNISWAP
LABS, NEW YORK, NY
Ms. Minarik. Thank you, Chairman Hill, Ranking Member
Waters, and members of the committee. It is an honor to be here
today with you. I am Katherine Minarik, and I am from Chicago,
Illinois. I am the Chief Legal Officer at Uniswap Labs. Uniswap
Labs has always been an American company, and we want to stay
in America for the long term. Many of us in the industry are
grateful for the bipartisan and detailed work put in by this
committee and your staff members on the proposed CLARITY Act.
This draft is grounded in several important principles already,
including recognizing that different crypto technologies
present different risks and different benefits, which means
they require different legal treatment, and also prioritizing
the experience of everyday users of this new technology. These
principles are not ideological, just like crypto itself is not
ideological. It is a neutral technology that anyone can use.
Uniswap Labs is a pioneer of decentralized finance, or
DeFi, which is just one part of the broader crypto landscape. I
believe that one of the most important benefits of crypto
technology is that it can be a check on the deficiencies of the
traditional finance system today, and the promise of DeFi, in
particular, is a future where users have more choice and more
access to the financial system as a whole where users do not
have to give up custody or control of their own assets to a
third party when they do not want to. This would open the door
of financial access to many Americans underserved by
traditional finance today. That promise is exactly what drew me
and so many others to this industry but America is at risk of
falling behind. Every other major economy, from the EU to the
U.K. to Singapore, has already taken steps to provide
regulatory standards in the digital asset industry. Here at
home, regulation by enforcement and the tactics of the last few
years have created so much more uncertainty, not less. It has
driven up costs and driven good actors and cutting-edge
innovation overseas. Good actors cannot succeed when the law is
a moving target, so I believe that time is of the essence for
market structure legislation.
If you believe in the promise of crypto technology, then I
think you should want legislation like this so the most
important innovation has space to grow responsibly here in
America, but even if you are deeply skeptical of crypto, I
truly believe that you should want legislation like this, too.
This bill may not answer every question--I still have
questions--but it does more to protect the public than the
status quo. It does more to make space for good actors in the
industry, and this is a bill that we can build on for the
better, for the long term. The proposed Blockchain Regulatory
Certainty Act (BRCA) and the Foreign Terrorist Prevention Act
(FTPA) are both companions that fit right alongside the CLARITY
Act.
America as a country has always been a believer in the
possibility of transformational change and not assuming the
worst of those who forge those new paths. As Justice Douglas
cautioned in dissent in California Bankers Association v.
Schultz, the 1974 Supreme Court case that narrowly upheld the
constitutionality of the original Bank Secrecy Act, It is
`sheer nonsense' to craft laws because we `assume' that every
citizen is a crook, an assumption I cannot make. I urge
Congress to legislate based on facts, not assumptions, about
our industry as a whole.
Uniswap Labs is committed to supporting legislation that
enables the best innovation, responsible innovation, in
America, that protects everyday users and protects good faith
developers. If there are more conversations to be had with any
of you or your staff about our vision or our technology, please
ask, and we will show up any time. Thank you for the
invitation, and I look forward to your questions.
[The prepared statement of Ms. Minarik follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Hill. Thank you very much. Chairman Massad,
formerly of the CFTC, you are recognized for 5 minutes for your
oral remarks.
STATEMENT OF HON. TIMOTHY MASSAD, RESEARCH FELLOW AND DIRECTOR
OF DIGITAL ASSETS POLICY PROJECT OF THE MOSSAVAR-RAHMANI CENTER
FOR BUSINESS AND GOVERNMENT, AT THE KENNEDY SCHOOL OF
GOVERNMENT AT HARVARD UNIVERSITY AND FORMER CHAIRMAN, U.S.
CFTC, WASHINGTON, DC
Mr. Massad. Chair Hill, Ranking Member Waters, members of
the committee and staff, thank you for inviting me today. The
views I express are my own and do not represent the views of
the Kennedy School of Government.
Mr. Chairman, I appreciate all the work that you have done,
and others have done on the CLARITY Act, but with all due
respect, you need to go back to the drawing board. The key
objective of market structure legislation should be to provide
regulatory oversight for digital assets that are not
securities. We all know there is no Federal regulator for that
spot market, and we all know there has been a high degree of
fraud, manipulation, lack of investor protection, and rampant
speculation as a result. That gap arises because we have a
fragmented regulatory system. We have two market regulators,
neither of whom has full jurisdiction over that spot market.
The industry has taken advantage of this by arguing that most
digital assets are not securities and therefore can be issued
and traded without regulation, but that has also put pressure
on the Howey Test because the choice facing courts is either
securities regulation or no regulation. The solution has to
bring the SEC and the CFTC together, give them sufficient
authority to address the gap, and that will also get us to
clarity.
Mr. Chairman, in addition to your six principles for
legislation, I suggest above all two: do no harm and keep it
simple. Do no harm means do not undermine our existing
securities and derivatives laws and keep it simple means just
that. Now, 2 years ago, former SEC Chair, Jay Clayton, who was
appointed by President Trump, and I proposed a way of doing so.
We said Congress should mandate that the SEC and the CFTC
should work together through a self-regulatory organization or
otherwise to develop joint rules that would apply to every
intermediary that trades or handles Bitcoin or Eth. We used
those two just to establish jurisdiction over the market
without, as we said, debating classification of each token or
Congress pursuing tortured rewriting of existing definitions of
securities and commodities. We added that, ``Rewriting existing
law might fail to bring clarity and inadvertently undermine
decades of regulation and jurisprudence as they apply to
traditional securities and commodities markets.''
Now, the CLARITY Act seems to start with technology and
asks how can we make it easier to invest, but that is not the
same as seeking to make sure our regulatory goals are met with
rules that are technologically neutral. This is, after all, a
technology, it is not an asset class, so I do not think the act
will provide the necessary investor protection nor the clarity
that we seek, and it certainly does not satisfy the do no harm
or keep it simple principles.
Let me give a couple of examples. The act provides an
exemption for capital-raising transactions for blockchain
systems that are too broad to begin with and can easily be
exploited. It has an expansive exemption for decentralized
finance trading protocols, which will permit all sorts of
activities, including potentially transactions in digital
versions of securities to be exempt from the securities laws.
Other provisions rely on concepts of decentralization that are
difficult to measure. It uses metrics for control that are
weaker than existing securities law standards and calls for
assessments of value relative to a blockchain that are highly
subjective. Although the act gives the CFTC authority over the
trading of digital commodities, that definition would appear to
cover only a small handful of what is traded in the crypto
market today. The rest of the market would appear to be
unregulated.
Finally, the act does not do enough to address illicit
finance. It is 236 pages and has extremely complicated
provisions. It will provide endless opportunities for
regulatory arbitrage. Lawyers will structure transactions to
achieve lesser compliance burdens. I was a corporate lawyer for
25 years at one of the best firms in the world. I know how this
works, and you should have no doubt this will come massively
and immediately.
Finally, I know many of you do not want to discuss this,
but President Trump's efforts to personally profit from crypto
cannot be ignored. He is making billions of dollars selling
meme coins and stablecoins, investing in crypto exchanges and
wallets and Bitcoin mining, all of which are potentially the
subject of legislation. If any member of this committee did any
of those things, you would all be outraged, and so it should be
no different with the President. His activities create a cloud
over this process. The issues we are debating here are about
technology and money, they are not about life and death, but
when it comes to whether something should be done about these
conflicts and who should do it, it seems to me the following
question is pertinent: If not you, then who, and if not now,
then when?
Thank you, and I look forward to your questions.
[The prepared statement of Hon. Massad follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Hill. Thank you very much. I appreciate our
panel's participation. Let me turn to member questions. I
recognize myself for 5 minutes.
For the past 4 years, digital asset markets have operated
in regulatory limbo. It is critical that we finally enact
digital asset legislation to provide a framework by which firms
can operate in and protect consumers by establishing broad
guardrails. I have to say, this was made quite clear in
President Biden's executive order on the regulatory gaps that
have been referenced by our panelists today, both on spot
market for Bitcoin, for a dollar-backed stablecoin, and
certainly for clarity for what is a security and what is a
commodity for purposes of CFTC and SEC rulemaking and
oversight. If we do not have legislation, at the end of the
day, rules can be undone by subsequent administrations, and
guidance can be rescinded with the stroke of a pen, which is
why we are working so diligently on a bipartisan basis to craft
legislation for both that dollar-backed payment stablecoin and
market structure.
Mr. Roisman, let me start with you. If Congress were to
only enact stablecoin legislation in this session, would we be
leaving the door open for more regulation by enforcement for
the digital asset ecosystem in just a few years down the road?
Mr. Roisman. Thank you for the question. I think it is
imperative that Congress provide clarity in this space. It is
not enough to sort of work on just stables. The market
structure is sort of a critical component because it touches
upon every facet of it, whether you are a market intermediary,
a consumer, or an issuer. These are the questions that everyone
is asking--am I scoped in or out--and the CLARITY Act is a
significant step forward to it. It gives insight to people
about whether they are going to be scoped into the securities
laws or the commodities laws. As Mr. Raman spoke previously,
this gives them comfort in continuing to keep America at the
forefront of innovation.
Chairman Hill. Thank you. It has been determined, mostly by
litigation over the last few years, that several digital
assets, such as Bitcoin, Ethereum, and Litecoin are considered
commodities today. Chairman Behnam, compared to the CFTC's
current authorities over the spot market for these assets, how
would the CLARITY Act strengthen the CFTC's ability to regulate
those markets and protect investors?
Mr. Behnam. Thanks, Mr. Chairman. A core component of the
CFTC's regulations, which are driven from core principles, is
around registration of every entity within the trade cycle,
right? This could be the intermediary that provides access to a
customer, a custodian that holds the asset, the exchange, and
then, ultimately, a clearing house and settlement agency. The
act does take measures to provide a regulatory framework for
digital commodity exchanges, brokers, custodians, and everyone
else involved in that value chain to both register with the
CFTC, and within that context and by proxy, registration with
any regulator, SEC or CFTC, creates a pretty significant volume
of requirements, both on who the individuals that are involved
with that entity, capital requirements, surveillance,
oversight, trade data that has to be submitted, and then, in
many respects, random investigations and collection of data.
I do think it takes very important steps of providing
clarity and transparency to these entities that are otherwise,
and specifically with respect to the two tokens or three tokens
you named, not registered or not within the regulatory
landscape.
Chairman Hill. Thank you, and I would reiterate that the
legislation also reasserts all the anti-fraud and anti-
manipulation protections by both regulatory agencies over
anything in their purview; so, I think that needs to be
restated as well.
Asset classification has also been a long central challenge
in digital asset markets and has fueled a jurisdictional debate
that we are talking about between the CFTC and the SEC, and
Congress has been working hard to bring clarity to this space
since 2018. The CLARITY Act addresses this issue by
establishing clear, positive definitions of what is a digital
commodity. While some digital assets as tokenized stock are
clearly securities, many others remain in gray areas, which is,
again, why I believe this law brings more clarity than perhaps
my friend Tim thinks. Mr. Roisman, can you explain how the
CLARITY Act reduces uncertainty by clearly defining digital
commodities and outlining regulatory jurisdiction, quickly?
Mr. Roisman. Quickly, it defines a digital commodity as a
digital asset that is intrinsically linked to a blockchain
system and its values based on its use. That is scoped out of
the securities laws, so people understand that they are going
to be under the purview of the CFTC.
Chairman Hill. Thank you. I appreciate the panel's
engagement. Let me turn to the ranking member for her
questions.
Ms. Waters. Thank you very much, Mr. Chairman. I would like
to address this to Mr. Massad. First of all, let me just say
that I think the jurisdictional issue could be settled at some
point. It has been talked about for a long time, but I do not
know how we get past the corruption that has been created by
this President to do any so-called clarity. The clarity must be
whether or not the President of the United States and his
family are going to own and control crypto.
President Trump has had several foreign actors get involved
in his crypto ventures. For example, on May 1, one of Trump's
companies, World Liberty Financial, announced that an Abu
Dhabi-backed investment firm would make a $2 billion investment
using Trump's stablecoin, USD1, in the crypto exchange,
Binance. This decision alone made Trump's coin one of the top
10 stablecoins in the world. Later that same month, World
Liberty Financial signed a letter of intent with the Pakistan
Crypto Council ``to accelerate blockchain innovation,
stablecoin adoption, and decentralized finance integration
across Pakistan,'' shortly after Pakistan and India agreed to a
cease-fire at President Trump's urging, which does not seem
coincidental. Now, my understanding of the Complexity Act is
that it does nothing to stop Trump from making these deals. Do
you agree and what are the risks to our national security in
that case?
Mr. Massad. Thank you, Congresswoman. It is a great
question, and I agree with you on the risks. When I was the
Chair of the CFTC, I could not even buy Bitcoin, and we did not
have the authority over the spot market. Here we are with a
President that is engaging in all of these activities. It is
clearly a taint on the industry. It clearly, I think, makes
people think that, gee, is this crypto a game that is just
rigged, and those who have influence or have connections win?
In terms of the national security concern, yes, we cannot tell
now to what extent is the President doing something because it
is in America's best interest or because it is helping promote
personal his enrichment, so I think we have to address this. I
do not see how we can move forward and try to create a
framework for this industry if we do not do that.
Ms. Waters. We have this market structure bill before us
that we are talking about. Is there anything in the market
structure bill that would absolutely prohibit the President of
the United States, the Cabinet members, Members of Congress, et
cetera, from owning and controlling crypto?
Mr. Massad. I do not see anything in the bill. There are,
obviously, ethics laws that apply to Members of Congress. I do
not know whether they prohibit ownership. I would not be
against people owning these assets in a limited amount. I think
that helps you understand the market. I think it was
unfortunate that we actually could not, but to invest in these
activities and invest in businesses, especially at the level
that the President is doing, is clearly a conflict and clearly
a problem.
Ms. Waters. We have laws against, for example, insider
trading. This is worse. How is it we could be concerned about
Members of Congress, et cetera, having insider information in
trading and not being concerned about this ownership?
Ms. Massad. I agree and I think we may have seen that with
the meme coins. The meme coins were released. Some people
seemed to know that was coming, and they bought at a low price,
and then the price shot up and then it fell back down. I think
you have to address this. I do not see how we can say that we
are promoting innovation, and this is going to transform the
financial system unless we do that.
Ms. Waters. What are we opening up by allowing foreign
countries to be in the relationship that I just described with
the President?
Mr. Massad. Perhaps the greatest spokesman for this
industry is Vitalik Buterin, the creator of Ethereum, and he
described the meme coins as the perfect vehicle for unlimited
bribery because someone can buy the meme coins, which benefits
the President personally, yet they can claim that they were
just speculating on the asset. You do not have the transparency
to know.
Chairman Hill. The gentlewoman's time has expired.
Mr. Massad. Thank you.
Ms. Waters. Thank you very much. I appreciate your----
Chairman Hill. The chair recognizes the gentleman from
Michigan, the vice chair of the full committee, Mr. Huizenga,
for 5 minutes.
Mr. Huizenga. Thanks, Chairman Hill, and I got to tell you
before I get to my questions, I want to say a couple of things.
One, I have been proudly involved in this issue for a decade,
having been former Chair of the Capital Markets Subcommittee,
having been involved in Oversight and Investigations. This is
the future, and we better get our act together. I am also proud
to be a co-sponsor of both the Financial Innovation and
Technology for the 21st Century Act (FIT21), the first version,
and now the CLARITY Act, and I want to thank Chair Hill and
Chair Steil for their work on that.
I do want to address one accusation that was sort of thrown
out earlier that this bill will increase the amount of investor
harm. Quite honestly, those claiming that this bill is going to
lead to greater investor harm are not well versed in its
details. The bill establishes a robust suite of requirements,
including issuer disclosure requirements because transparency
is the best form of investor protection, in my opinion, lock-up
periods for insiders when they are not allowed to sell and then
limited in their ability to sell to protect those retail
investors, clear standards for custody and segregation of
customer funds, and listing standards for digital commodity
platforms.
Ms. Minarik, you are absolutely right, the status quo does
not offer the protections, and as you had said, crypto should
be nonpartisan. You said legislate based on facts. That is
clearly not what is happening here. This is about personalities
and politics, and we cannot keep the status quo, and, in fact,
I was struck by--I think it was Mr. Raman, right--your
statistic about, in 2017, 42 percent of the innovators were
housed here in the United States, and that has dwindled down, I
think you said, to 19 percent now. People in tech are going to
continue to move offshore. Is that not correct?
[Nonverbal response.]
Mr. Huizenga. Let the record show vigorous head nodding
happening over here.
Mr. Roisman, you said that legislators and regulators have
not kept pace. Wholeheartedly agree. I have seen it firsthand,
and this leads me to Mr. Behnam. You were the Chair of the CFTC
under the Biden Administration, yet you were in conflict with
the Biden Administration's Securities and Exchange Commission
Chair. Legislators and regulators love to declare things fish
or fowl, right, black or white, commodity or security. It turns
out this is a bit of a platypus, as I describe it, if we are
trying to figure out the fish and fowl, and, in fact, I think
in the Ethereum case, Mr. Behnam, you had said it was a
commodity. The Chair of the SEC had declared it a security.
Interestingly enough, when he was Chair of the CFTC, everything
was a commodity in his view, and then it shifted magically
somehow into being a security, so I guess maybe it is about
your perspective with what is going on.
I am going to stick with you, Mr. Behnam. There are
currently two register types of derivatives exchanges,
including the designated contract markets and the swap
execution facilities. Could you describe the purpose and
similarities between these two regulatory regimes and how the
CLARITY Act extends these ideas to create a registration
pathway for trading platforms that list and trade digital
commodities, please?
Mr. Behnam. Thanks, Congressman. Like I said to the
chairman in response to his question, the CLARITY Act uses,
really, the core principles of the Commodity Exchange Act as
the sort of vehicle to register a digital commodity exchange or
any other intermediary within that trade cycle, as I said
earlier; so, this would require registration. This would
require books and records, surveillance, and information about
the individuals that are running the company----
Mr. Huizenga. How does that protect market participants?
Mr. Behnam. I think the challenge I face, and you said it
yourself, is the status quo does not give the CFTC any
authority over current exchanges.
Mr. Huizenga. Which is why we need to do this, correct?
Mr. Behnam. We need to do something, yes, absolutely.
Mr. Huizenga. I believe this is the something. This is a
great piece of work that has been put together between the Ag
Committee and the Financial Services Committee. I have a lot
more and I will follow up with some writing, but maybe, Mr.
Roisman, quickly, if you could discuss what it means for
blockchain to be mature and explain why these features have
become an end goal?
Mr. Roisman. I think there needs to be sort of an end state
for people to feel like they are sufficiently mature enough or
decentralized, and I think that is a critical thing that the
legislation tackles.
Chairman Hill. The gentleman's time has expired.
Mr. Huizenga. I appreciate it.
Chairman Hill. Please answer that question in writing.
Chairman Hill. It is now my pleasure to call on the
gentleman from California, Mr. Sherman, the Ranking Member of
our Capital Market Subcommittee, for 5 minutes.
Mr. Sherman. There is no limit to how extreme nonsense can
gain credibility in Washington if you put billions of dollars
behind lobbying, billions behind public relations, and hundreds
of millions behind campaign contributions. Once again, we show
you an illustration of this where Mr. Raman tells us that
crypto is the answer to payroll because payroll, you need
payroll services. I am an old Certified Public Accountant
(CPA). You need payroll services because you have to calculate
the deductions for Social Security and income tax. Nobody on
the internet is going to do that for free, and the current
payment system is just fine if you do not have those
deductions. Of course, many of those behind crypto want to
destroy the Social Security system by making it impossible to
collect the tax on it.
The other bit of, I guess, nonsense, Ms. Minarik tells us
that there is nothing ideological about this. Wrong. Crypto is
the embodiment of the most pernicious ideology I am aware of. I
call it patriotic anarchism. It says that America should be
powerful, and the U.S. Federal Government should be destroyed,
and the way to do that is to make it impossible to enforce our
sanctions laws, our bankruptcy laws, and our tax laws, and that
is the ideology behind this.
Mr. Massad, I have not had a chance to read all 236 pages
of the bill. Have you had a chance to review the bill, and is
there anything in this bill that says no bailouts for crypto,
never, ever, no matter what? Is there a provision like that in
the bill?
Mr. Massad. I have not seen one, Congressman.
Mr. Sherman. I have tried to find one. You know why it is
not there? Because they want the bailouts and the bailouts will
be there unless you prohibit them because we have seen various
Presidents--In 2008, they declare an emergency and there are
giant bailouts. Provisions of law exist dealing with tariffs,
they are being stretched, so we have an audacious Fed and
certainly an audacious executive branch ready to do that. You
point out that this is the perfect mechanism for bribery. I
will point out, of course, that it has already been used as the
perfect mechanism when the President is in violation of the law
for the benefit of the owners of TikTok. Its Chinese owners
have put $300 million into his Trump coin, so it is not just
perfect in theory, it is perfect in practice. Not only is it a
perfect way to pay the bribe but it is also a perfect way to
get a President to violate the law.
Is there any provision in the bill, Mr. Massad, that says
that U.S. tax dollars cannot be spent to buy crypto?
Mr. Massad. No, I am not aware of such a provision,
Congressman.
Mr. Sherman. So, we could take all the income tax collected
in the month of June and put it into Trump coin or Mongoose
coin or Skibidi Toilet coin?
Mr. Massad. I am not an authority on appropriations, but I
would think that it would need to be----
Mr. Sherman. It is not appropriations----
Mr. Massad. I would think there would need to be authority
to do that, and if I may----
Mr. Sherman. The Treasury has authority to buy yen and gold
and pounds, and if this is a currency, the advocates of having
tax dollars invested in crypto have never claimed that they
have just gone to the executive branch. It is pretty clear that
U.S. law allows the executive branch to do this, and, in fact,
they own over $20 billion worth of crypto, but that was money
that was seized, not taxpayer dollars yet. We have a bill here
that opens the door to bailouts and to purchases of crypto, and
there is no restriction that it be Ethereum or Bitcoin. It
could be Trump coin, Mongoose coin, or Skibidi Toilet coin. I
look forward to working with my colleagues to improve the bill,
and I will yield back.
Mr. Steil [presiding]. The gentleman yields back. The
gentleman from Oklahoma, Mr. Lucas, who is also the Chair of
the Task Force on Monetary Policy, is recognized for 5 minutes.
Mr. Lucas. Thank you, Mr. Chairman, and I want to start by
following up with Mr. Behnam on a few topics we discussed the
last time you were before the House Agriculture Committee. You
said during our last conversation that one of the benefits of
cross-agency collaboration, like the CLARITY Act aims to
promote, is that market participants are able to utilize
portfolio margining and other netting mechanisms to manage
their balance sheets if they have exposure to products that
have similar risk. Can you expand on your testimony, why is it
important for CFTC and SEC to collaborate even as we maintain
bright lines of each Agency's authority and clearly defined
jurisdictional boundaries?
Mr. Behnam. Thanks, Congressman. As I said before, and you
and I have had this discussion, two different market
regulators, a lot of assets in different buckets of
jurisdiction, but a lot of participants that invest and get
exposure in both markets, and with that exposure, you can have
net gains, net losses. I think it is important to have those
margining benefits, which will require both Agencies to work
together to create a rule set that as a regulatory community,
whether it is a capital requirement or a margin requirement, to
reduce some of the cost of investing if the net portfolio is
either neutral or does not have as much exposure in one area as
another. This, I think, is a product of long collaboration
between the two agencies. I think it enables market
participants to recognize what their balance sheet costs are,
and ultimately, it is a way to synergize the two agencies
despite having two different market jurisdictions.
Mr. Lucas. Continuing with you, Mr. Behnam, on a related
topic. The last time we spoke, you said that capital restraints
were one of the biggest barriers to entry for participation in
the Treasury market. As Chairman of the Task Force on Treasury
Markets, I am particularly focused on ensuring that our debt is
attractive to market makers. Would you say in the spirit of
your last answer that allowing netting mechanisms for assets
like Treasury cash, futures, and repos would reduce those
capital disincentives?
Mr. Behnam. The short answer is yes, but I would emphasize,
and I said this to you as well, Congressman, capital is a
cornerstone of market regulation. Capital requirements were a
cornerstone after the financial crisis. It is important that
regulators have that capacity to charge and assess capital, but
if done in an efficient way, it can create more flow of capital
to markets, which I think, ultimately, improves liquidity,
shortens spreads, and creates a better ecosystem for Treasury
markets and in the case of the question you asked.
Mr. Lucas. Mr. Roisman, would you like to comment on that
topic also?
Mr. Roisman. I would disagree with Mr. Behnam. I think,
first, capital is a cornerstone, but two, there is clearly room
for improvement.
Mr. Lucas. Okay. I just came from the Agriculture
Committee, where we discussed the need for our laws and
regulations to keep pace with the technological advancements we
are seeing in the industry and that is true for both ag and
energy, but it is also true for financial services. In my
remaining time, Mr. Roisman, how would you characterize the
importance of getting this framework done and done well?
Mr. Roisman. I think this is an important topic for
Congress to step into. I think the fact that we have five
people here, three of them have served in government dealing
with these issues, shows that there is a lack of clarity. The
fact that there are multiple cases in which lawyers spend
countless hours looking at footnotes to understand whether
something is security or not shows that there needs clarity.
The fact that there are split decisions in each Agency about
these things shows that Congress needs to help. I think this
framework is really important because it will give clarity to
the regulators, enable them to work together to set the
framework, and allow this ecosystem to fully mature. I do not
know where this will end up in terms of this ecosystem, but I
do know one thing: it is going to surprise a lot of people, and
it will continue to grow. If you look at sort of the history,
no one was talking about this in earnest 10 years ago, and
today, it is spurring new companies, new innovations every day.
The sooner, I think, that Congress steps in and gives bright
lines, that gives them clarity and certainty for them to
continue to innovate and to keep America at the forefront.
Mr. Lucas. I yield back, Mr. Chairman.
Mr. Steil. The gentleman yields back. The gentleman from
New York, the Ranking Member on the Foreign Affairs Committee,
Mr. Meeks, is now recognized for 5 minutes for questions.
Mr. Meeks. Thank you, and I have to return back to some of
the questions that Ranking Member Waters asked because I am
also reminded that, I believe it was 2016 or so, that Senator
Rubio once called the President of the United States, before he
was the President, a con man, and so that made me to rethink.
Then I saw Donald Trump, Jr. appear on CNBC's ``Squawk Box''
yesterday, discussed his family's involvement in crypto
ventures. Then I thought about, being a New Yorker, I knew what
took place before with the Trump family and how they ran their
business because what they would do is they would borrow money,
go in debt, as he is doing to this Nation, and then file
bankruptcy. I guess, maybe that was good business, but then he
filed bankruptcy, not once, twice, 3, 4, 5 times, 6, 7 times. I
mean, the average person would not have been able to do
anything, but the banks always gave them money again. Some kind
of way that he changed, and the banks got money.
Then as Donald Trump, Jr. said, they got involved in
politics, and when he got involved in politics at that time,
what it meant, extra scrutiny. So, you could do some
unscrupulous things, generally, when you are not into politics,
but once you get in there and the media is ever watching, then
it meant they had scrutiny. Then he said that before they never
had a problem getting money from major banks in New York, but
because of the scrutiny that they were now under because they
were in politics, the bank stopped taking their calls. In other
words, they were de-banked. He went on to say that this
experience gave him a new perspective, one that supposedly
mirrored the plight. Now he is trying to be a regular guy
because the regular guy could not have done what they have been
doing all along, but now he is not a regular guy, shut out of
the financial system, and what is their solution? Bingo:
crypto.
Let us be clear. What Donald Trump, Jr. was saying was that
traditional financial institutions deemed the Trump family now
too risky to do business with, not because they were
underprivileged, but because of a long history of questionable
financial practices, litigation, and ethical red flags, and
those red flags are back up again. Instead of reassessing the
Trump family, instead of reassessing their behavior, they
sought a workaround, a loosely regulated speculative market
where they could once again profit, not in spite of the lack of
oversight, but because of the lack of oversight. What he failed
to mention was, while painting himself as a victim of the very
system he once benefited from, is that the Trump family has
used this pivot to run what amounts to be a classic pump-and-
dump scheme, where their meme project was not about
democratizing finance. It was about exploiting hype, fleecing
retail investors, and enriching themselves under the guise of
populism.
Mr. Massad, let us be clear. Does the CLARITY Act currently
include provisions that would address or prevent political
figures like Members of Congress or their families, President
and his family, from exploiting digital asset markets for
personal gain? Yes or no.
Mr. Massad. I do not believe it does, no.
Mr. Meeks. Okay. Does it include language that would limit
the substantial investment from foreign entities that the
Trump's crypto ventures have enjoyed thus far?
Mr. Massad. No, I do not believe so.
Mr. Meeks. Okay, and if not, how difficult would it be to
incorporate these safeguards into the CLARITY Act? Is that very
difficult? Would that be difficult to do?
Mr. Massad. No, I do not think it would be.
Mr. Meeks. Now I am just puzzled because I am wondering
whether my colleagues on the other side, if the person or the
family that was doing it was called the Obama family or the
Biden family, would they appreciate or just allow this type of
behavior to continue. You do not have to answer that question.
We know what that answer is. I think all of America knows what
that answer is. They would be standing up here going crazy, and
I apologize because frankly, I am frustrated. The President has
put us in a position where his actions are so egregious that we
have no other choice but to focus on him today, and it is a
distraction. I wish I could be just talking about the bill
responsibly so that we could try to make sure that we could
push this thing forward, but the President does not allow us to
do that.
Mr. Steil. The gentleman's time has expired. The gentleman
from Indiana, Mr. Stutzman, is now recognized for 5 minutes.
Mr. Stutzman. All right. Thank you, Mr. Chairman, and I
want to just thank the committee and the panel for your work on
this particular issue. Digital assets, cryptocurrency, and this
entire space can be very complicated and hard to understand all
the time. I know for myself, even though I have been talking
about this issue for quite some time, it is still always
something that I am learning, and I appreciate this committee's
work to pass legislation that promotes innovation but also
ensures that consumers are protected. So, it is really a
remarkable time for us here in Congress to be working on the
digital assets' guidelines, and we are really at the forefront
of this discussion, even though this has been going on for
quite some time, and President Trump, of course, is willing to
help lead this discussion.
Several of my colleagues have been working on this for a
while, and it is important. One of the concerns that have been
addressed in the CLARITY Act is the differences in traditional
capital raising efforts, and, Mr. Roisman, I would like to come
to you with a question. This legislation addresses ongoing
disclosure and transaction obligations to address distinct risk
associated with a project before it reaches maturity. In the
CLARITY Act, there is a maturity test for the blockchain
network. Mr. Roisman, can you describe the role and purpose of
this maturity test and explain, in your view, why it is
important to have such a construct in this legislation?
Mr. Roisman. The maturity test, I think, is a critical
component to allow both issuers who have a project that may
want to take advantage of the exemption you sort of described
earlier and give guidance to the regulators of at what point is
the end state for them actually succeeding. I think the key
part of this is there needs to be a conscious or a delineated
sort of way for people to understand when their obligations
cease, and I think it is unique in that it is not, I think,
static. I think you can have the regulators, as I think they
are required to, to provide sort of their own rules on it,
contemplate the future case of these projects.
To your earlier point, I think the exemption which falls
under, I think, new 4(a) under the Securities Act--I think is a
thoughtful way to enable projects to get access to capital and
ordinary investors to participate with, I think, important
customer protections and, as you mentioned, things that
purchasers will need to be provided, and the SEC will provide
rules on that, things like risk factors, information on the
economics. Mr. Huizenga talked about this earlier. There are
going to be requirements on insiders limitations. I think this
is a thoughtful way for Congress to try to address this issue.
Mr. Stutzman. To follow up on that, this legislation also
imposes higher standards on related persons and affiliates to a
digital asset project as it relates to secondary market
trading. Could you describe why these are higher standards and
also explain what their purpose is?
Mr. Roisman. My reading of it is you do not want insiders
to have ability to quickly sell out of positions when there are
people who have less information than they do. I commend the
committee for the legislation for laying out a lot of these
requirements. I also commend them for thinking that the
regulators will be able to iterate on these.
Mr. Stutzman. Do these follow up or do these correlate with
requirements in existing securities law at all?
Mr. Roisman. A lot of them do. Yes, sir.
Mr. Stutzman. Yes, all right. Mr. Raman, would you like to
comment at all on any of those remarks? I have about a minute
left here.
Mr. Raman. Absolutely. I would love to say how thoughtful
and detailed this proposed legislation is. Blockchains are not
companies. Blockchains are technology, and blockchains like
Ethereum are the next internet. Innovation is going to happen
to them, whether it is here or abroad, and I think there has to
be a standard for different kinds of blockchains. The maturity
test is an excellent way to distinguish that maturity goes back
to decentralization. This whole ecosystem is meant to upgrade
the financial system and make it safer and more transparent,
and more auditable and more able to regulate. That is what
these conditions let you do, so I applaud the efforts there.
Mr. Stutzman. All right. Thank you both. I yield back.
Mr. Steil. The gentleman yields back. The gentleman from
Georgia, Mr. Scott, is recognized for 5 minutes.
Mr. Scott. Thank you very much. Let me start off by
agreeing with Ranking Member Waters. This is terrible. This is
a framework that we are being presented with today. It will not
bring order to the crypto market, but it will open the door for
dangerous regulatory arbitrage.
Now, let us be clear. This bill does not provide clarity.
It creates confusion. It does not close loopholes. It codifies
them. The way it divides regulatory authority between the CFTC
and the SEC invites crypto firms to pick a favored regulator as
if they were purchasing the most lenient umpire in a baseball
game. This is not theoretical. The SEC enforces strict
disclosure investor protection and anti-fraud requirements, the
very standards that our public markets have upheld for decades.
Mr. Chairman Massad, I really respect you, and the Nation
respects you, and we worked together over a number of years.
How will the bill's different standards for two very similar
digital financial products undermine this Nation's regulatory
consistency?
Mr. Massad. Thank you for the question, Congressman. I
agree with you that we do not want to have two different rule
books here. We have to bring the Agencies together. Look, I am
sympathetic to the fact that there are areas where there is not
clarity. Some of those pertain to customizing rules, such as
rules pertaining to custody, clearance, and settlement, and so
forth, to make them technologically neutral. It is
disappointing that the SEC did not do that before. Some of
those go to when is a digital asset not a security, and we need
the Agencies to work together on that with some maybe general
principles from Congress. So, Congress needs to mandate that
the Agencies work together, Congress needs to give them the
authority to fill the gap, but you need to do that in a way
that makes the message clear we do not want to undermine the
existing securities and derivatives market framework.
Mr. Scott. Chairman, how likely is it that this bill will
place firms at the risk of noncompliance or enforcement,
depending on how they ask that is later classified?
Mr. Massad. I think the danger is, again, as you put it, is
it going to create confusion? I think it is really going to
cause a lot of lawyers to spend thousands of hours figuring out
how they can structure transactions to get the minimal
compliance burden, and that may mean using the mature
blockchain test. Even Commissioner Hester Peirce has talked
about how a safe harbor like that, not with specific reference
to the CLARITY Act, but with something very similar, can be
gamed, can be used by people who are not doing blockchain. That
is the risk.
Mr. Scott. Yes, and given that the CFTC has not been
formally reauthorized since 2005, the lack of dedicated funding
for this new crypto mandate is very concerning. Keeping these
dynamics in mind, what are the real-world consequences that we
face in our financial system at risk from limited funding?
Mr. Massad. Excellent question, Congressman, and you know
well from our past discussions how critical this is. The CFTC
is an agency with huge responsibilities but a very small
budget. We are talking about potentially giving it jurisdiction
over these very large crypto markets, very complicated markets,
at the same time that it has the responsibility to make sure
our clearinghouses, which are of systemic importance, are safe.
Is it going to be able to continue to do all those things
unless you give it adequate resources? I am very, very
concerned about that. I know former Chair Behnam is as well.
Mr. Scott. Thank you very much, and I am as well, too.
Mr. Steil. The gentleman's time has expired. The gentleman
from Texas, the Chair of the Small Business Committee, Mr.
Williams, is recognized for 5 minutes.
Mr. Williams of Texas. Thank you, Mr. Chairman, and
currently, the rules around digital assets are confusing and
inconsistent. Under the Biden Administration, regulators took a
heavy-handed approach trying to regulate the industry through
enforcement rather than through clear rules. Under existing
law, developers, investors, and businesses do not know which
agency is in charge or which rules apply, and that has caused
some real problems. Some projects have left the United States
entirely, and many consumers have been using risky platforms
without basic protections. Mr. Raman, can you explain how
having clear, stable rules would benefit consumers and give
businesses of all sizes a fair chance to grow and succeed in
this market?
Mr. Raman. Thanks for the question, and absolutely. To be
clear, responsible use cases in innovation is already happening
on blockchain rails. We are already seeing remittances and
payments on a global scale that are making things faster and
cheaper and more transparent. The problem has been, is the
institutional players and retail players and small businesses
that want to follow the rules of the road and have a clear way
to build a business and use this technology, have not had that
clarity. That is what a bill like this will achieve. That is
why everyone wants rules, and everyone wants to follow them.
CLARITY actually will spur innovation rather than skirting
regulation. That is not the point of it.
If we come back to the payroll point, the payroll on a
blockchain is not meant to not pay taxes or not go to social
security. It is actually meant to make it more transparent and
easier and faster and allow for more commerce; so, we are
standing ready. I think there is a huge wave of innovation that
will happen upon clear rules of the road where there is no
confusion, like in previous years.
Mr. Williams of Texas. Thank you. Mr. Behnam, in your
testimony, you noted that the regulatory gap for non-security
digital assets has left American consumers exposed to fraud,
market manipulation, and conflicts of interest, all risks that
traditional financial markets are well equipped to prevent
through existing regulatory frameworks. Now, legislation like
the CLARITY Act is designed to close that gap by establishing a
functional market culture or structure, tailored disclosure and
CFTC oversight of digital commodity spot market. Mr. Behnam,
can you walk us through this legislation directly and how it
enhances consumer protections by curbing fraud, improving
transparency, and bringing in unregulated platforms under the
rule of law?
Mr. Behnam. Thanks, Congressman. As I have said before, the
status quo is we have a pretty significant gap in regulation. I
know SEC certainly has authority over security tokens, and I
think those things are being figured out now to the extent
there is authority with the Agency. As it relates to commodity
tokens or non-security tokens, the CFTC does not have any
authority. We are living in a regulatory vacuum where conduct
is happening, and regulators are not overseeing it. The CLARITY
Act intends to bring a lot of the core principles, which I had
mentioned a few times before, into the digital asset market
space. These core principles of regulation around registration,
surveillance, data collection, settlement, making sure products
are well regulated and not susceptible to fraud or
manipulation, these were the types of things when I was chair,
we saw in our enforcement cases.
I often say in my 4 years as chair, I think nearly 30 to 40
percent of the enforcement docket we had was crypto related, in
sum. I cannot emphasize enough to this committee how
significant a number that is when you do not have jurisdiction
or authority over a market and you are expending nearly 30
percent roughly of your enforcement personnel and allocation
toward an area that is unregulated. I think the CLARITY Act
takes a lot of steps toward bringing traditional market
regulation from beginning to end into the digital asset space,
and it uses a lot of the legacy experiences we have had around
market structure. Granted, this is a new and different digital
or asset that will require different ways of thinking. It uses
those core principles as the model to bring digital assets into
the regulatory fold and, ultimately, give regulators the
transparency that we need in order to protect markets and, as
you said, ultimately, customers.
Mr. Williams of Texas. Okay. I yield my time back. Thank
you.
Mr. Steil. The gentleman yields back. The gentleman from
Massachusetts, Mr. Lynch, who is also the Ranking Member on the
Subcommittee on Digital Assets, Financial Technology, and AI,
is now recognized for 5 minutes.
Mr. Lynch. Thank you, Mr. Chairman, and the Ranking Member.
Mr. Massad, there has been a pattern that exists in our most
recent major financial crises in this country. We go back to
the savings and loan crisis of the 1980s. We had an idea within
a thrift banking system of riskier activity. Among those
thrifts, we had a political will here in Congress and at the
White House that was, I think, cooperative with that risk
taking among some of our thrift institutions that some say it
was regulatory capture, some say it was just cooperation, but
at the end of the day, the American taxpayer had to bail out
the banks to the tune of about $100 billion, which was a lot of
money back in the 1980s.
We fast forward to a time when I was here, 2008 financial
crisis. We had speculative, volatile financial products,
consolidated debt obligations. We had derivatives, and, again,
we had a complacent regulatory scheme among the Treasury, the
Federal Reserve System (Fed), the Office of the Comptroller of
the Currency (OCC), and as a result, we ended up with an even
bigger bailout, $700 billion in top. I voted against it. I was
here. Some members were here. Then more recently, we have had
Silicon Valley Bank. That was a major problem, and it was
involving some of these crypto firms, very poor risk management
on the part of Silicon Bank, but at the end of the day, the
Federal Deposit Insurance Corporation (FDIC) had to go in there
and rescue that bank, and they did a forced sale to JPMorgan
Chase. You know, that was a bailout of the insured banking
sector for these uninsured deposits, and now we have crypto,
which is the most volatile asset class that we have considered
to date. Since Trump took office, there has been a complete
reversal of the cautionary nature of banking with respect to
crypto. The FDIC, the Fed, the OCC have all canceled their
cautionary guidance on crypto, so now we are going to have a
meshing of crypto and banking and even pension funds. Now you
see a lot of these State pension funds, major pension funds
investing in crypto.
What I think is going to happen, my prediction here is
because of the asymmetry that is occurring in that regulatory
framework, we have ineffectual regulatory capacity right now,
and on top of all this, we have huge political influence being
purchased by crypto, coming up here, spending $270 million in
Congress, and then look what they are doing for the White
House, right? Lock, stock, and barrel, the whole system has
been purchased. We have no effective regulation on crypto. My
prediction is we are going to have the mother of all financial
crises in this country because of the involvement of crypto in
banking and the traditional banking sector and in a lot of our
pension funds as well.
This is why this whole scenario, this whole pattern, is why
I offered several amendments during the FIT21 bill, and the
Stablecoin Transparency and Accountability for a Better Ledger
Economy (STABLE) Act bill, so called, for a no bailout for
crypto bill just to protect the American people so we are not
on the hook when this goes bad, and none of my colleagues on
the other side of the aisle supported those amendments. That is
just insurance so that what has happened repeatedly, over and
over and over again, will not happen this time, which is the
American people have to pick up the tab, and because of the
amount of debt we are piling on us, we will not have the
ability to step in. I guess what I am asking you is, tell me
how I am wrong, that my fears are unfounded.
Mr. Massad. I would agree with your fears, but I think the
way to address them is to try to put in a regulatory framework
that minimizes the possibility of a financial crisis. It is
very hard to predict where a financial crisis will come from,
but we know from the past--
Mr. Steil. You cannot rely on bankruptcy on this.
Mr. Massad. That is correct, but we know from the past that
high leverage, having people invest in things they do not
understand, and regulators who do not have sufficient insight
and information about what is going on are three important
factors, so we need to put in place a regulatory framework that
provides us----
Mr. Steil. The gentleman's time has expired. The gentleman
can add additional comments for the record.
[The information referred to was not submitted prior to
printing.]
Mr. Steil. The gentleman from Georgia, Mr. Loudermilk, is
now recognized for 5 minutes.
Mr. Loudermilk. Thank you, Mr. Chairman, and I appreciate
everybody being on this panel. I am really happy to see this
engagement going because I spent 30 years in the technology
industry, and quite often, government is so far behind the
industry and technology, that we become suppressive of
innovation. I appreciate something that Mr. Raman said is, if I
got this correct, that a good regulatory framework that is
flexible enough can encourage innovation. Is that kind of what
you were getting at when you said something about the CLARITY
Act earlier?
Mr. Raman. Thanks for your question, and that is exactly
right. I think that this is a technology along with, in this
decade, we have been privileged to have two game-changing
technologies--one is AI, and one is blockchains--that are all
mature and ready for adoption. These are technologies that are
meant to improve innovation, create jobs, be economic drivers
for the next decade, and reduce counterparty risk, reduce the
things that cause previous financial crises by having things
like transparent, open blockchains, where you have minimized
counterparty risk. I think that for real institutional
adoption, we have seen the tip of the iceberg of adoption. Even
within a bit of a regulatory fog on Ethereum, you have $140
billion in the United States that are backed by Treasuries that
are helping be a buyer of U.S. Treasuries that are
proliferated. All of this will 10x or 100x with clear rules of
the road.
Mr. Loudermilk. All right. Thank you. Like I said, we need
to encourage innovation because innovation helps everyone and
gives access to markets and financial institutions and
investments that may be otherwise kept out of certain areas of
our economy. Mr. Roisman, Bitcoin is the most popular digital
asset in the ecosystem. It is also one of the only digital
assets that both the SEC and CFTC have agreed that is a
commodity. Under our current securities law, would it be
possible for exchanges and other trading systems to list
Bitcoin and a security alongside each other?
Mr. Roisman. I think it would have to be both registered at
the SEC or the CFTC, so dual. I think one of the things that
the bill is trying to address is how can you have, what I think
the current Chairman of the SEC has had, a super app, something
where people can go and trade digital commodities and
securities, and I think that is the way consumers think about
it. I do not know if we really need to prevent that from
happening, so I think it is a meaningful step. I also just want
to add one point. Something that I think sometimes gets
overlooked in the bill is the addition of innovation to the
SEC's mission. I actually think that is a very valuable
addition. It will require the regulator to take that into
account when it is promulgating rules, and innovation is, as
you mentioned, sort of a critical piece. It will allow sort of
regulatory adaptability when there are new developments and if
regulators have to take into account, you are going to have
sort of future proof rules, which I think will benefit
everyone.
Mr. Loudermilk. Thank you for that. Following up on my
question, though, what would it mean for digital assets trading
platforms if bitcoin and other digital assets that are viewed
as commodities could not be listed alongside digital asset
securities?
Mr. Roisman. I think the point I was saying earlier. It
would create potentially unnecessary bifurcation.
Mr. Loudermilk. Okay. Do traditional security exchanges
want to offer non-security digital assets?
Mr. Roisman. My understanding is yes.
Mr. Loudermilk. Okay. Could the SEC allow this without
action from Congress?
Mr. Roisman. I think they could. It would just be pretty
tortured, to be honest.
Mr. Loudermilk. Okay. Does the proposed legislation allow
alternative trading systems to offer both digital commodities
like Bitcoin and securities, and if so, how?
Mr. Roisman. Yes, it does. There is a provision directly
addressing this issue.
Mr. Loudermilk. Okay.
Mr. Roisman. Sorry, yes, and I think they would be required
to do rulemaking to effectuate it.
Mr. Loudermilk. Okay, and last question: stablecoins are
critical components of the digital asset ecosystem. While this
committee has separate legislation for the issuance of dollar-
backed payment stablecoins, the CLARITY Act also contemplates
that the role of stablecoins in a broader digital asset market
structure. How does the CLARITY Act treat payment stablecoins,
and why is it necessary for platforms to have the ability to
trade payment stablecoins alongside digital commodities?
Mr. Roisman. I am going to try to be brief. Permitted
stablecoins are carved out of the securities laws and digital
commodities, I think it is a good way to deal with the market
structure, and then you have the STABLE Act which deals with it
separately.
Mr. Loudermilk. Okay. Thank you. I yield back.
Mr. Steil. The gentleman yields back. The gentleman from
Missouri, Mr. Cleaver, who is also the Ranking Member on the
Subcommittee on Housing and Insurance, is recognized for 5
minutes.
Mr. Cleaver. Thank you, Mr. Chairman. I kind of had some
editorial comments and then my questions. Two weeks ago, I
found myself on the floor during special orders in agreement
with, perhaps even total agreement with Representative Chip
Roy, with whom we do not have a lot in common politically. We
both saw and still see some problems that we are having as it
relates to Members of Congress, and Members of the Cabinet, and
the President, Vice President, we believe, that it is wrong for
any of us to participate in getting rich by trading stocks and,
in some cases, trading with information that the public does
not have. I am strongly of the belief that corruption is the
enemy of democracy. Our ship of state should probably be
powered by truth and ethical standards. Our Nation will not be
destroyed by corrupt politicians but by those of us who know
better but refuse to legislate better. If there is malfeasance
at the top, it is up to Congress to make it stop, and this
Congress is silent. Now, I think this is absolutely necessary
what we are doing, but we need to be serious, and we do not
need to be partisan.
To all of you, based on testimony presented this morning,
it is my understanding that the legislation under consideration
today would help the United States unleash ``American
innovation,'' which I take to include drastic increases in
activity in the digital asset space, as well as possibly
hundreds or thousands of new entrants among other benefits. Is
that correct? I will just start for moving from left to right.
Is that correct?
Mr. Roisman. I apologize. Is the question that this would
spur innovation, sir? I missed the prelude.
Mr. Cleaver. You missed----
Mr. Roisman. Yes. Then, as I just said, yes, that is
correct.
Mr. Cleaver. Okay.
Mr. Raman. Yes, I do believe the rules of the road will
spur innovation.
Mr. Behnam. Congressman, I am going to just caution that
most of my testimony is related around customer protections and
this gap in regulation. I am going to caution against opining
about innovation because I have not worked in an area, but I
would trust those sitting around me to form an opinion about
that.
Ms. Minarik. Yes, more good innovation is possible with
better rules of the road.
Mr. Massad. Congressman, I would say two things. It is
great to promote innovation, but we should not pick winners and
losers, and blockchain is a technology. It may get superseded
by other technologies. We do not know, so we do not want to
lock in a framework that supports one particular technology.
Even decentralized blockchains are a subset of that technology.
There is an argument that maybe centralized blockchains are
going to be better.
The second thing I would say is what kind of innovation? If
we do not do a complete framework what we have seen to date is
the innovation is going to things that a lot of them do not
have a lot of social utility, like meme coins. Now, I am not
saying the government should decide what is of merit. That
should be the market, but we need a framework that prevents the
level of fraud, manipulation, and the lack of investor
protection that we have seen to date.
Mr. Cleaver. If I can continue along those lines, does
anything in the legislation that we are discussing right now
provide the necessary support and financing for the CFTC to
readily respond to the admitted market impact of this
legislation, including monitoring a vast ecosystem of new
technology and entrants for compliance with critical national
security laws?
Mr. Massad. I do not think it is enough, Congressman. There
is a provision for a fee, but when we really think about the
scale of these markets----
Mr. Cleaver. What should Congress do?
Mr. Massad. You should increase the budget authority, I
mean, significantly, if you are going to give the CFTC the
responsibility to police this market on all those fronts.
Mr. Cleaver. Absolutely. Thank you.
Mr. Rose [presiding]. The gentleman's time has expired. The
gentleman from Kentucky, Mr. Barr, who is also Chair of the
Subcommittee on Financial Institution, is now recognized for 5
minutes.
Mr. Barr. Thank you, Mr. Chairman. Before I get into the
merits of the CLARITY Act in our market structural legislation,
I just have to first address this red herring that my
Democratic colleagues continue to push, this carelessly thrown-
out accusation and this baseless, politically motivated attack
against President Trump, that his support somehow for a
regulatory framework for digital asset market structure is
somehow corrupt, that he is personally profiting from our
agenda to bring clarity to the stablecoin and market structure
of digital assets. This is absurd, and they know it. They know
that the President's assets are in a blind trust managed by his
children who are not members of the administration. They are
not in the government. They are in the private sector.
When they throw these things out carelessly, these personal
partisan attacks against the President, it is not just Trump
derangement syndrome. It is about them opposing American
leadership in crypto. It is about them opposing making the
United States the world's crypto capital. It is about them so
obsessed with their political hatred for the President, that
they are willing to sacrifice American leadership in the
innovative technologies of the future. They do not like that
under President Trump, Bitcoin is at an all-time high. They do
not like it. They do not like that he is an innovative,
successful capitalist who understands that if America is to
lead, we need this agenda. They do not like that, and they do
not want him to succeed, and that is why they oppose this bill.
Now, fortunately, we have some bipartisan support for this
bill, and it should be because it should not be about politics.
It should be about what is right to bring clarity to the
marketplace here and to embrace this kind of efficiency and
friction-reducing disintermediation through DeFi. That is what
we should be focused on.
Let me just move on to the merits of the bill. Highly
regulated institutions, like banks, have an important role to
play in the digital asset market, providing scale for wider
market adoption, and bringing their risk management and
financial resilience to bear as the market evolves, but under
the U.S. capital framework, banks are not able to recognize
risk-reducing benefits of positions that naturally offset each
other. This drives up the cost of hedging and risk management
and creates a competitive disadvantage for U.S. banks. Mr.
Behnam, do you agree that we should review our approach in U.S.
capital rules to make sure we are not disincentivizing risk-
reducing behavior and the use of bank intermediaries?
Mr. Behnam. Yes, Congressman. Thanks for the question. I do
think, and obviously it depends on the asset, the underlying
asset, right, and Mr. Lucas mentioned this earlier. If you are
talking about Treasury cash markets and Treasury futures
markets, there is a clear symmetry between those two assets. I
do think it is important for regulators to create incentives in
terms of cost of capital so that you can have more
participants, more liquidity in the market. A lot of that
review is based on history of the volatility of the asset, so
generally speaking, I support it but caution against making
sure that we are doing the right analysis from a regulatory
perspective to ensure that the history dictates what the future
may hold.
Mr. Barr. I think banks do bring risk management and
financial resilience to bear, and they need to be allowed to
participate in this evolving innovation. Mr. Roisman, a
question for you on custody. Whether through Staff Accounting
Bullentin (SAB) 121 or joint statements, the previous
administration effectively prevented banks from engaging in the
digital asset ecosystem. While the regulators have taken
several positive steps to remedy this approach under the Trump
Administration, the CLARITY Act, I think, is very important
because there are provisions in the bill that will cement
banks' ability to responsibly engage with the technology in
statute. Can you outline some of these provisions and describe
the practical effect that they will have?
Mr. Roisman. Thank you for the question. I would say I
would have to look back at the legislation and get back to you.
I think it is important for Congress to weigh in on this
because, to your point earlier, they are a critical part of any
sort of infrastructure, and the rules should not be set in
place to prevent people from participating in this marketplace.
Mr. Barr. I applaud the chairman for his extraordinary
leadership on this. Also, I want to thank our colleagues in the
Agriculture Committee for contributing to the commodity
definition piece, and I fully support this legislation to bring
much-needed clarity. Do not be distracted by the politics on
the other side. This is important and thank goodness we do have
a President who wants to bring leadership to the United States
on crypto. Thank you. I yield back.
Mr. Rose. The gentleman yields back. The gentleman from
California, Mr. Vargas, who is also the Ranking Member of the
Task Force for Monetary Policy, is now recognized for 5
minutes. Mr. Vargas?
Mr. Vargas. Thank you very much, Mr. Chairman and Ranking
Member, for holding this hearing. Especially, I want to thank
the witnesses here today. Thank you very much.
One of my colleagues earlier said people who think this
bill does not protect the public do not know the details of
this bill. Well, here is the bill. It is 236 pages, the ``big,
beautiful crypto bill.'' I doubt that any of my colleagues read
all of it. A couple of them probably did, but most of them did
not. It is like the ``big, beautiful bill'' that we just passed
I voted against. All the Democrats did, and all the Republicans
said, ``I did not know that was in it. I did not know that was
in it. I did not know that was in it. If I had known, I would
have voted against it.'' Anyway, I think the same thing is
happening here, unfortunately. I think someone is going to say
later on that was a disgusting abomination. Just like we saw
about that big, beautiful bill, I think they are going to say
the same thing about this big, beautiful crypto bill.
Mr. Chairman Massad, I want to ask you a personal question,
if you do not mind. Where were you employed in 1990?
Mr. Massad. I was employed at Cravath, Swaine & Moore.
Mr. Vargas. So was I. I was a summer intern, and I was
working with Max Shulman and Robert Joffe, who I am sure you
are familiar with.
Mr. Massad. Absolutely.
Mr. Vargas. I do not believe you were a partner at the
time, were you?
Mr. Massad. Not quite.
Mr. Vargas. I think you were a senior associate.
Mr. Massad. I was.
Mr. Vargas. You are very scary, and that is why I am going
to be prejudiced in this question and not ask you because we
are all afraid of you because you were very brilliant at the
time. I am sure you still are, but I see that there is another
Cravath partner here. I actually chose not to go there. I did
get an offer. I went to San Diego, to my hometown, and
practiced law there for a while. The fine firm, little legal
firms that were eaten up by bigger ones, but that is what
happens in the legal field. I am going to ask the rest of you,
are any of you familiar with the Legal Tender Act of 1862? You
just go ahead and answer. Anybody that knows? There is a
Cravath partner, for God's sakes. Come on, you ought to know
that one.
Mr. Roisman. I am afraid I do not.
Mr. Vargas. What is that?
Mr. Roisman. I do not.
Mr. Vargas. You do not. Anybody else? Okay. Professor, do
you happen to know what that is?
Mr. Massad. I believe that was the law that created
greenbacks, that created American dollars and tried to put an
end to wildcat banking notes.
Mr. Vargas. I knew you would know. That is why I did not
want you to answer. That is exactly right, right? That was the
time that we authorized the issue, Congress did, of greenbacks,
really demand notes that were redeemable for gold. Prior to
that, what happened to paper money?
Mr. Massad. We had individual banks essentially issuing
notes, and people would take those and use them to purchase,
and, of course, then they would have to decide, were those
notes really worth what they paid and they were----
Mr. Vargas. What happened after the Legal Tender Act of
1860 with the value of that paper money?
Mr. Massad. The bank notes?
Mr. Vargas. Yes.
Mr. Massad. They basically then started to go out of
existence.
Mr. Vargas. That is right.
Mr. Massad. It took a while.
Mr. Vargas. The reason I ask this is, I think there is a
very similar situation that could happen here very easily. What
would have happened if we had a central bank digital dollar?
What would happen to all this crypto money? I think that is the
big question here. I think probably they would go to zero.
Mr. Massad. I guess I would say two things, Congressman.
One, I do not think a lot of the crypto assets that are out
there today will ever become a currency like Bitcoin. They are
far too volatile in price. They are not backed by a government.
Mr. Vargas. That is what the promise of it is. In other
words, when you listen to the technologists, they say exactly.
That is why it is going to be beneficial. It, in fact, is going
to be more efficient than cash. We heard that here with payroll
and everything else. They do not talk about it as an asset
class. They talk about it as a coin, as a value like money, and
I think that is the problem. I do not think it is going to act
that way. In fact, I think it is going to be just the opposite.
That is why I think, on the other side, there is a fierce
battle. We never have a central bank digital coin because I do
think that all of these coins will go to zero.
Mr. Massad. There are issues with the central bank digital
currency (CBDC), of course, as you know, in terms of should
that really be the role of the Fed.
Mr. Vargas. Right.
Mr. Massad. I think you have to distinguish stablecoins
from a lot of the other crypto stablecoins that are actually
pegged to the dollar. It cannot be.
Mr. Vargas. I only have 24 seconds left, so I do want to
say this. I know there was a spirited defense of the President,
but I have to tell you, this is the most obviously corrupt
thing that I have ever seen: a few days before he gets
inaugurated, and he comes out with this Trump meme coin. It is
outrageous. With that, I yield back.
Mr. Rose. The gentleman yields back. I now recognize myself
for 5 minutes.
I want to thank Chairman Hill and Ranking Member Waters for
holding the hearing today, and I want to thank our witnesses
for taking time to be with us. Mr. Behnam, for several years,
derivatives exchanges registered with the CFTC have listed
derivatives contracts on Bitcoin and Ether for trading. Do you
believe that the experience from CFTC's oversight of the
digital commodity derivatives market will be helpful to the
CFTC in exercising jurisdiction over the spot digital market as
provided under the proposed legislation?
Mr. Behnam. Thanks, Congressman. The short answer is yes,
and I think just quick elaboration is, and this goes across any
commodity class, whether it is agriculture, energy, metals. The
CFTC is tasked with, obviously, overseeing the markets and
those specific products, but the agency must have a good
understanding of the underlying commodity itself. Over the
years, going back to when Chair Massad was in control and a few
of the first enforcement cases were arising, the CFTC has
learned a pretty sharp expertise in the space and has a pretty
good understanding of the underlying market itself across
different digital tokens.
Mr. Rose. Thank you, and, Chair Behnam, regarding Section
109 of the CLARITY Act, which pertains to international
cooperations, I would like to explore the safeguards the CFTC
would likely implement when entering into information sharing
arrangements with foreign regulatory authorities. Specifically,
what measures would the CFTC take to ensure that sharing
sensitive information with foreign regulators does not
compromise U.S. national security or the proprietary business
interest of digital asset companies?
Mr. Behnam. With any Memorandum of Understanding (MOU) or
any engagement the Agency has with a foreign regulator, it is
very surgical and prescriptive in terms of who we are dealing
with, who the Agency is dealing with, what the existing
relationship is between the CFTC and the non-U.S. agency, and
ensuring that they have the appropriate systems, system
safeguards, cyber protections, data collection, hardware, and
software that if not matches the CFTC's, exceeds it as well.
There is quite a bit of due diligence done, and this is not
unique to crypto at all. Both the CFTC and SEC have been doing
this for years, are very diligent about making sure the
regulator across the ocean is doing what it needs to do to give
the Agency confidence that it can share information with
another regulator.
Mr. Rose. Thank you. The CLARITY Act requires four joint
rulemakings between the SEC and the CFTC in order to set up
efficient and functioning digital commodity markets.
Importantly, these joint rulemakings clearly delineate their
respective responsibilities. Opponents of this bill have
criticized these joint rulemakings, citing the practical
challenges for the SEC and CFTC in coordination. Chair Behnam,
can you highlight some of these joint rulemakings and explain
why, in your view, it is essential for the CFTC and SEC to
coordinate on these issues?
Mr. Behnam. Thanks for the question, Congressman. Joint
rulemakings are not unique to the two Agencies. They
proliferated in many respects after the financial crisis and
Dodd-Frank was passed in 2010. You have jurisdictional lines
between commodity swaps and security-based swaps, so the two
Agencies did have to coordinate and draft joint rules. It is
difficult. It brings two different institutions together, and
you have to go through a lot of exercises that you do not
necessarily go through when you draft a rule uniquely to one
agency. It is very possible, and I think what really brings the
two Agencies together.
Within the context of crypto, the larger issues around
defining the tokens, larger issues around having duly
registered entities, whether an exchange or a broker-dealer or
a custodian itself, these are the types of areas where the
Agency, I think, will need to have joint rulemaking to ensure
that there is a coordination across the field so that the
participants, to the extent necessary, have a single set of
rules to comply with.
Mr. Rose. Chair Behnam, can you highlight some prior joint
rulemakings between CFTC and SEC and explain some of the
hurdles that were encountered?
Mr. Behnam. As I pointed out, the financial crisis is
probably the best example in the swap-dealer definition in
making sure that the two Agencies are delineating which or what
types of swaps are commodity swaps and what are security-based
swaps. Ultimately, it was done. I would say the challenge is,
again, you are dealing with 10 commissioners, not five, two
chairs, not one, and you are dealing with two different
divisions, if not more, trying to promulgate a rule off of a
statute. When there is sometimes scant legal precedent,
sometimes there is better, and you are trying to navigate, much
like this space, a previously unregulated financial asset
class. Those are the types of things that I think the Agency
has a history of and does quite well, but it is certainly, as
you pointed out, not easy.
Mr. Rose. Thank you. My time has expired, and the gentleman
from Connecticut, the Ranking Member of the Select Committee on
Intel, Mr. Himes, is now recognized for 5 minutes.
Mr. Himes. Thank you, Mr. Chairman. We are spending a lot
of time on this side of the aisle talking about the corruption
associated with the President's activities here, and Mr. Barr's
ill-advised and cheap shot that we are engaging in politics,
notwithstanding we did not bring this upon this effort.
Politics, I have spent the last couple of weeks wading through
263 pages of dense text, which is about number 90 on my top 10
list of things to do. Those of us who might be inclined to
support this thing so that it can be bipartisan are not going
to add our names to something that is associated with the rank
corruption that we see out of the White House. Now, to me, the
way to deal with the Trump stuff is to make sure that this bill
has, literally, platinum consumer protections--anit-money
laundering (AML), anti-fraud, and, yes, conflicts of interest
language--and I will not vote yes on this thing unless it does.
We have now had a demonstration from the highest office of the
land about why that is important, so I just say that for my
Republican colleagues. Without that, I am not a yes vote, and I
am going to encourage every Democrat to be a no vote. I think
we can probably get there on that.
By the way, in my opinion, what is happening in the White
House is not a reason to just say no to the whole bill. If we
were to say we are not going to legislate on anything that the
President is either corrupt or inept about, we would not
legislate on anything, so I think we can get there on that.
What I do want to spend a little time on, though, is something
that for me is a non-starter, which is, and, Mr. Massad, you
have made this point, we must not screw up existing securities,
regulation, or standards, and there are a bunch of things that
we need to explore there.
Mr. Massad, I have read your stuff very closely. I think
that we can probably deal with some of the uncertainty around
things like self-certification and what precisely a mature
blockchain is. Regulators deal with that kind of complexity all
the time. What I do want to spend my remaining 3 minutes on is
something that has troubled me for a long time, which is
Section 202-203, which seems to set up an alternative issuance,
primary issuance mechanism, that sort of wants to look like Reg
A or Reg D. It appears to allow for the general solicitation of
retail investors for a complicated thing, so complicated that
we all agree this is a pretty tough bill to understand.
In my remaining 2 minutes and 30 seconds, Mr. Massad, I
would like you to take a minute of that because I just do not
see the logic for 202, and I see how Cravath partners will go
to town on this thing. I would like a minute from you, Mr.
Massad, on why this is a scary proposition, 202 and 203, and
the exemption. I think it creates an exemption, basically, the
Securities Issuance Act. I do want to leave a minute for the
rest of the panel to tell me why this new, weird Reg A-/Reg D-
like exclusion is a good idea, given my concerns here. Mr.
Massad?
Mr. Massad. Sure. Thank you, Congressman. Yes, this is an
exemption for capital-raising transactions related to a mature
blockchain system, and the question is, why is this needed? We
want people to raise money for this, but the question is, can
we just address that through perhaps looking at disclosure
requirements? Maybe those need to be customized a bit because
you are raising money for something that would not necessarily
meet all the requirements that we would expect of other types
of businesses, but to create this entirely new exception with
all the definitions, I think, is very problematic, and, again,
Commissioner Hester Peirce herself has said that. She has
pointed out in the context, because this really came from her
safe harbor idea, and she said 2 weeks ago at SEC Speaks, she
talked about the fact that this type of an exception, she was
not referring specifically to the CLARITY Act, but she was
saying this type of exception can be abused. Companies that are
not really trying to develop mature blockchains could use it
for that.
Mr. Himes. When you say, and I listened to you carefully,
when you say that the danger here, which I think is true, this
is complex enough that Cravath and Sullivan & Cromwell and all
these other very, very smart, highly paid lawyers, this is sort
of the tunnel through which they will drive through to create
an arbitrage.
Mr. Massad. This is what they get paid for.
Mr. Himes. Right. In my last 30 seconds, I am going to ask
the panel, why in the world here would we create a weird Reg A-
/Reg D-/144A-like thing? Why do we not just strike that? Is
there a good reason to have that in there, panel?
Mr. Behnam. Congressman, I will just add in my written
statement, I said we need to preserve existing laws. I do agree
with you as you comb through this bill, although I do believe
status quo is not sustainable and something needs to be done,
whatever efforts are made needs to preserve existing law.
Mr. Himes. Agree. I have 4 seconds, thank you. I totally
agree. Does anybody on the panel have an objection to the
removal of Section 202?
Chairman Hill [presiding]. We would invite you to answer
that question in writing for the Ranking Member of the
Intelligence Committee. The time has expired.
[The information referred to was not submitted prior to
printing.]
Chairman Hill. The gentleman from Ohio is recognized, Mr.
Davidson, who is the Chair of our Subcommittee on National
Security. You are recognized for 5 minutes.
Mr. Davidson. Thank you, chairman, and I want to thank my
colleagues and staff for the work that, really, years of effort
to bring this bill to where it is today. I will not say it is a
perfect bill. I do think it is essential that the section Mr.
Himes referenced to stays in the bill because when you launch
something and you know it is not a security and you know it is
not a commodity, you need to have some clear path; that it is
what it is. We are trying to define it, and a bright-line test
has been the core thing. We somehow imagine that the Howey test
is even adequate for the securities market, but it is not even
a law. It is from a court case back in the 1950s, so we have
not really applied that to digital assets, and it has led to
interpretive art. It is like looking at modern art, splatters
on a painting and drawing conclusions about it.
Of course people are going to have different conclusions.
That is why one of the core things we do here. We tried to do
back in 2018 with the Token Taxonomy Act. It still has not been
done to define very clearly, is something a security, is it a
commodity, or is it something else, and this bill makes great
progress toward doing that. When it is not a security or a
commodity, it needs to be clear that you have a path to launch,
so otherwise, it is not going to attract any capital formation.
You are just going to keep seeing capital stacks wiped out
because there is no clarity that some Gary Gensler-type figure
is going to come along and just wreck the whole capital stack,
so you have to have that. The other thing you have to have is
self-custody because if you look at the Bitcoin white paper,
even in the abstract, part of the core premise is that you have
a permissionless system, so you do need things that can be
conveyed. You do not get disintermediation. You cannot have
DeFi without the decentralized part.
Some people who say they want to support the bill, their
only reason to support it, in some cases, is to try to keep
this account based, and honestly, the entire industry is not
even that interesting if it just becomes account based. I just
wonder if Ms. Minarik, if you could address the essential
nature of disintermediation and self-custody.
Ms. Minarik. Thank you so much for the question,
Congressman. I completely agree that self-custody is a critical
piece to protect in any market structure, legislation or,
frankly, any legislation at all. There are an enormous number
of Americans who are shut out or underserved by the traditional
financial system, and self-custody technology is a safe,
digital way that checks those deficiencies of that system. If
you are shut out of the banking system, we now have self-
custody technology so you can safely and digitally store your
own assets without having a bank approve of you. We should
allow that technology to exist for every American.
Mr. Davidson. Yes. I mean, it is essentially the FTX people
that were most protected were the ones that used the platform
but had self-custody. They had control of their property,
right?
Ms. Minarik. Yes.
Mr. Davidson. So, it is a true consumer protection in that
sense, too. Mr. Roisman, for years now, I have been advocating
for this bright-line test, and I was wondering if you could
pick up on how important the bright-line test that we have
tried to set out in this CLARITY Act is for the market.
Mr. Roisman. Yes. Thank you, Congressman, and for your
leadership in this area. I think Commissioner Peirce talked
about this most recently, which is a fundamental question which
people continually grapple with is, how do you separate the
token that is subject to an investment contract from being an
investment contract, right: investment contract security,
tokens often, not securities. What I think is very well
intentioned and thoughtful in the bill is the concept that a
digital asset cannot be a security because, for example, it has
a use case on the blockchain or access rights or a tool, so it
tackles this issue head on, I think. It seems clear to me that
this is the product of a lot of input from members and staff
and also from the SEC and the CFTC. I think that as the bill
progresses, you should continue to consult with them to make
sure that it captures adequately what you are entailing it to
mean.
Mr. Davidson. Yes. Thank you for that, and I think one area
that we do not talk to because a lot of the public sees
anything digital asset related, and they fear central bank
digital currency. I think they are right to be cautious and
say, hey, let us make sure this does not turn into a gateway
truck or some Trojan horse to be able to deliver something
people clearly do not want, and I do not think there is a
bigger opponent of central bank digital currency anywhere than
me. I do not think it would hurt to put a reference to nothing
in this bill, which will enable or permit or otherwise
facilitate the adoption of a central bank digital currency. I
hope we do all that and more in the future, and I just thank
everyone for their work on it.
Chairman Hill. The gentleman's time has expired. The
gentlewoman from Ohio, Mrs. Beatty, the Ranking Member of our
National Security Subcommittee, is recognized for 5 minutes.
Mrs. Beatty. Thank you, Mr. Chairman and Ranking Member,
and to our witnesses, thank you for being here today. As you
can probably tell from the range of questions that you have
been getting from our members, it is important that we have the
chance to engage with industry experts as yourself before
advancing legislation that will establish a whole regulatory
framework for a category of financial assets that will impact
millions of Americans, and certainly, this is a learning
experience with us today.
I reflect back on my colleague, Mr. Himes' questions to Mr.
Davidson's questions. Mr. Massad, I am a strong believer in
responsible innovation, whereby we support the growth and
evolution of innovative technologies while we are also
maintaining strong guardrails that will protect investors and
the integrity of our financial system, so I believe we can do
both. I think we can do both at the same time with carefully
crafted legislation that incorporates feedback from all of our
stakeholders, including the digital asset firms and investor
protection groups. My question to you is, what would you say
are the key commonsense investor protection provisions that are
missing from the current bill text that would still allow for
responsible innovation?
Mr. Massad. There are quite a few things I think that are
missing in terms of investor protection. I will just give you a
few.
Mrs. Beatty. Okay.
Mr. Massad. The bill does try to establish jurisdiction
over this spot market in non-security tokens that we have
talked about. It gives that responsibility to the CFTC but let
us just look at a couple of aspects of that. The digital
commodity definition, which is what they would have
jurisdiction over, is actually quite narrow, and these
platforms today like Coinbase and Gemini and so forth, they
trade anywhere from 70 to 400 tokens. Very few of those would
be included, so you are left with the question of well, what
about all the rest? Now, the rest may be meme coins. Some might
be reward points. There may be things that we say maybe should
not be subject to financial regulation, but, therefore, can
they be listed on these same exchanges? Are they subject to the
same rules? That is unclear.
Another very basic thing that is unclear is when you have
an institution like Coinbase where people go to trade, if you
have a Coinbase account and you buy Bitcoin, it says you have
one Bitcoin or three Bitcoin, does Coinbase have those Bitcoin?
The law does not require that. The law simply requires that
they have, essentially, values equal to that Bitcoin, so they
could have the money invested in something else. Those kinds of
things seem pretty basic. I could give you more.
Mrs. Beatty. Let me say thank you. As I am trying to go
through this, it was not that I did not miss it. It was that it
was not in there, or it was not in there----
Mr. Massad. It is a very complicated bill, Congresswoman,
and, therefore, it is very hard to see what is missing and what
is not missing, and also how these provisions interrelate.
Congressman Himes asked the question about this special
exemption. On the one hand, we are trying to protect people
investing in crypto, but on the other hand, we are doing things
that may undermine protections in our traditional securities
markets.
Mrs. Beatty. I see that as our role, to provide those
protections. I also am the Ranking on Illicit Financing, and so
I will not have enough time probably to get to the other
members on that. I think as important as this is, when you have
a document like this, I do not know--we were discussing it up
here with Mr. Foster and Mr. Vargas--how many of my folks on
the other side have actually read this and analyzed this. I am
just getting this. While, Mr. Chairman, this is something very
important, I think as our Ranking Member and Chairwoman Waters,
in our meetings, we like to dissect things, and she walks us
through all the provisions. I am just saying, I do not know how
many folks have had the chance to be able to do that.
Let me just say, we also saw last week that the SEC
formally dropped its lawsuit against the crypto exchange,
Binance, which admitted to violating U.S. anti-money laundering
and sanction laws. In your view, what kind of safeguards
against foreign corruption and money laundering must be
included in all market structure legislation, and does the
CLARITY Act sufficiently incorporate these safeguards?
Mr. Massad. Thank you for the question. The CLARITY Act
does make crypto firms that are subject to U.S. jurisdiction
subject to the Bank Secrecy Act. That is a good thing, but I
think we do need to go further because crypto assets are
transferred on decentralized blockchains because we have
foreign firms involved in this, and the Treasury Department, 2
years ago, put out a number of suggestions that they said they
needed in terms of additional support.
Chairman Hill. The gentlewoman's time is up.
Mrs. Beatty. My time is up but thank you. Thank you, Mr.
Chairman.
Chairman Hill. Yes, thanks to the gentlewoman. The chair
recognizes the Majority Whip of the House. The gentleman from
Minnesota, Mr. Emmer, is recognized for 5 minutes.
Mr. Emmer. I thank you, Chairman Hill, for holding this
important hearing today, and thank you to this committee for
its consistent nonpartisan leadership on digital asset policy
across multiple Congresses. The United States had a real
opportunity to lead globally in building the next iteration of
the internet, a peer-to-peer digital economy, and that is
thanks in large part to this committee's work.
The CLARITY Act is a thoughtful bill that creates
regulatory guardrails tailored to the unique attributes of
blockchain technology, while giving users and developers the
confidence to engage and innovate in this ecosystem. I am proud
to be an original co-sponsor, and I especially want to thank
the committee for incorporating the Securities Clarity Act, my
bill, into this legislation. The Securities Clarity Act
establishes the principle that a token is distinct from an
investment contract, and it is gratifying to see that principle
serve as a cornerstone of this market-structure framework. The
CLARITY Act focuses on legal certainty for custodial entities,
but its current draft raises an important question about those
who and are not.
Ms. Minarik, assuming Congress passes a market structure
bill that resolves the legal uncertainties for custodial
entities, do noncustodial developers, those who never touch
user funds, still face potential questions of liability? If so,
what kind of chilling effect could that have on developers of
protocols and wallets who might otherwise want to build in the
United States?
Ms. Minarik. Congressman, thank you so much for this
question. Companies for decades and decades, but now, much more
recently, software developers who never take custody or control
of user assets, have always been outside of the money
transmitter regime, and that is for a good reason. That regime
originally came from the States decades and decades ago to
address the risks of a customer handing their own money to a
third party, who may then take days to deliver that money to
the recipient. Those risks obviously do not exist if that money
owner never is handing off custody or control of their money to
someone else. FinCEN issued guidance in 2019 that confirmed
these principles for DeFi specifically, but recently, even
though the law has been well established for so long, and
despite FinCEN's 2019 guidance, we have seen some attempts to
stretch existing money transmission laws to capture software
developers of noncustodial technology. So, there is still a
risk, and it is a profound threat and has a deep chilling
effect on software development today.
Mr. Emmer. Thank you. In your written testimony, you
highlighted the Blockchain Regulatory Certainty Act, a bill I
introduced with Mr. Torres recently. You said that the
Blockchain Regulatory Certainty Act is essential to codifying
the noncustodial actors. That noncustodial actor should not be
treated as financial intermediaries. For the benefit of my
colleagues and the public, can you explain in plain terms what
kinds of legal and operational risks Uniswap or its users face
today without that certainty, and what would change if the
Blockchain Regulatory Certainty Act were included in the
CLARITY Act?
Ms. Minarik. Yes. I think the risk today is the uncertainty
that comes from a regulator deciding to advance in an
enforcement action an argument that the money transmission
regime applies to software developers who are noncustodial. We
see that as an active risk today, which means that all software
developers are under threat.
Mr. Emmer. Thank you again. As you have outlined, today's
noncustodial blockchain developers face legal risk for how
others might misuse their open source permissionless tools.
That is a dangerous precedent for innovation and one that I am
thankful Chairman Hill, and this committee is working with us
to address. Your testimony makes clear why resolving State-
level ambiguity and preventing prosecutorial overreach is
critical for American leadership in the digital economy. Again,
I would like to thank the chairman and my colleagues for their
consistent, unwavering commitment to nonpartisan digital asset
policymaking. I yield back the balance of my time.
Chairman Hill. The gentleman yields back. The chair
recognizes the gentleman from Illinois, the vice ranking member
of the full committee, Mr. Casten, for 5 minutes.
Mr. Casten. I thought the other gentleman from Illinois was
up. Thank you. We have been talking about crypto for darn near
all of my 6 years in Congress, and I want to just share with
you what scares the bejesus out of me, and I wish it scared the
bejesus out of everybody here. The next time an executive at a
crypto exchange or a crypto advocate, or somebody who is
throwing money into campaigns for the crypto industry shows up
in my office and says, I would be personally ashamed if a tool
I created or a regulation I was advocating for, or a company I
ran was facilitating illegal criminal activity through money
laundering, through illegal transfers, and I do not want to be
a part of that, and I want to make sure that we as Americans do
not let that happen. The next time that conversation happens
will be the first time, and it is really freaking hard to take
this industry seriously when no one in the industry comes out
and says I do not want to be a part of money laundering. I hope
that today is going to be the first time.
With that, I want to talk about DeFi with you, Ms. Minarik.
My understanding of decentralization as a definition, and tell
me if I have this roughly right, is that it means that no one
person or group has outsized control over a service, the
decision-making over how the service is run, is democratized
among users who purchase the company's native currency or
governance token. Would you generally agree with that as a
definition?
Ms. Minarik. Absolutely.
Mr. Casten. Okay. In light of that, Uniswap has come under
some criticism recently over the Uniswap Foundation having
disproportionate power over other stakeholders, including by
pursuing changes such as launching a blockchain without
consulting your governance token holders. If you agree that
decentralization involves distributing voting power among your
Uni token holders, does not the fact that the Uniswap
Foundation can unilaterally make decisions, does not that
weaken any claim of it being decentralized?
Ms. Minarik. Thank you for the question. To be completely
explicit, I am the Chief Legal Officer of Uniswap Labs, which
is a distinct legal entity from the Uniswap Foundation, but I
am fairly certain that the Uniswap Foundation cannot make any
unilateral governance changes at all.
Mr. Casten. The criticism is out there. I mean, that
exists. I mean, let me put this another way then. As I read the
CLARITY Act, it would exempt essentially all DeFi services from
SEC and CFTC regulation as well as all of the requirements of
the bill, so just yes or no: under the bill as you read it,
would Uniswap be required to screen and verify customer
identities?
Ms. Minarik. No.
Mr. Casten. Would Uniswap be required to disclose
information related to your company's ownership, management,
conflicts of interest, risks management, procedures, policies,
procedures for complying with anti-money laundering laws?
Ms. Minarik. Under this specific act, no, but we do have
other obligations.
Mr. Casten. Okay. So no legal obligation to do that, and,
Mr. Massad, if it does not apply to Uniswap, Trump's DeFi token
that Mr. Barr thinks, we are just talking about this because it
is politics and we just hate crypto. Now, if I am following it
right, World Liberty has signed agreements with a state-owned
investment firm in Abu Dhabi, cryptocurrency regulator in
Pakistan. Additional data says that the company's investors are
based in places like Singapore, South Korea, Hong Kong, UAE.
They do not have any obligation to disclose anything under this
bill either, do they?
Mr. Massad. I do not believe so. It is a complicated bill,
I am still understanding it, but I think you are right, and I
would love to comment also on your DeFi question, if I might.
Mr. Casten. I know in your testimony; you had suggested
that it is a little hard to come up with a specific definition
of DeFi.
Mr. Massad. It is hard to come up with a specific
definition, and with all due respect to my colleague, even in
the case of Uniswap, the Uniswap protocol, right, sure, that is
autonomous software, but there is the Uniswap interface. There
is the Uniswap trading application programming interface (API).
Those are run by Uniswap Labs, which is a company.
Mr. Casten. I mean, this was my point about my sadness at
the start because if we have this huge barn door that we are
just going to define this generic thing as DeFi and you can
launder all your money through there, my God, why is not the
industry saying, I do not want to be a part of that? Come on,
folks.
Ms. Minarik. I do not want to be a part of that.
Mr. Casten. Okay. Then advocate for the changes to fix this
because, Mr. Massad, like, under these rules, if I am a
sanctioned Russian official or I am a the Chinese Communist
Party (CCP)-linked person, is there anything that prevents me
from investing in these protocols and using that to launder
money through the system?
Mr. Massad. Yes. I mean, if you are sanctioned, no U.S.
person is supposed to be transacting with you.
Mr. Casten. How would you track it if you do not have the
AML rules, you do not have the Know Your Customer rules?
Mr. Massad. Yes. If we do not have a regulatory framework
over these entities where we are getting information, it is
very hard.
Mr. Casten. I mean, it is like shoot the sheriff, and,
like, the law still exists, but it does not matter because
there is no cop on the beat, right? I mean, I really think my
Republican colleagues love defunding the police as long as they
are white collar police.
Chairman Hill. The gentleman's time has expired.
Ms. Waters. I give additional time.
Chairman Hill. You bet. The gentleman from Pennsylvania,
Mr. Meuser, the Chair of our Oversight Investigation
Subcommittee, is now recognized for 5 minutes.
Mr. Meuser. Thank you, Mr. Chairman. Thank you all very
much. Under the Gensler SEC, the Biden Administration tried to
police crypto through aggressive lawsuits. Trump Administration
and Chair Paul Atkins of the SEC are taking the opposite tack:
set clear rules first, let innovators build, and keep capital
here at home. The CLARITY Act, introduced by Chairman Hill,
helps codify that cultural change, expands the SEC's reach over
tokens sold in investment contracts, green lights SEC-
registered firms to list and trade digital commodities, ensures
the SEC has the tools it needs to shut down fraud fast. That is
how we can deliver on President Trump's pledge of making the
United States the world's crypto capital. Those comments run
somewhat counter to what my colleague was just stating.
Mr. Roisman, do you want to comment on money laundering,
not caring about money laundering, and no disclosure, as has
been the accusation made to this bill, not to you, but to this
bill?
Mr. Roisman. I leave sort of the Know Your Customer(KYC)/
AML) to folks who are more specialized in this. What I think
the point you are making, sir, which I agree with, is this bill
adds protections. It creates clear guidelines for market
participants, customers, and regulators what their remit is,
and I think we are all in favor of that. I think there are
differences of opinion across the spectrum here of whether
there are robust enough investor protections or that it covers
everything under the sun. I think, universally, everyone agrees
that there is a need for better delineation between the two
Agencies.
Mr. Meuser. Agreed. That is why we are doing it, right? Ms.
Minarik, do you agree with that, or what are your thoughts on
that?
Ms. Minarik. Yes. I will add that in the DeFi space, as Mr.
Massad mentioned, there is a sanction screening requirement for
all U.S. companies. There should be. Money laundering is still
illegal, fraud is still illegal, but in terms of sanction
screening in the DeFi space, Uniswap Labs is a pioneer of
compliance in DeFi, including blockchain analytics to use
blockchain information, which is the future of understanding
how to identify bad actors, but to use that information to
screen wallets and make sure that companies like Uniswap Labs
are not allowing the use of our products by sanctioned actors.
Mr. Meuser. Okay, and in many ways, it expands the role the
SEC plays with respect to digital assets. Mr. Roisman, your
comment on that?
Mr. Roisman. What I think it helpfully does, as I mentioned
earlier, is it tells them what their lane is and works in
conjunction with the CFTC to ensure that there is adequate
anti-manipulation, antifraud, consumer protections, and
investor protections. There are, throughout the bill, places
for them to do joint rulemaking, as well as sort of build upon,
I think, things that the Commission, and I will let my
colleagues speak to the CFTC, have long sought in terms of
mandatory information for people to make informed investment
decisions.
Mr. Meuser. All right, thank you. Mr. Raman, what do you
see as promising about this bill for traditional financial
system if the CLARITY Act were enacted?
Mr. Raman. Thanks for the question. The first global
comment is that institutions, traditional finance, will not do
business on public blockchains without protections in AML and
KYC and regulations and rules, and that is what you are
providing. The largest users, the new users that are going to
come on and innovate and create responsible products and
actually use decentralized technology to improve the capital
markets and improve the financial system, that is not going to
happen without rules of the road. This is all very symbiotic,
and having clarity and having rules is going to bring them all
to responsibly use this technology that is decentralized and
available to the world. Without it, it is just going to happen
overseas.
Mr. Meuser. All right. Thank you. I am going to yield the
remainder of my time to Chairman Hill.
Chairman Hill. I thank the gentleman from Pennsylvania. Mr.
Roisman, there have been several assertions made here today
that I do not think are, in fact, based on the draft
legislation that we have before us, and I want to clarify one
of those questions from my colleagues on the other side of the
aisle. Does the exemption in CLARITY provide more information
and more protections to investors than current exemptions that
they are eligible to be used today? Just yes or no.
Mr. Roisman. It is not, unfortunately, a ``yes'' or ``no.''
It depends on the exemptions, but I do think that this provides
meaningful information that they are not necessarily getting
today, especially since they are tailored to digital assets.
Chairman Hill. Right. That is the fit-for-purpose nature of
all of this work, and I would say in FIT21, we also had broad
disclosure requirements, protections, and an exemption in that
bill, too, that we had 71 Democrats support. We believe this
bill is more robust on AML/Bank Secrecy Act (BSA) disclosure
requirements and how the exemption would work. I thank the
gentleman from Pennsylvania.
Ms. Waters. Will the gentleman yield? Will the gentleman
yield?
Chairman Hill. The gentleman's time has expired. The
gentleman from Illinois, Mr. Foster, the Ranking Member of the
Subcommittee on Financial Institution, is recognized for 5
minutes.
Mr. Foster. Thank you, Mr. Chair, and to our witnesses. Mr.
Massad, thank you specifically for joining us today, and for
your testimony, which is rare that I see testimony where I
agree with every single element of it, and I think I felt like
that when I read it early this morning. Also, for the reference
that you gave to a gentleman whose name I am afraid I have
forgotten right now, who wrote an excellent two-page summary of
why decentralization is inappropriate as an organizing
principle for distinguishing these. If you only have time,
members, that cannot read the 300-page, 200-and-some-page bill,
they can at least read your 10 pages of testimony and that two-
page statement, I think we can understand how we are going off
the tracks today.
Now, you had mentioned that the bill does not provide any
regulation for spot markets and digital commodities. The
definition of digital commodities would only cover a handful of
tokens, a small fraction of the hundreds of thousands that are
spun up every year. Now, I also noticed the draft of this bill
includes a new exemption for digital collectibles. The reason
this caught my eye is that in February, the SEC Division of
Corporation Finance put out a statement saying that the SEC
does not consider meme coins to be securities, but, rather,
they are akin to collectibles, Okay? We have this bill saying
that collectibles are not regulated, and then the SEC saying
meme coins are collectibles, so it seems like the chain of
logic here would deregulate meme coins completely. Am I missing
something there?
Mr. Massad. No, I think you are correct. The digital
commodity definition, which is defining the things that would
be subject to the CFTC's oversight, excludes those
collectibles, which would mean meme coins, and I think it
excludes a number of other things. When you look at the number
of tokens traded on these big platforms, like Coinbase, it
really is in the hundreds, and, of course, there are 600,000
tokens being created all the time, so the question is, what
about those others? Now, you could say that, well, they are not
really financial instruments, but people are getting defrauded.
There are pump-and-dump schemes. We need to do something about
it, even if it is not going to be under the CFTC.
Mr. Foster. Yes. These are not small things. I mean,
Dogecoin has a market cap of, like, $30 billion----
Mr. Massad. Correct.
Mr. Foster [continuing]. depending on what time of day you
look at it, and President Trump's meme coin has generated more
than $350 million of fees from unknown investors, and I take it
they really are unknown, yes. Ms. Minarik--I did that right,
yes--can you give me a name, or can anyone give me a name of
all the early investors who appeared to front run Trump's meme
coin things?
Ms. Minarik. No, Congressman.
Mr. Foster. No? Okay. That is what I wanted to know. You
cannot trace really important names here, and that would be
essential for any regulator to understand if something unfair,
some fraud on the market was being perpetrated here. I guess,
that is one.
Mr. Raman, in your testimony, you argued that Congress
should provide comprehensive authority for anti-money
laundering, Know Your Customer, and also a customer
identification program to make markets for digital assets safer
and less vulnerable for terrorist organizations and other
illicit activity. This is something I have long advocated for,
and it breaks my heart that we have not done something on that
earlier when you consider that North Korea now has nuclear
missiles that can threaten every one of us with dying from a
nuclear blast and funded almost entirely with crypto. This is
something that did not have to happen, but it is a choice that
we unfortunately have made. Now, anonymous parties are very
difficult to hold accountable for this. What you had advocated
in your testimony, these real Know Your Customer rules and so
on, is that compatible in any way with anonymous self-hosted
wallets, or are these really just separate visions for how we
could let things proceed?
Mr. Behnam. Congressman, thanks for the question. In my
experience, the CFTC had pretty limited authority around AML,
not so much KYC, and then critical infrastructure protection
(CIP), I think, I would put on par with AML, and we often had
to work with Treasury when we were bringing an enforcement
case. In terms of the non-hosted wallets, there are different
functions to non-hosted wallets. There are certain benefits for
it. I do think, as was stated earlier, if you think about the
FTX example, that is an example where someone who had a non-
hosted wallet was able to preserve some capital but given my
former role in thinking about the risks associated with
anonymity in this space, it is absolutely important that we
have as much transparency as possible.
Chairman Hill. The gentleman's time has expired. The
gentleman from Wisconsin, Mr. Steil, the Chair of the
Subcommittee on Digital Assets, Financial Technology, and
Artificial Intelligence, is recognized for 5 minutes.
Mr. Steil. Thank you very much, Mr. Chairman. Thanks for
bringing us together today to discuss the CLARITY Act,
absolutely essential legislation. I hear some of the arguments
from the left, but, in particular, I think the fallacy of one
of the arguments that we are hearing is that we have put our
heads in the sand and maintain the current state of affairs,
that is somehow a good thing. I would argue that if we actually
want to protect consumers, we want to avoid an FTX, if we want
to address the meme coins that were brought onto us by Gary
Gensler and the Biden Administration, now is the time to come
with thoughtful ideas, and I think the CLARITY Act addresses a
lot of the concerns. I also hear a lot of arguments by those on
the left with the Trump derangement syndrome that we see, but I
do not hear any critiques of Hunter Biden's arts or the
devaluation of that we have seen since President Biden has left
office.
Let us dig into the bill because the bill, the context of
this bill is a really good bill to move us forward in a period
of time where we can unleash digital assets here in the United
States. Mr. Massad referenced joint rulemaking. The bill does
that, in particular for key definitions in transactions that
involve trading digital commodities as a security, capital-
raising frameworks consistent with U.S. securities laws. It
requires robust disclosures and rigorous obligations, in
particular, for insiders. It is noted that the United States
has two capital market regulators. It is a little bit of a
unique system compared to our global peers, and the bill
clarifies the jurisdiction of those regulators, the SEC
addressing capital raising, the CFTC addressing the regulation
of intermediaries in trading in the digital asset spot markets.
What we are trying to get away from is regulation by
enforcement and, rather, have a structured rule of law. One of
the primary goals of the CLARITY Act is to create clear and
delineated jurisdiction for the SEC and the CFTC.
Mr. Roisman, in the scenario where a transaction would
constitute an investment contract, it would fall under the SEC,
right?
Mr. Roisman. Yes.
Mr. Steil. Mr. Behnam, under the CLARITY Act, which market
regulator would oversee trading of the digital asset
commodities?
Mr. Behnam. CFTC.
Mr. Steil. Exactly. The United States, as noted, has this
unique dual structure, but the CLARITY Act actually gives
clarity as to who is regulating in this space. I think that is
a really helpful and important point. I want to continue with
you, if I can, Mr. Raman, decentralization. The ultimate goal
of the digital asset project is to achieve decentralization,
where no single person or group of people controls the
underlying network. It is my hope that this legislation will
encourage projects to reach that goal. Mr. Raman, as you know,
a key component of achieving decentralization is cultivating a
broad community of adopters who contribute to the ecosystem and
use the digital assets that power these networks. In your view,
how important is it for projects to make end-user distributions
and allow retail participants to take part in capital raises?
Mr. Raman. Thank you for the question, and I think this is
one of the core opportunities of blockchains like Ethereum,
which is giving open access to the whole world to participate.
This is about retail and consumers sharing the upside, not just
having tightly controlled distributions, the current way of,
for example, using VCs.
Mr. Steil. It is important for the entire ecosystem, right?
Mr. Raman. Entire ecosystem.
Mr. Steil. In your opinion, does the CLARITY Act protect
retail investors who participate in digital asset capital
raises, which you just referenced is so important?
Mr. Raman. I think it gives much-needed clarity for that,
yes.
Mr. Steil. Thank you. Let me jump to the DeFi side, if I
can. The CLARITY Act continues or creates new registration
categories at the CFTC for centralized intermediaries, such as
exchanges, brokers, and dealers. The risks these entities pose
are well understood, and our regulators have decades of
experience addressing those risks and protecting consumers. Ms.
Minarik, if I can, would you agree that no single person or
group of people control Uniswap protocol because there is a
little bit of the dialog that was going on moments ago with my
colleague.
Ms. Minarik. Yes, Congressman.
Mr. Steil. Given that, would it make sense to subject the
protocol itself to a regulatory framework designed for
centralized intermediaries?
Ms. Minarik. Absolutely not.
Mr. Steil. Let us now look at what the EU did, their
framework, and other international regimes. Let us look at the
EU framework that carved out decentralized finance, DeFi, from
the regulatory regimes intended for centralized entities. Is
that what the European Union did?
Ms. Minarik. Yes, that is exactly what they did.
Mr. Steil. I think it is important to know that is
essential to make sure that DeFi is operating and working in
the United States. I think the CLARITY Act provides significant
clarification and is a huge step forward. I thank you for your
leadership, Mr. Chairman. I yield back.
Chairman Hill. The gentleman yields back. The gentlewoman
from Texas, Ms. Garcia, is recognized for 5 minutes.
Ms. Garcia. Thank you, Mr. Chairman, and thank you for
convening this hearing. This is not the first time that we are
sitting here talking about cryptocurrency. It is the new shiny
product, and it could expand financial inclusion and bring
digital assets to historically underbanked communities, like my
district. As we debate how to best regulate cryptocurrencies,
we have completely left all those people behind. They are not
part of the conversation. Folks in my district are worried
about where to find their next meal, especially as my
Republican colleagues slashed the Supplemental Nutrition
Assistance Program (SN program, Medicaid, and other necessary
programs in the one big ugly bill they rammed through the House
2 weeks ago. Now apparently, they want to ram a one big ugly
crypto bill this week. Meanwhile, investors are getting scammed
out of their hard-earned money with meme coins and unstable
markets.
I think we should just rename this, instead of the CLARITY
bill, the Calamity bill because just last week, we saw that the
millionaire holders of Trump's meme coin went to a dinner
where, even though they paid millions, ``The food sucked.''
They are buying favors with two-bit scams. This dinner makes it
clear that regulators are not able to regulate cryptocurrency.
As Mr. Himes noted, the crypto bills are recklessly being
pushed through Congress only to serve to legitimize these
crypto scams and lack critical investor protections. It makes
it easier to defraud hardworking Americans saving for
retirement, a home, or college. In fact, since Trump took
office, regulators have rescinded regulations and dropped
critical enforcements. Most recently, the SEC officially
dropped its lawsuit against Binance, a major crypto exchange
that admitted--admitted to voluntarily--to violating U.S. anti-
money laundering and sanction laws.
Mr. Massad, in your opinion, does this bill address that
anti-money laundering?
Mr. Massad. Thank you, Congresswoman, for the question. I
do not think it does sufficiently. It does provide that certain
crypto firms would be subject to the Bank Secrecy Act, which is
a good thing, but one of the challenges with crypto is that
these assets can be transferred without going through an
intermediary.
Ms. Garcia. Right, we have discussed that, but do you think
it adequately addresses it?
Mr. Massad. No, I do not. I think the Treasury Department,
2 years ago, requested more authority to address that sort of
thing, and I do not see that in this bill.
Ms. Garcia. This Calamity bill also includes a section that
requires a study that identifies digital commodity registrants
owned by foreign adversaries. This is extremely concerning. Is
this not almost admitting that foreign adversaries are already
using crypto?
Mr. Massad. Foreign adversaries are certainly using crypto.
We have seen North Korea hack various crypto protocols, various
exchanges. We have seen Russian smugglers use stablecoins to
buy weapons.
Ms. Garcia. Do you think this legislation addresses any of
these national security threats?
Mr. Massad. Again, not sufficiently. I think, again, what
we need to do is really give the Treasury Department more
authority with respect to crypto, generally. A number of
proposals were made a couple of years ago. I think those could
be included in here. The BSA framework applies to centralized
intermediaries, and that is not enough. Again, I recognize the
complaint that the traditional framework is not perfect, and
sure, blockchain provides information.
Ms. Garcia. But we do not need to make it uglier.
Mr. Massad. We need to make it better.
Ms. Garcia. Better. Mr. Behnam, you testified in your
testimony that you encourage this committee to ensure that
State and local law enforcements remain a key partner in fraud
prevention. Can you explain that in simple terms because I need
to go to my last question very quickly?
Mr. Behnam. Sure, Congresswoman. Very quickly, State law
enforcement, they have boots on the ground. There is only so
much a Federal law----
Ms. Garcia. It is a critical piece.
Mr. Behnam. Yes.
Ms. Garcia. Yes.
Mr. Behnam. There is only so much a Federal law enforcement
agency can do.
Ms. Garcia. Do you think, in your opinion, that this bill
is ready for us to sit down and mark up and send to the floor?
Mr. Behnam. I think there probably could be some
improvements around making sure that----
Ms. Garcia. So your answer is, no, it is not ready?
Mr. Behnam. Can you repeat the question?
Ms. Garcia. I said do you believe that this bill is ready
for us to mark up, literally go through it and send it to the
floor?
Mr. Behnam. There are imperfections----
Ms. Garcia. Sure. I just need a ``yes'' or ``no'' because
my time is running out, and I want to ask the whole panel that
same question.
Mr. Behnam. I do think it is ready for a markup out of
committee.
Ms. Garcia. You do think it is ready for markup, Ms.
Minarik? Yes or no please because----
Ms. Minarik. Ready for markup.
Ms. Garcia. Okay. Mr. Massad?
Mr. Massad. Absolutely not.
Ms. Garcia. No? Raman?
Mr. Raman. I think it is ready.
Ms. Garcia. Is it Roisman?
Mr. Roisman. Roisman. Yes, ma'am.
Ms. Garcia. Yes ma'am, what?
Mr. Roisman. Congresswoman, I do think it is ready for
markup.
Ms. Garcia. All right. Thank you. I yield back.
Mr. Steil [presiding]. The gentleman yields back. The
gentleman from Florida, Mr. Donalds, is recognized for 5
minutes.
Mr. Donalds. Thank you, Chairman. Witnesses, thanks for
being here. We have been going through this conversation around
digital assets and, really, the regulatory environment for
quite some time on Capitol Hill, and one thing is clear, that
this industry is growing, that more people, not just Americans,
but more people around the globe are choosing to engage in it,
and what is stopping the flourishing of that industry in the
United States in a sound marketplace is Capitol Hill.
The CLARITY Act seeks to do what needed to be done for
quite some time, is to, as its namesake, bring clarity to the
regulatory structure here in the United States so you can have
fledgling entrepreneurs, you have people who are trying to seek
value, those who are seeking investment, those who are major
players, all understand the basic rules to the road when it
comes to engaging with the regulatory agencies. In short, it is
time for Congress to bring clarity. Ongoing collaboration
between the SEC and the CFTC is essential for effective
oversight of these markets. The CLARITY Act includes several
provisions that require coordination between the two Agencies,
particularly in areas such as definitions, to ensure they are
aligned and operate from a consistent framework.
Mr. Roisman, given the challenges with joint rules and
cumbersome administrative processes, how does the CLARITY Act
strike the balance between collaboration and efficiency?
Mr. Roisman. Thank you for the question, and thank you for
your introduction, which I think is apt. I think it is never
perfect to leave to regulators to help define things. As Chair
Behnam talked about earlier, you are just doubling the
workforce in some cases where you have 10 commissioners rather
than five. That said, on the guidance that is in this bill, I
think it is important for the SEC and the CFTC to work together
on things that will be sort of critically important to further
Congress' sort of intention of defining what is a digital
commodity, how they will sort of regulate and oversee these
markets. I think it does a good job of that.
Mr. Donalds. As a follow up to that, how does a memorandum
of understanding differ from other joint efforts, including
rulemaking that agencies are often required to do as a result
of legislation?
Mr. Roisman. A memorandum of understanding really depends
on, obviously, what is in it, but a joint rulemaking will
require them to work together, put forward a rulemaking for the
public to comment on. Both Agencies will do it, and they will
work together to find a place they can all meet in the middle.
Mr. Donalds. Ms. Minarik, I have a question for you. In
addition to clearly defining jurisdictional boundaries, what
other guardrails should be imposed to prevent agencies from
engaging in another Choke Point Operation against digital
assets?
Ms. Minarik. I think clear definitions of the technology
itself are important because what we saw over the last several
years was a stretching of the law to reach technology that it
simply did not reach, but we could clarify that through
legislation.
Mr. Donalds. Okay. I appreciate that. Development in the
blockchain space is accelerating rapidly, yet existing
regulations make it difficult for everyday investors to
participate in initial offerings. The CLARITY Act attempts to
ease this difficulty with a new digital asset specific
exemption that permits retail participation. Mr. Raman, did I
pronounce that correctly?
Mr. Raman.
[Inaudible].
Mr. Donalds. Okay, good. Thank you. Mr. Raman, how will
this access benefit retail investors and incentivize projects
to reach maturity?
Mr. Raman. I think blockchains are grassroots technology,
and by having retail and consumers able to participate in the
upside, it levels the playing field. It creates a new
opportunity that everyone can participate in, invest in, and
have governance over. It is a truly decentralized system, and
the framework you have set up is the step to get there.
Mr. Donalds. I agree with you. I think in short, when it
comes to retail investors, we have to find ways to, for lack of
a better phrase, democratize finance and I would hope that our
colleagues on the other side of the aisle join us in that
effort. If you are truly concerned about the big guys getting
advantages on every investment vehicle before it actually hits
the street, how about freeing up the regulatory environment so
the little guy can actually get in on the ground floor? Let us
be very clear, investments in their nature carry risk. We all
know this. To stop the small person, the little guy from being
able to engage because Big Brother has decided for them that
they are either, A, not intelligent enough, or B, do not have
the ability to risk their own capital, defeats the very purpose
of helping them achieve wealth and achieve the American Dream
here in the United States. This is a great bill. I look forward
to the markup. I yield back.
Mr. Steil. The gentleman yields back. The gentleman from
California, Mr. Liccardo, is recognized for 5 minutes.
Mr. Liccardo. Thank you, Mr. Chair, and thanks to all our
witnesses. Chair Behnam, I want to ask if you could complete
the answer that I think you were trying to provide to Ms.
Garcia. I would just like to understand how you believe we
could make this bill better in markup.
Mr. Behnam. Across the board?
Mr. Liccardo. Yes.
Mr. Behnam. Yes. Thanks, Congressman. I mean I say this in
my statement, one, and I will always start with this, funding
for the Agencies is key.
Mr. Liccardo. Right.
Mr. Behnam. I do think the DeFi area, this was a really
challenging area when I was Chair of the CFTC, where you have
to balance between a centralized exchange that has clear sort
of direct regulatory oversight versus DeFi. We had a number of
enforcement cases around DeFi, where there were serious legal
questions about what authority an agency has where there is a
decentralized sort of group of participants and no central
unit, and I do think there is room for improvement in the AML/
KYC part. That is so critical to this particular area, and I do
think the mature blockchain, these are the areas that are very
difficult, right, because you have very unique issues in this
particular space that are not representative or not present in
any other space. With respect to the SEC and the CFTC, the two
Agencies have struggled at times to define certain assets,
whether it is swaps, futures 50 years ago, and then even some
index-based products currently. It will take time for
jurisprudence to develop around the digital asset space.
With respect to an asset starting as a security where folks
are raising capital and then it becoming mature and sort of
flipping over to a commodity. As much as I do think the
committee did a good job in framing that issue and figuring out
how to make that transition, it is extremely difficult and it
will take time. Those are the areas with respect to a committee
markup that I would focus on over the next couple days or weeks
to ensure that this bill is strengthened and improved.
Mr. Liccardo. This may relate to the DeFi issue you raised,
but I just want to go a little further into scope because I
think both you and Mr. Massad have identified the fundamental
core challenge we are trying to solve with this legislation,
which is an enormous regulatory gap. As I think about all the
pump-and-dump schemes and the rug pulls that happen routinely
in this space with regard to meme coins, with regard to non-
fungible tokens (NFTs) not going to be regulated by the CFTC
under this proposed statute, it is not clear in my mind who
does regulate in that space. If it does not rise to the level
of FinCEN and some kind of large criminal enterprise, who
regulates there, then should we not be doing something in this
bill to address that enormous gap?
Mr. Behnam. It is an extremely important question. I even
recall, I think, going back to when I was a commissioner in
2019 and 2020 thinking about the distinctions between a
centralized exchange, where you have a more currency or
financial asset like product, Bitcoin, Ether, trading in a very
traditional way, where you have buyers and sellers and a
typical order book. These collectibles are, in fact, that in
many respects and I think Chairman Massad pointed out, it is a
little bit of a gray line. I am paraphrasing a bit because, in
some respects, I think about it in the context of contract law
and maybe perhaps like the Federal Trade Commission about what
relationships we are having between people committing fraud
around the value of an asset. It is more of a bilateral
counterparty relationship as opposed to what we view
collectively as what a market looks like and having bids and
offers and a continuous order book.
I cannot give you a perfect answer, but it is not unlike,
and I will go here, the event contract space, where I have been
very vocal about where the line should be for the CFTC in terms
of what it regulates. There are certain products that are
historically very much accustomed to an order book and a
marketplace, but because of technology and because of investor
demand, we are seeing a whole new set of product-type assets
that people can trade in ways that are somewhat similar to an
exchange but distinct as well, and this is where I think it is
going to be very difficult. As much as I do think the commodity
definition captures the largest tokens, it is going to capture
well over 70 to 80 percent of the market, the largest tokens,
which end up being about five or so but I do think Chairman
Massad is right. If you look at a Coinbase or some of the other
large exchanges, they are listing dozens and dozens of tokens
which do not have a lot of value. The vast majority of them do
not trade very often and do not have too much liquidity or
volume, and I think those are the areas where it could slip
through cracks.
Mr. Liccardo. Thank you.
Mr. Steil. The gentleman's time has expired. The gentleman
from South Carolina, Mr. Timmons, is now recognized for 5
minutes.
Mr. Timmons. Thank you, Mr. Chairman, and thank you to the
witnesses for joining us. Near the end of this critical
endeavor, I often remind industry representatives, whether they
are major players or niche blockchain innovators, that we must
get this right the first time. Once this car is on the road,
there might not be an exit for quite a few miles. I firmly
believe that Chairman Hill and Chairman Thompson have crafted a
bill that not only addresses regulatory uncertainty but also
positions the United States to be a global leader in crypto for
decades to come.
Ms. Minarik, first, thank you for being here today just
days after recovering from a health scare. If that does not
show Congress how important this legislation is for you, I do
not know what will. I had a great visit to Uniswap HQ a few
weeks back where we discussed the importance of the CLARITY
Act, and the excitement surrounding Congress getting this
across the finish line. For companies like yours, what does
passing this legislation mean for attracting talent to the
United States?
Ms. Minarik. Thank you for the question, Congressman, and
for the kindness. I appreciate that. Having been a part of this
industry for several years now, I can say that all of us are
extremely excited about the opportunity to bring more talent
back to the United States to do more building back in the
United States. In the last few years, we have lost a lot of
products or projects to overseas development, or that
development just did not happen at all. If we have rules of the
road, then we have an opportunity to bring back economic
activity, innovation, and jobs to America in this space.
Mr. Timmons. Thank you for that. In light of recent SEC
rulemakings and the rollback of specific enforcement actions,
how do the definitions and regulatory clarifications introduced
in this legislation create a sustainable compliance framework
that enables digital asset firms like yours to scale operations
and innovate securely over the next 4 years and beyond?
Ms. Minarik. I think a couple of critical pieces of this
bill that are so important are, number one, that it confirms
certain aspects of existing law that have long been true, but
yet, we as an industry have had to fight over at the cost of
hundreds of millions of dollars in court for years, including
the secondary market trading of most digital assets that is not
securities transactions, but now we know that there will be
ways for new projects to launch, to fundraise. There was no
clear path for that before, so it opens up more activity where
that was chilled under the prior administration.
Mr. Timmons. The status quo has clearly changed, and the
future is only brighter. Mr. Roisman, from your time at the
SEC, can you detail specific examples of how overlapping
domestic Agency jurisdictions have impacted market
participants' ability to innovate or operate efficiently?
Mr. Roisman. I think some of my fellow witnesses talked
about this. In certain cases, there has been delayed innovation
because of uncertainty about whether things are a swap or a
security-based swap, and so what I think this bill hopefully
does is sort of tell the regulators what is in their lane and
what is not in their lane. As a result, I think they can work
together to sort of ensure that there are adequate protections
and regulation.
Mr. Timmons. Thank you for that. I also want to ask about
foreign regulatory inconsistencies, especially given your
experience with international frameworks. How do these
inconsistencies impact cross-border digital asset activity,
and, in your view, what are the most effective ways to
reconcile them?
Mr. Roisman. Chairman Mr. Behnam talked about this as well.
I think it is important for the United States to get its sort
of songbook right and then work with other regulators. A big
part of this is obviously mutual recognition and comity, so I
am hopeful that whatever happens, there is consistency and
ability for people to work across the globe.
Mr. Timmons. I appreciate that. I am going to finish up
with just a few simple really yes/no questions. Does the status
quo of crypto regulation or lack thereof provide certainty to
entrepreneurs or clear protections to consumers, Mr. Roisman?
Mr. Roisman. I am happy to say there is great uncertainty,
but I think Mr. Raman will----
Mr. Timmons. Mr. Raman?
Mr. Raman. There is great uncertainty without rules of the
road.
Mr. Timmons. Thank you. Are the status quo and the threat
of regulation by enforcement sustainable, Mr. Roisman and Mr.
Raman?
Mr. Raman. No, regulation by enforcement has kept a lot of
innovation at bay that is all ready to be enacted.
Mr. Timmons. Thank you. Would Congress passing digital
asset market structure legislation solve both of these
problems?
Mr. Raman. It would definitely give the clarity to move us
in the right direction.
Mr. Timmons. I guess my last question is, what are the
consequences if we fail to pass digital asset market structure
legislation?
Mr. Raman. Blockchain innovation is going to happen anyway.
We want to build in the United States. It will not happen in
the United States.
Mr. Timmons. It just will not happen here. We got to get
this right. We got do it now. Thank you, Mr. Chairman. I yield
back.
Mr. Steil. The gentleman yields back. The gentleman from
Texas, Mr. Green, who is also the Ranking Member on the
Subcommittee on Oversight and Investigations, is now recognized
for 5 minutes.
Mr. Green. Thank you, Mr. Chairman. I thank the ranking
member and the witnesses for appearing as well. Mr. Massad,
this may be a little bit afield of where we are today, but it
is of concern to me. By the way, I thank you very much for your
candor and being forthright. It means a lot to me to hear such
testimony, but I am concerned about how cryptocurrency can
impact the dollar as the currency of choice, and here is why.
Currently, the dollar is the reserve currency of choice, and as
such, we use the dollar when we want to sanction other
countries. Other countries want to do business with us, so they
keep the dollar in their reserve. If we move to this
cryptocurrency with a decentralized cryptography and a peer-to-
peer relationship, that can take the central bank out of the
picture. So, you do not have a central bank. You have a peer-
to-peer relationship. That allows money to be moved freely
among peers.
My concern is when we are trying to sanction a country that
country now has the ability to move the money, just as we talk
about the corruption. They can move this money among
themselves, and we will not be able to sanction as well as we
can now. Is that a possibility? Does it impact on our ability
to maintain the sanction regimes that we put in place?
Mr. Massad. I believe that it does, but in a different way,
Congressman. I do not worry about Bitcoin or Eth becoming a
replacement for the dollar. I just do not see that happening
despite some claims of Bitcoin enthusiasts. They are just too
volatile. They are not backed by a government. Stablecoins can
actually help solidify the role of the dollar as a currency of
international transaction. This is where I agree with you
because stablecoins and other crypto assets can be transferred
without going through an intermediary like a bank. That is
where you create the risk that we cannot impose sanction
programs as effectively. We saw that with Russian smugglers
using Tether to buy weapons. There were concerns about Hamas
using crypto to fund itself.
Look, I think this technology is very important. I want to
support it, but we have to give the Treasury Department and
other regulators adequate tools to deal with those risks, and I
do not think we have done that yet.
Mr. Green. Thank you and I agree, and my concern has a lot
to do with how we will lose this ability to bring some of these
countries that are outliers who are doing dastardly things, and
we want to make sure that we can curtail their activities. I do
not know that we will have an efficacious methodology through
which it can be done.
Mr. Massad. Yes, I share the concern again. Again, I
recognize that blockchains provide permanent information on
transactions. Law enforcement likes that to the extent they can
identify who someone is, but it is still after the fact, right?
The money could have been moved. Again, I just think we need to
think a little bit more broadly about what are the tools that
we need. We need to impose obligations on stablecoin issuers to
monitor their chains for suspicious wallets. We need to give
the Treasury authority over stablecoin transactions the same
way it has over dollar transactions generally. We need to give
the Treasury more authority with respect to foreign
intermediaries like crypto trading platforms. There are a
number of things we could do that we have not done yet.
Mr. Green. Thank you. You answered the second part of my
question, and you have given me some degree of comfort, but I
am still concerned about this war for currency supremacy, and
in this war for currency supremacy, Russia and China are both
at odds with us. They would rather the dollar not be the
preeminent currency of choice for reserves, and I do not know
how ultimately it will end, but I do know that there is a real
effort made now to take the dollar down. Thank you.
Mr. Steil. The gentleman yields. The gentlewoman from
California, Mrs. Kim, is now recognized for 5 minutes.
Mrs. Kim. Thank you, chairman and ranking member of the
committee, for hosting this hearing, and I want to thank all
the witnesses for joining us today.
The State that I represent, California, has been a leader
in cryptocurrency adoption with over 1,000 Bitcoin ATMs
throughout the State and more than 8.2 million residents owning
a digital asset. My alma mater, University of Southern
California (USC), hosts an annual Southern California
Blockchain Conference so they can highlight the future of
digital assets and blockchain technology. Californians are
really excited about the potential and future of digital
assets, but unfortunately, by not passing FIT21 last year, a
legal cloud continues to hang over blockchain usage in America.
This CLARITY Act, which is led by our Chairman, French
Hill, will finally provide regulatory certainty so that America
can drive the next generation of financial innovation and
protect consumers like my constituents who want to participate
in the digital asset market. The opponents of digital assets
often criticize the technology because of its ties to illicit
finance. Let me ask the first question to you, Mr. Behnam. How
are platforms engaging in the offer and sale of digital
commodities to eliminate illicit finance?
Mr. Behnam. Thank you, Congresswoman, for the question. As
much as the market regulation is missing, something I have long
advocated for, many of the centralized exchanges that operate
in the United States and offer products to the United States,
customers do have to comply with both State money transmission
requirements and also Treasury requirements within FinCEN. So,
there are mechanisms in place already around AML and KYC and,
to an extent CIP, which we would----
Mrs. Kim. You want to borrow my mic? Yes.
Mr. Behnam [continuing]. and not just the States and the
Treasury Department itself.
Mrs. Kim. Great. I am not sure if everybody heard, but can
you----
Mr. Steil. We may need to have you borrow another mic if
your mic is not working.
Mrs. Kim. Yes.
Mr. Behnam. I think they are all back now.
Mrs. Kim. Yes, sure.
Mr. Behnam. They all went out.
Mr. Steil. Are they back on now?
Mrs. Kim. Let me just ask a follow up question. Is that
regulation equivalent to how platforms in traditional finance
are regulated?
Mr. Behnam. Yes. Typically, in the traditional financial
space, you will have regulation around the exchanges, the
broker-dealers, the custodians, and with that regulation, comes
very exhaustive requirements around AML and KYC, again, in
conjunction with both States and the Treasury Department, which
has a unique authority because of the cross-border nature of
money. I do think without those protections and without that
regulation in the crypto space, as much as the crypto exchanges
are complying with State-level regulations and the Treasury
Department regulations, there are components missing, which I
pointed out earlier----
Mrs. Kim. Yes.
Mr. Behnam [continuing]. which can certainly strengthen AML
and KYC.
Mrs. Kim. Thank you. It is really important to note that
the CLARITY Act creates strong anti-money laundering,
counterterrorist financing protections and I believe that this,
coupled with the financial literacy provisions of the bill,
will provide high levels of consumer protection. Section 5 of
the CLARITY Act requires a study on expanding financial
literacy among digital commodity holders. I have heard
firsthand about how the digital asset ecosystem grapples with
high rates of fraud and scams. Ms. Minarik, can you talk about
how a study like this one in the bill could help combat that
issue?
Ms. Minarik. Yes, I do think because DeFi is such a new and
different technology from centralized platforms, that it is
important to study the risks and benefits. With DeFi, yes,
there is not a traditional KYC/AML regime, but there is robust
and often real-time blockchain analytic review to identify bad
actor wallets and stop transactions. This is new technology and
so studying it will help us identify tools that will serve
these broader interests. The BSA itself is a broken and, in
many ways, a dying tool because AI can defeat it and because it
is creating honeypot after honeypot of giant troves of
information within companies, so we should be looking for
better tools.
Mrs. Kim. Thank you. As we heard here today, the United
States has been behind in providing regulatory clarity to the
digital asset industry. The European Union's market in crypto
asset regulation was enacted over 2 years ago, and since then,
we have seen a drop in blockchain and digital asset developers
and companies under the Biden-Harris Administration. Mr. Raman,
how could the CLARITY Act help the U.S. incentivize digital
asset developers and projects to come back?
Mr. Raman. Thank you for the question. With rules of the
road, institutions, companies will hire. Your State had Silicon
Valley, and it created the next wave of innovative companies in
the United States----
Mr. Steil. The gentleman can further answer the question in
writing.
[The information referred to was not submitted prior to
printing.]
Mr. Steil. The gentlewoman's time has expired. The
gentlewoman from Michigan, Ms. Tlaib, is now recognized for 5
minutes.
Ms. Tlaib. Thank you so much, Mr. Chair. I am going to
start with a yes or no question. I hope that is okay. Is
corruption possible when a company or a foreign actor seeking
to influence government policy can pour millions or even
billions of dollars into a venture benefiting the President of
the United States, Mr. Roisman?
Mr. Roisman. I am afraid I am not going to talk about any
individual.
Ms. Tlaib. It is Okay. It is Okay. I understand. Go ahead.
It means yes, by the way, but go ahead. Could there be
corruption?
Mr. Roisman. I am here talking about a blockchain network,
Ethereum----
Ms. Tlaib. Of course you do not want to answer. How about
you, Russ? Just be honest, you guys. Yes.
Mr. Behnam. Yes.
Ms. Tlaib. Of course. How about you, Ms. Minarik?
Ms. Minarik. Misconduct is always possible.
Ms. Tlaib. Yes. Mr. Massad?
Mr. Massad. I am sorry. Was the question whether there
could be corruption?
Ms. Tlaib. Corruption is possible when a company and a
foreign actor invest----
Mr. Massad. Yes.
Ms. Tlaib [continuing]. into a----
Mr. Massad. Yes.
Ms. Tlaib [continuing]. venture financially benefiting the
President of the United States?
Mr. Massad. Absolutely. Of course.
Ms. Tlaib. Absolutely. The answer is obviously yes.
Unfortunately, the President of the United States has crypto
projects--I want the American people to know this--provide
exactly such opportunities for corruption. I want to talk a
little bit about this because I think it is important if we are
going to talk about legislation. Freight Technologies, Inc.
facilitates international trade, right? Freight Technologies
recently announced it was spending about, what, $20 million
dollars to purchase Trump's meme coin, right? The company's
press release explicitly stated that doing so ``is an effective
way to advocate for its preferred trade policies.'' Companies
are flat-out saying that they are trying to buy influence and
access via crypto corruption, but it gets worse. Just one
company, Binance--yes, we are going to talk about Binance--can
easily put twice the amount in the President's pocket each
year. The Emirati, what is it, State fund, GILCHRIST:--fancy
little names
--is investing about $2 billion in Binance via the USD1,
right, the stablecoin owned by Trump. USD1 is owned by Trump's
family's company, World Liberty Financial. If Binance keeps the
money in the USD1, the Trump family can earn interest on that.
Is that correct? Right?
Mr. Massad. Yes. Indirectly, yes.
Ms. Tlaib. That is because the stablecoin issuers are like
a bank, right? They are functioning like a bank.
Mr. Massad. Effectively, yes.
Ms. Tlaib. Mr. Massad, can you briefly explain how the
World Liberty Financial acts like a bank by acquiring these
funds, which it can then later invest?
Mr. Massad. Any stablecoin issuer takes in dollars, issues
stablecoins, and then it invests those dollars in Treasury
bills or other things, and there is a yield on that which
benefits the stablecoin issuer.
Ms. Tlaib. Let me talk about the yield. Two billion dollars
invested at 3 percent annual return----
Mr. Massad. It is a lot of money.
Ms. Tlaib [continuing]. will yield $60 million a year, and
with World Liberty Financial, the Trump family pockets 75
percent of the returns. That is $45 million in annual profits
for the Trump family. Here comes the corruption, the one you
guys did not want to answer, and would you not know it, in just
weeks after the Binance-World Liberty Financial deal, Trump's
SEC dropped the lawsuit against Binance--is not that correct--
like that. Now, World Liberty Financial claims to be
decentralized, but reporting indicates it is primarily owned
and controlled by the Trump family, a suspected fraud artist,
Justin Sun. You all know the investment firm, DWF Labs. Mr.
Massad, what are your thoughts on a crypto platform that claims
to be decentralized, but demonstrates its clear centralized
ownership and control?
Mr. Massad. Again, the term ``decentralized'' is thrown
around so much.
Ms. Tlaib. Yes.
Mr. Massad. With all of these platforms, you really have to
look at, well, are not there vectors of control? Are there not
either people who own administrative tokens that give them
certain rights, or other arrangements? So, you cannot just
assume.
Ms. Tlaib. My colleagues here are talking about the CLARITY
Act. How will World Liberty Financial, owned by the Trump
family, be regulated under the CLARITY Act?
Mr. Massad. I am not sure.
Ms. Tlaib. They are not going to be regulated.
Mr. Massad. I mean----
Ms. Tlaib. I mean, it does nothing----
Mr. Massad. It depends on what their activities are.
Ms. Tlaib. It does nothing to stop the companies from using
decentralized as a smokescreen as predatory schemes. Does it
stop them with the CLARITY Act?
Mr. Massad. No. One of my big concerns about the act is the
breadth of that DeFi exception.
Ms. Tlaib. That is right.
Mr. Massad. Yes.
Ms. Tlaib. That is right.
Mr. Massad. Time has expired, I think.
Ms. Tlaib. No, it is okay. It is fine. Let us be honest
about this because he will not be the last President that does
this. Maybe pretend it is not him and it is a future President
that will use these schemes----
Mr. Steil. The gentlewoman's time has expired. The
gentleman from New York, Mr. Garbarino, is recognized for 5
minutes.
Mr. Garbarino. Thank you, Mr. Chairman. Blockchain
technology and digital assets offer America the chance to lead
another generation of critical innovation that unlocks new
economic opportunities for all. Unfortunately, as we heard from
many of my colleagues today, the current regulatory framework
leaves much to be desired. We must ensure that the United
States remains a global leader in financial and technological
innovation, and I believe that the CLARITY Act is a step in the
right direction. I am having trouble reading here. I commend
Chairman Hill's leadership along with the Ag Committee's
colleagues on this issue. I look forward to providing some
much-needed clarity to rather opaque regulatory landscape
surrounding digital assets. As part of this push, it is
important to understand the current landscape in which digital
asset projects are raising capital. Today, investors can make
investments in digital asset projects through a series of
exemptions, each with their own advantages and limitations.
Mr. Roisman, what are the different exemptions that digital
asset projects are currently using to raise money with
investors and any obstacles that they pose?
Mr. Roisman. There is a myriad, and thank you for the
question. It goes to a point that Mr. Raman was talking about
earlier, which is, there have been sort of limitations for
projects to get access to capital and for ordinary investors to
participate in some of this. Traditionally, I think people look
to Regulation D, some look to Regulation A, and maybe even to
crowdfunding. The new sort of exemption offered here would be
one that could be specific to projects that are trying to reach
maturity.
Mr. Garbarino. Again, how does the CLARITY Act approach the
existing exempt offerings at the SEC?
Mr. Roisman. I want to be clear. At least from my reading,
and I apologize if I am misreading it, this is only one
particular offering. The capital-raising transactions for
digital assets still will be under the SEC's framework. All
this is doing is saying there is a particular exemption for
ones that are projects that are trying to be mature
blockchains. With them, they get certain requirements from the
SEC and from Congress about what they need to provide to the
SEC and to investors. I think Chairman Hill talked about this
earlier, there is still anti-manipulation, anti-fraud authority
for the regulators.
Mr. Garbarino. This exemption, how does it solve some of
the limitations with the current exemptions, these new
exemptions?
Mr. Roisman. I think Mr. Raman talked about this earlier,
which is, I think it incentivizes people to build products that
are mature and have access to capital, as well as allowing sort
of everyday, nonaccredited investors to participate. I just
want to comment on something my colleague has said. I certainly
firmly believe, and I think everyone here does, there needs to
be adequate investor protections for people. Otherwise, this
does not work. No one wants to create an exemption that could
be abused, and I think the idea is the SEC has authority to
sort of further tailor this, and that is the idea.
Mr. Garbarino. You briefly mentioned that there were still
some protections for investors. Can you walk through those?
Mr. Roisman. I do not think we have enough time, just
because I do not remember all that.
Mr. Garbarino. Very important. We want to make sure we get
this on the record.
Mr. Roisman. Look, I think there are things like ensuring
that sort of affiliated persons and related persons are not
able to sell out immediately after sort of like an insider
trading faction. There are requirements for the offering
documents that must be published with the SEC. There are
requirements relating to what is provided to the purchaser,
things like risk factors. My understanding is these things
would be traded on broker-dealers and subject to sort of the
traditional regulation vested interest in other parts of it. I
commend the chairman for his work on this, and if there is
anything missing, people should let him know, and I think the
regulators can provide additional technical assistance if it is
necessary.
Mr. Garbarino. Thank you. Finally, a common way for a
project to distribute digital assets to its users is through
broad distributions in order to support the development of its
network. Mr. Raman, how does the proposed legislation treat
digital assets distributed in this manner, and why does this
treatment more accurately correspond to how the digital asset
market operates?
Mr. Raman. Thank you for the question, and I think under
the previous SEC, everything was a security, and that is not
the actual case for a new technology and a new wave of assets.
A lot of the tokens powering blockchains, like Eth powering the
Ethereum blockchain and securing the Ethereum blockchain, are
commodities. This gives clarity that network tokens that are
distributed fairly from launch via airdrops or via other
community ways of distributing tokens are actually commodities
and would be regulated differently.
Mr. Garbarino. My time has expired. I yield back.
Mr. Steil. The gentleman yields back. The gentlewoman from
Colorado, Ms. Pettersen, is now recognized for 5 minutes.
Ms. Pettersen. Thank you, Mr. Chair. I want to thank the
witnesses for being with us today, and especially Ms. Minarik,
as I understand you are recovering from pneumonia and still are
here in person. We appreciate you.
I am also deeply concerned about the President's profiting
off of the presidency, and especially how he is using digital
assets to do so. While I know that is been covered extensively,
I just want to make sure that I express my deep concerns here.
Outside of the President and his actions, I know that this is
really important that we come together to provide clarity, to
make sure that we are not seeing businesses move from the
United States offshores. That we are actually providing this
framework in order to make sure that we continue to thrive here
in the United States, and that we bring protections for
consumers. I was one of the Democrats that supported FIT21 in
the past. While, of course, there were still outstanding
issues, like any bill, I thought that it provided a path for
the regulation necessary, and that clarity.
I know that many of us want to be there in providing
additional amendments so that we can make sure that we are
doing this in the right way, and this has a real path to
becoming law this year, as you know, and it is important that
we get this right. When we look back in 25 years, it is not
going to be did we get it done before August recess and did we
get it done alongside the stablecoin bill or in front of the
Senate version. It is going to be, did we do this right and
protect our financial system, protect consumers and provide a
durable legislation that can withstand the pendulum of the
political dynamics here at the Capitol? I urge all of us to be
able to take a little bit more time to get this right.
I know that you all, especially the chairman, has been
working around the clock to take our feedback, but I do not see
how we are going to get everything incorporated by next week.
First, I want to get that out there.
To my questions, Ms. Minarik, in your written testimony,
you mentioned that the underlying CLARITY Act is not
ideological, and that while we have disagreements in the
details of legislation, that the core of the issue is everyone
on this committee wants a framework that supports innovation
and keeps out bad actors and protects consumers. To go further
on this point, can you comment on what principles of the
digital asset ecosystem should appeal to members on both sides
of the aisle?
Ms. Minarik. Thank you. Thank you, Congresswoman. Crypto
itself is neutral technology that can be deployed for all kinds
of valuable uses: the safe and secure exchange of value, the
secure and immutable storage of data, and even digital ways to
create and share art. There are worthwhile uses of crypto for
everyone, which is what makes this a bipartisan, nonpartisan
path to market structure legislation here so possible. In
addition, the United States as a whole will benefit from
leading in this new technology, and now is the moment to take
back that leadership that we have ceded to other countries.
Ms. Pettersen. Thank you. Ms. Minarik, to that point, just
you warned about every other major economy actually providing
this framework, that businesses are moving offshore, and
America should lead the world in the industries of the future
and not cede our leadership. How urgent is the need for the
United States to establish clear regulations before other major
economies gain an insurmountable advantage in this space?
Ms. Minarik. Congresswoman, I take your caution that you
noted earlier very seriously. I do equally believe that time is
of the essence, so we have competing priorities there. I think
that the longer we take to do good market structure
legislation, the more we are ceding U.S. leadership, not just
in this innovation, but to overseas regulators who will set the
standards for Americans' use of this technology. We should be
setting those standards ourselves.
Ms. Pettersen. Great. I never usually have extra time. Is
there anything that the witnesses feel like you have not had
the opportunity to speak on? Mr. Massad, do you have anything
that you would like to add?
Mr. Massad. I would maybe add two things. We have,
obviously, talked a lot about the President's activities. I
would just point out that a lot of people I speak to in the
crypto sector also do not like what he is doing but do not feel
they can speak out, and even publications at the Wall Street
Journal have criticized----
Mr. Steil. The gentlewoman's time has expired. The
gentleman can add additional comments into the record.
Mr. Massad. Thank you.
[The information referred to was not submitted prior to
printing.]
Mr. Steil. The gentlewoman from the great State of
Wisconsin.
Ms. Waters. Mr. Chairman I seek recognition.
Mr. Steil. For what purpose does the ranking member seek
recognition?
Ms. Waters. Pursuant to Clause 2(j)(1) of Rule XI of the
Rules of the House and Clause (d)(5) of Rule 3 of the Rules of
the Committee on Financial Services, I and every single
Democratic member of the committee unanimously request to call
additional witnesses selected by committee Democrats to testify
in continuation of today's hearing, also known as Minority Day
Hearing.
Continuing this hearing with the second panel will provide
members of the committee and the American public, the
opportunity to consider and discuss additional perspectives on
President Trump's crypto conflicts of interest and corruption,
including measures like my bill, H.R. 3573, The Stop TRUMP in
Crypto Act, the effects of H.R. 3633, The CLARITY Act of 2025
on consumer and investor protection, national security, and
existing securities and commodity futures regulation, and the
CLARITY Act's potential effects on the digital asset industry
and broader financial system.
I also request unanimous consent to enter my Minority Day
Hearing request letter into the record.
Mr. Steil. It will be entered into the record without
objection.
[The information referred to can be found in the appendix.]
Mr. Steil. I thank the ranking member. Generally, House
Rule XI is reserved for when the minority is denied a witness.
Today, the minority requested Hon. Timothy Massad as their
witness, who we invited. However, we will commit to you to
adhere to House Rule XI. We previously held a subcommittee
hearing on the matter that the ranking member objected to, and
then we held a roundtable on the topic, another opportunity to
have engaged substantively on a hearing.
The gentleman from the great State of Wisconsin is
recognized. Mr. Fitzgerald is recognized for 5 minutes.
Mr. Fitzgerald. Thank you, Chairman. I have heard some of
the discussion earlier today, and some of this goes, I know,
back to 2008 when the original foundation of Bitcoin kind of
came about. There were a couple of meetings about 4 years ago
that were still looking at a determination on whether or not we
were talking about a commodity itself, or if this could take
some other form. While only some of the digital assets projects
have kind of stood the test of time, there are others that are
emerging. I was just wondering, and this is for Ms. Minarik. Do
you think the bill today deals with the nuances of what has
been in place now for some time and what is emerging as we
speak.
Ms. Minarik. Thank you, Congressman, for the question. I do
think it is very important for any legislation to meet
technology where it is at, and that is what the CLARITY Act
draft tries to do. We have talked a bit today about the
maturity test, that is one piece of it, and that helps ensure
that there are standards in place that new projects that do not
yet exist know they can follow, that are not overly onerous,
that prevent a new project from starting at all. At the same
time, there are broader requirements throughout the act for
established players as well, so I do think we see that balance
in the act.
Mr. Fitzgerald. Mr. Roisman, I know you guys have been here
a long time. Thank you for being patient. The digital asset
could be treated as a security at the time of the initial sale
or can be part of that investment contract, but the same asset
must be later offered or sold outside of that investment
contract. I am just wondering, does this bill clear that up at
all on what the initial offering was compared to where we end
up, again, as of today? I am really concerned about kind of
where we were and are we going to end up in a different place
on this whole thing.
Mr. Roisman. I think the bill tackles that head on,
Congressman, by having, I think, an exception for a digital
commodity asset, saying it can be sold as part of an investment
contract, but it is not inherently an investment contract,
meaning it is outside of the securities laws. I think it is a
valiant effort and should continue. I encourage people to
continue to talk to the regulators to make sure that it
captures adequately that concept.
Mr. Fitzgerald. Very good. Mr. Rostin, many founders and
developers find themselves navigating outdated disclosure
requirements that do not reflect the realities of what is
decentralized, and I am wondering because of the protocol of
the token-based funding models, how you see this or how this
could play out.
Mr. Behnam. Thank you for the question, and this is an
excellent step in clarifying that. I think a lot of the
innovators that wanted to make decentralized networks, whether
they are networks or applications, did not have any rules
whatsoever and had to guess----
Mr. Fitzgerald. Right.
Mr. Behnam [continuing]. or had to go abroad and just try
and avoid the whole jurisdiction. This brings clarity for that,
and that is why I am so optimistic that we are going to see so
much innovation in the United States as a result.
Mr. Fitzgerald. Do you still think there is a period of
time in which some of these things could morph out of what is
considered a commodity into some other type of entity in the
future?
Mr. Behnam. I think that over time, as things become more
decentralized, which is starting to be enumerated in this
bill----
Mr. Fitzgerald. Right.
Mr. Behnam [continuing]. you can have a globally
distributed network and a protocol that has tokens that are
globally distributed. I think it is possible.
Mr. Fitzgerald. Very good. Thank you. I yield back to the
gentleman.
Mr. Steil. The gentleman yields back. The gentlewoman from
Massachusetts, Ms. Pressley is now recognized for 5 minutes.
Ms. Pressley. Thank you. Now, in normal times, a U.S.
President trafficking in corruption would be condemned by both
Republicans and Democrats. In normal times, the appearance of
bribery, even the hint of it, would be universally denounced,
but these are not normal times. In fact, in this season of
reverse Robin Hood culture, these are the worst of times. The
Trump family is engaging in mind-boggling levels of corruption,
so blatant, so numerous that we are overwhelmed and cannot keep
up, which is, in fact, the strategy. Today I want to shed light
on, specifically, the crypto bribery scheme happening in plain
sight.
Now, Trump launched World Liberty Financial, a crypto
platform where 75 percent of revenues go straight to the Trump
family's pockets. This has become a pay-to-play corruption
game. Occupant Trump has zero interest in lowering costs for
working families but remains vigilant in his efforts to enrich
himself. Now, as further evidence of this pay-to-play
corruption game, player one is Justin Sun. In 2023, the SEC
sued him and his companies for defrauding investors,
manipulating token prices, and secretly paying celebrities to
promote tokens without disclosing payments. All of that is
illegal, but after Sun purchased $75 million worth of Trump's
tokens, he was appointed as an advisor to World Liberty
Financial, and magically, Trump's SEC dropped their case
against him, and maybe that is just a coincidence, but it sure
does look like crypto bribery.
Then there is Binance. The company's founder, Changpeng
Zhao, or CZ, was convicted for failing to prevent terrorists,
child abusers, and cyber criminals from using his crypto
exchange. Binance paid a $4 billion fine, and the SEC also sued
Binance for running an unlicensed exchange. Now that would have
been a slam dunk case. One Binance executive literally messaged
another, ``We are operating as an effing unlicensed securities
exchange in the USA, bro.'' I must say, the constituency of
bros are certainly living their best life in Donald Trump's
America, but I digress. Yet again, that case magically
disappeared after a $2 billion investment in Binance using
Trump's stablecoin, and we are supposed to think that this is
just a coincidence.
Let me ask a very simple question, and I promise you; this
is not a ``gotcha'' question. This is straightforward, so I am
looking for a straightforward answer. Should companies be able
to bribe the President of the United States to make SEC
lawsuits go away? Yes or no, and we will begin with Mr. Massad
and work back.
Mr. Massad. Absolutely not.
Ms. Minarik. No. Bribery is a crime.
Mr. Behnam. No.
Mr. Raman. No.
Mr. Roisman. I am not here to talk about----
Ms. Pressley. Let me let me say the question again, sir.
Mr. Roisman. Sure.
Ms. Pressley. Again, there is no ``gotcha'' here. This is
very straightforward.
Mr. Roisman. Okay.
Ms. Pressley. Should companies be able to bribe the
President of the United States to make SEC lawsuits go away?
Yes or no.
Mr. Roisman. I do not think anyone should bribe anyone to
make lawsuits go away.
Ms. Pressley. Yes or no.
Mr. Roisman. That is my answer, ma'am.
Ms. Pressley. Yes or no.
Mr. Roisman. I think I just answered it.
Ms. Pressley. Under Trump, the SEC is not protecting
anyone. It is not regulating. Cases are being dictated by
whoever is paying the President tens of millions of dollars'
worth of crypto bribes, and who pays the price? It is not the
billionaires or the foreign actors cutting deals behind closed
doors. It is the average Americans who use crypto for
legitimate reasons, like remittances, who are left unprotected
in a rigged system. To be clear, these crypto scams are not
simply about Trump and his billionaire friends making money. It
is even worse than that. It is about them stealing money from
everyone else. If this is not the definition of corruption,
then what is? I yield back.
Chairman Hill. The gentlewoman yields back. The chair plans
to have one more questioner prior to a brief recess while votes
are being conducted. We have time on the clock. The gentleman
from Nebraska, Mr. Flood, who is also the Chair of the
Subcommittee on Housing and Insurance, is recognized for 5
minutes.
Mr. Flood. Thank you, Mr. Chairman. While I know that some
of my friends on the other side of the aisle like to talk about
President Trump, it is important to remember that any current
activity in digital assets is taking place under the regime set
forth by the previous administration and the previous SEC.
During the last administration, there was an opportunity for
Chairman Gensler and the SEC to engage with Chairman Behnam at
the CFTC and put together joint rulemaking that could have
provided meaningful regulatory clarity in digital assets.
Sadly, the former chairman chose not to collaborate on a
solution and, instead, deepened the problem by engaging in a
series of enforcement actions that led to a thorough and
repeated rebuke of the Commission. The judge in the DEBT Box
summarized it best when he indicated the SEC committed a
``gross abuse of power,'' in their handling of that case.
Congress also had the opportunity in 2021 and 2022 under a
democratic trifecta to put forth a digital asset market
structure proposal to better regulate the industry. Part of the
reason we are still talking about the digital asset market
structure today is that both the SEC and Congress did not rise
to the occasion in the Biden years to provide clarity and, most
importantly, to protect investors.
Mr. Roisman, since the Crypto Task Force and the SEC was
formed, the Commission has done five roundtable events on
topics like tokenization and custody. Given your experience as
a commissioner during Chairman Gensler leadership, can you
speak to how significant a sea change we are seeing right now
at the SEC is regarding their approach to digital asset
regulation relative to the approach followed by the Commission
when it was led by Gensler?
Mr. Roisman. I think, first and foremost, I share what I
imagine is your viewpoint, which I commend the current SEC for
their roundtables and work in this space. There is, I think,
excitement from every facet of the industry, whether it is the
programmer, to the investors, to the businesses where they are
able to provide input about how the markets actually work, so I
do think that this is a new day, as SEC Chair Atkins has called
it.
Mr. Flood. Thank you, Mr. Roisman. Mr. Raman, given your
experience with Etherealize, can you speak about your view of
how The CLARITY Act treats DeFi?
Mr. Raman. Thank you for your question, first off, and the
CLARITY Act not only encourages but also creates guardrails and
rules of the road. DeFi, which I also like to call programmatic
finance, can be symbiotic to the U.S. economy. I think that it
creates opportunity for a lot of innovation.
Mr. Flood. Mr. Benham, during your time as Chairman of the
CFTC, you repeatedly called on Congress to provide the CFTC
with spot market authority to better regulate digital asset
commodities. If the CLARITY Act were passed into law when you
were Chairman of the CFTC, how would you act on the
responsibilities the bill provides to the CFTC over digital
asset markets?
Mr. Behnam. Congressman, thanks for the question. It takes
many steps toward giving the CFTC the comprehensive authority
it needs to regulate non-security digital tokens.
Mr. Flood. Thank you very much. With that, I yield back the
balance of my time.
Chairman Hill. The gentleman yields back. Pursuant to the
previous order, the chair declares the committee in recess,
subject to the call of the chair. We will reconvene immediately
following votes. The committee stands in recess.
[Recess.]
Mr. Downing [presiding]. The committee will reconvene and
come to order.
The gentleman North Carolina, Mr. Moore, is now recognized
for 5 minutes.
Mr. Moore. Thank you. Thank you, Mr. Chairman, and I want
to thank the testimony of the witnesses, some which I sat in
here and watched, some which I watched on TV. A couple of
things that have come to mind for me is that during the Biden
Administration, America's innovators operated, I guess, what I
would say in a cloud of legal uncertainty. The patchwork of
regulation, which was driven largely by enforcement, forced
developers to choose between navigating outdated frameworks or
simply moving their innovation overseas, as was referenced as
well. This just is not bad for business, it is bad for
consumers, it is bad for competitiveness and, frankly, bad for
our national security. While the Trump Administration has,
fortunately, taken a more constructive approach to digital
assets, it is ultimately up to this body, it is up to Congress,
to establish a clear and tailored framework that fosters
innovation and that ensures strong consumer protections. The
CLARITY Act strikes that right balance by encouraging
innovation while ensuring robust safeguards. It draws clear
jurisdictional lines between the SEC and the CFTC, allowing for
capital formation in a way that fits this unique technology.
With that being said, it did spark a couple of questions,
and I would start first with Ms. Minarik, and we have heard
from innovators who spent more on SEC compliance than they had
raised in capital. How does the new exemption pathway in the
CLARITY Act help level the playing field for U.S.-based
projects?
Ms. Minarik. Thank you, Congressman, for the question. I
will say, speaking for Unisoft Labs, as a project like that, we
as a company spent millions of dollars a year, 4 years, on an
SEC investigation when the SEC never told us the basis of the
investigation and, ultimately, 3 years later, did not sue us.
This was all before we were a profitable company. That could
have killed a lot of businesses, and that approach, we know,
did kill a lot of businesses in the United States. Having this
type of clarity to take that cost on innovation, that tax on
innovation off the table, is very important.
Mr. Moore. Thank you. Mr. Roisman, can you explain why this
framework is more suitable than trying to, I guess you would
say, to force fit these projects into a Reg D or a Reg A+?
Mr. Roisman. I think there are still opportunities for
people to use whatever exemption they want to use based on it,
but I think, as Mr. Raman and Ms. Minarik have sort of talked
about, this is sort of more aligned, I think, for projects with
this sort of framework and with this technology.
Mr. Moore. This bill also recognizes the difference between
centralized and decentralized models, so, Mr. Raman, I will
just ask you this question. Why is it so important that the
legislation protects DeFi innovation while focusing regulatory
efforts where risk is concentrated, say, on custodial
intermediaries?
Mr. Raman. Thank you for the question. The key point is
centralization is what is caused collapses. Centralization has
caused crises. Decentralization means security and reliability
and uptime, and I applaud the bill for recognizing that and for
highlighting that decentralization is an ideal that all
projects should strive toward improving the security of the
crypto ecosystem.
Mr. Moore. Thank you. I will tell you one other thing. We
really have to acknowledge that innovation in digital asset
policy really has not just come from Washington. States like my
home State of North Carolina have led the way in really trying
to create a, I would say, a forward-thinking regulatory
environment that really balances protecting consumers and
encouraging responsible innovation. Over a decade ago, North
Carolina expanded the North Carolina Money Transmitters Act to
include virtual currencies. Shameless plug for my State. If you
want to locate North Carolina, go ahead and come on. It is a
good location. In 2019, the North Carolina Blockchain
Initiative was established. Two years later, the North Carolina
Regulatory Sandbox Act was enacted, allowing for the real-world
testing of innovative financial technology and insurance. Our
State has also explored utilizing blockchain technology to
boost both security and efficiency.
Mr. Roisman, what I would say is, what benefits are there
of a regulatory sandbox to emerging technologies like digital
assets, and is there any overlap between policy goals of the
CLARITY Act and North Carolina's Regulatory Sandbox Act?
Mr. Roisman. I am not familiar with the North Carolina
Sandbox Act, but it sounds wonderful.
Mr. Moore. It was the first big, beautiful bill.
Mr. Roisman. I think that the purpose of both is to provide
clarity and to promote innovation. With those goals in mind,
having not read the other one, I think they probably are
aligned.
Mr. Moore. Let me ask, and I am almost out of time, but do
you know of any other regulatory best practices that you have
seen that the States have initiated, that Congress should
consider implementing at the Federal level to promote financial
innovation?
Mr. Roisman. I would have to think about that, sir.
Mr. Moore. Thank you. With that, I yield back, Mr.
Chairman.
Mr. Downing. Thank you. The gentleman may answer the
question in writing.
Mr. Downing. The gentleman from Florida, Mr. Haridopolos,
is now recognized for 5 minutes.
Mr. Haridopolos. Thank you, Mr. Chairman, and I would think
it would be smarter to come to Florida, but we can discuss that
another time. Mr. Roisman, I wanted to ask that question if I
could. We have learned in the prior hearings that because of
the challenges with the previous SEC, digital asset users rely
heavily on private capital to finance bringing in new digital
assets to the market. From an innovation standpoint, how
critical is it that digital asset issuers have a variety of
avenues to raise that capital, including from the public?
Mr. Roisman. I think this is just a general point, which I
think we are all in favor, which is promoting additional access
to capital for programmers or for innovative businesses, and
two, allowing ordinary investors to participate. Whatever they
use, or companies or issuers use, I think as long as there are
adequate investor protections and considerations that are
tailored for those particular exemptions, that benefit
everybody.
Mr. Haridopolos. Just to follow up, getting into another
area, how should Congress tailor SEC registration requirements
to fit for purpose when regulating digital asset issuers that
issue digital commodities, and why cannot existing SEC
requirements for issuers accommodate the digital commodity
issuers?
Mr. Roisman. I caution reading the definition up of a
relatively new bill, but I do think that the SEC is trying to
do this. That they have had the SEC task force. They have had
hundreds of meetings. They have pushed the ball forward a lot
over the last several months. I do think what you are seeing,
though, is it is complicated, and it is difficult, and it is
time consuming, and it would be a lot better if Congress
stepped in and helpfully sort of clarified what is in their
role and what is not.
Mr. Haridopolos. In your opinion, the new act, the CLARITY
Act, literally, as it is called, I mean, it has been so
frustrating, I know, for a new member from North Carolina and
I, Mr. Moore, you come here and you think that the government
is kind of here to help, and it sounds like the last 4 years
have been really challenging in that regard. There is no
clarity. Every time you went and visited, you thought you were
getting there, and they eventually just threw a Wells notice at
you or something else. That said, do you think the bill as
written today--obviously, I am sure you read this fully--are we
meeting that standard that you all wanted to see in the
industry to give you that clarity so your investors can make it
with confidence?
Mr. Roisman. I actually think that my colleagues may be
better suited for this because they are actually literally in
the industry. I do think it is important for you to continue to
hear from stakeholders and, again, technical assistance from
the regulators to make sure that it meets that, but I hope
everyone here realizes or recognizes that, as you said, the
point of this is to provide clarity.
Mr. Haridopolos. Mr. Raman, that same question. You have
read through the bill. Obviously, you understand this industry
better than most. Do you think we are moving in the right
direction, one, and two, the second part of that is, is there
still something that we are missing as you are seeing this
industry develop every day?
Mr. Raman. Thanks for that question. It is the most
inspiring time that I have ever seen in the crypto space
because we have this bill that gives us guidelines and rules
and regulations to actually innovate responsibly and
sustainably over the course of the decade, so I think it is
absolutely a step in the right direction. I think there is
still going to be work to do. Like the things the bills are
addressing, things like decentralization, the values that are
going to make blockchains resilient and part of infrastructure
are there, and we are excited to work with you on that.
Mr. Haridopolos. Thank you, and, Mr. Behnam, obviously,
given your role, you understand this bill very well. There has
been a lot of discussion about will the capital go elsewhere.
There are places, whether it be Singapore, UAE, et cetera. I am
really intrigued by the China question. A lot of people are
talking about, potentially, that being another area where
people might go if we do not offer that clarity. As you see
this industry, do you think that there is any real confidence
that people could trust China if we fail to step forward, or do
you think that it is just a matter of time, we will kind of get
our act together and move forward?
Mr. Behnam. Thanks, Congressman. I have always thought,
because this question is posed to me, for many years, going
back to when I was first nominated to be chair, we have the
benefit in the United States of having the deepest, most liquid
capital markets, and we also have the benefit of having a very
reliable rule of law around financial markets, and that
inevitably is going to attract capital, investors, and
entrepreneurs. As much as we have, in fact, from a domestic
standpoint, been a bit behind other regulators across the
globe, we always had the benefit of leaning on that sort of
precedent of rule of law and deep capital markets to sort of
keep capital here. Obviously, with the two folks around me, it
is an important narrative to hear and listen to, but I was
always very cautious about not jumping onto that bandwagon too
quickly that things were going to just leave the country. I
think what we do really well----
Mr. Downing. The gentleman's time has expired.
Mr. Behnam [continuing]. here is we do things deliberately,
and I would encourage, as this committee considers a markup to
a----
Mr. Downing. The gentleman's time has expired. Finish----
Mr. Haridopolos. Thank you, Mr. Chairman. I yield back.
Thank you.
Mr. Dowing. Thank you. The gentleman from Louisiana, Mr.
Fields, is now recognized for 5 minutes.
Mr. Fields. Thank you, Mr. Chairman, and let me thank the
witnesses. I really appreciate you all being here all day. I
just have a few questions for you, Mr. Massad. One, the bill
allows entities to self-certify their intent to become a mature
blockchain system within 4 years, with only 60 days for the
CFTC to review it. From your regulatory experience, what are
the dangers of the self-certification process in your opinion?
Mr. Massad. Thank you for the question, Congressman. I
think that is a big problem, particularly for this exemption. I
do not see why we have a structure that they should self-
certify. The idea is we want to facilitate capital raising for
these projects. We can do that without this type of exemption.
I think the real issue is just making sure disclosure
requirements work and perhaps addressing secondary sales. With
this structure, someone could say they have the intent to be a
mature blockchain and then never reach it. I am not the only
one saying this. Commissioner Hester Peirce has said this, and
it is really her idea of a safe harbor, which is where this
provision comes from. She has pointed out in a recent speech
that this could be gamed and abused.
Mr. Fields. The other question, Chairman, is you led the
CFTC during a time when maintaining Agency independence was
paramount. The CLARITY Act gives the President significant
influence over new crypto regulations, while the President
simultaneously owns and actively promotes his own
cryptocurrencies and meme coins. In your experience, what are
the risks when a President has direct financial interest in an
industry that he is regulating?
Mr. Massad. They are huge. I think it creates a dark cloud
over what we are doing here today, quite frankly. Look, most
Americans do not follow all this, they do not even care that
much about crypto, but to the extent that they are going to
hear something, I think, they are going to have the impression
that, wait, is this crypto thing just a game for those who have
influence, for those who can curry favor with the government?
They see these reports of the dinner that he had that was for
people who bought the coins. Again, as I noted earlier, Vitalik
Buterin, who is the creator of Ethereum, said the meme coins
were a vehicle for bribery, basically, so I think it is a real
problem. It is something, frankly, it should not be partisan. I
know it has become partisan today, but look, The Wall Street
Journal has denounced this. The Economist has criticized this.
It is not just Democrats.
Mr. Fields. Then my final question is, this bill would
drastically, dramatically expand CFTF's jurisdiction over
digital assets, yet provide no authorization for additional
examiners or resources. Based on your experience running the
Agency, is the CFTC equipped to handle the likely flood of
registrations while maintaining an adequate oversight?
Mr. Massad. Not under its current budget. I know the law
does have a provision for some fees, but their resources are
going to have to be increased dramatically. These are huge
markets. The crypto market is a huge market. It is very
complicated. It is new. There are going to be a lot of things
of first impression, and the CFTC is already stretched in terms
of what it has to do, and it has got some very important
responsibilities, like overseeing our systemically important
clearinghouses. We do need to expand its resources
significantly if it is going to be given this responsibility.
Mr. Fields. Mr. Chairman, on that note, I want to thank all
of the witnesses for being here, and I yield back the balance
of my time.
Mr. Downing. The gentleman yields back. I now recognize
myself for 5 minutes.
Now, I appreciate Chairman Hill for holding this hearing
today as we discuss legislation to ensure that the United
States leads the world in innovation. The United States cannot
cede leadership in the digital assets space. The Financial
Services Committee took the first step in passing a payment
stablecoin regulatory framework, but we also need clear rules
of the road for the market structure of digital assets. The
United States is unique in having two separate market
regulators, the SEC and the CFTC, each with different missions.
One of the criticisms of previous market structure legislation
was that it created two separate markets for the same asset.
The CLARITY Act solves this problem by distinguishing capital-
raising transactions from digital commodities sold in such a
transaction. The framework leverages the unique strengths of
both the SEC and the CFTC.
I am going to start with Mr. Roisman. In the securities
context, does the SEC tell investors which stocks to buy, or do
we ensure that they have adequate information?
Mr. Roisman. They do not tell investors what stocks to buy,
but they require issuers to provide enough information for them
to make an informed investment decision.
Mr. Downing. Thank you. Under the CLARITY Act, the SEC
retains jurisdiction over issuer disclosures and obligations,
such as lockup requirements on insiders. The CFTC gains
regulatory authority over digital commodity spot markets and
intermediaries dealing in the digital commodities. I am going
to go to Mr. Behnam. How does this play into the strengths of
both Agencies without creating an unnecessary complex maze of
overlapping authorities?
Mr. Behnam. Congressman, thanks for the question.
Ultimately, as I have argued, you have two different assets who
have two very different characteristics, and as Commissioner
Roisman pointed out, securities and the securities laws were
built for bridging information gaps between issuers and
investors. The commodity derivatives laws were built for very
different purposes of providing transparent, fair, and orderly
markets. You do not have that disclosure requirement like you
do on the security side as much as you have market integrity as
the primary focus.
Mr. Downing. How do you respond to skeptics that say
legislation is not needed and that the SEC and CFTC have the
authority already to issue regulations on digital assets that
will promote innovation?
Mr. Behnam. As I have said many times, given the size of
the market, given the particular size of a few tokens which are
commodities, the vast majority of the digital asset market
remains unregulated given current law.
Mr. Downing. Thank you. Moving on to Ms. Minarik. Fostering
innovation in the United States means protecting the right to
self-custody. Why is it important for the CLARITY Act to
enshrine the right to self-custody in digital assets?
Ms. Minarik. Thank you for the question, Congressman. I
have mentioned in other contexts that my family was personally
debanked in 2021 for no legitimate reason. Even worse than
that, the bank held onto our money and would not tell us for a
period of 2 months if or when we would ever get it back. That
is something that happens to everyday Americans all the time.
They are shut out of our traditional finance system, but now we
have technology so that any American can safely, securely, and
digitally hold their own assets in their own control, in their
own custody. Centralized services serve great purposes, but
having this option, it should be available to all Americans.
Mr. Downing. Thank you. Thank you to the witnesses. I yield
the remainder of my time.
The gentleman from New York, Mr. Lawler, is now recognized
for 5 minutes.
Mr. Lawler. Thank you, Mr. Chairman. I want to thank our
witnesses for being here today, and both Chairmen Hill and
Thompson for leading us in this important effort.
As our economy is evolving; we need to be making sure that
we are establishing a system that allows for our businesses to
thrive and Americans to prosper. Mr. Roisman, are exempt
offerings a standard feature of America's robust securities
laws and capital markets?
Mr. Roisman. Yes.
Mr. Lawler. Are disclosures and insider obligations
features of such exemptions?
Mr. Roisman. Not always to the extent that they are in the
current sort of CLARITY Act.
Mr. Lawler. Does the SEC's authority over disclosures apply
under the CLARITY Act?
Mr. Roisman. With respect to that exemption, there are
tailored ones for them, as well as rulemaking authority to make
sure that they are accurate and complete it.
Mr. Lawler. Is it appropriate to have tailored disclosures
for capital raises involving digital commodities?
Mr. Roisman. I think it is helpful if you are trying to
incentivize issuances in this area. I think the Commission can
be thoughtful in this. I think that the outline of what an
investor would want to know is different, or the requirements
provide information that may not be captured under sort of
traditional exemptions, so I applaud the committee for looking
at that.
Mr. Lawler. In your opinion, would American consumers be
better off without tailored disclosures?
Mr. Roisman. I am all for appropriate disclosures. I do not
know what tailored or not. It is enough information for an
investor to make informed decisions and overlaid with the
requisite consumer or investor protections, which, again, I
think the SEC will be able to help finalize.
Mr. Lawler. Would American entrepreneurs be better off
without a clear pathway to engage in a capital raise involving
digital commodities?
Mr. Roisman. I can answer that, but I think Mr. Raman is
probably the better one who actually has a business who is
trying to do this but I think everyone would be better off if
we are able to enable businesses to tap into our capital
markets.
Mr. Lawler. Mr. Raman?
Mr. Raman. Thanks for the question. I am happy to jump in.
I think the more ways to raise capital in America with clear
rules of the road, the better. What we do not want is to force
projects that we want to build here have to raise capital
elsewhere. When all the capital is here, the innovation is
here, the talent is here, and the desire is here, so rules of
the road will definitely help.
Mr. Lawler. Ms. Minarik, some members have brought up the
Trump coin and meme coins, I think rather extensively
throughout today's hearing. Is it not true, in fact, that as a
result of their concern, they should support a framework like
the one we are working on that includes robust disclosure and
other consumer protection requirements that help the markets
decide what is and is not worth their money? Furthermore, how
would a comprehensive framework assuage concerns of my friends
on the other side of the aisle? At the end of the day, we
should not let these concerns hamper innovation and the
potential of digital assets.
Ms. Minarik. Congressman, thank you for the question. I
certainly believe that passing legislation like the CLARITY Act
would be better for the public as a whole than the status quo.
It does not mean that there may not be more questions to
answer, but we would be moving forward in terms of protecting
the public. I would note that the CLARITY Act does reinforce
the CFTC's anti-fraud authority over all commodities, which
does include meme coins, so that is a protection, even though
meme coins are not subject to the broader aspects of the bill
like digital asset commodities.
Mr. Lawler. Chairman Behnam, would you please talk about
the consumer protection measures within the CLARITY Act?
Mr. Behnam. Thanks, Congressman. As I said, the CLARITY Act
provides a lot of the core principles that the CFTC currently
uses for its traditional markets. As applied, or at least
applying those core principles to digital commodity exchanges,
and brokers, and other components of the digital asset
ecosystem would certainly provide transparency through
registration, surveillance, oversight, books and records
examinations. As I said, the bill takes great lengths and is
very successful in accomplishing a lot of the goals that I have
articulated, but I certainly think there is more work to be
done, and it will benefit certainly from a markup and having
more robust conversations.
Mr. Lawler. Thank you. I yield back.
Mr. Haridopolos [presiding]. Thank you. I would like to
thank each of the witnesses for their testimony today.
Without objection, all Members will have 5 legislative days
to submit additional questions for the witnesses to the chair.
The questions will be forwarded to the witnesses for the
response, and please respond no later than July 9, 2025.
[The information referred to can be found in the appendix.]
Mr. Downing. With that, this hearing is adjourned.
[Whereupon, at 2:56 p.m., the committee was adjourned.]
AMERICAN INNOVATION AND THE FUTURE OF DIGITAL ASSETS:
FROM BLUEPRINT TO A FUNCTIONAL FRAMEWORK--DAY 2
----------
Friday, June 6, 2025
U.S. House of Representatives
Committee on Financial Services
Washington, DC.
The committee met, pursuant to notice, at 9:06 a.m., in
room 2128, Rayburn House Office Building, Hon. French Hill
[chairman of the committee] presiding.
Present: Representatives Hill, Lucas, Huizenga, Barr,
Williams of Texas, Emmer, Loudermilk, Davidson, Rose, Steil,
Timmons, Stutzman, Norman, Meuser, Kim, Donalds, Garbarino,
Fitzgerald, Flood, Lawler, De La Cruz, Ogles, Nunn, McClain,
Salazar, Downing, Haridopolos, Moore, Waters, Sherman, Meeks,
Scott, Lynch, Green, Cleaver, Himes, Foster, Beatty, Vargas,
Gonzalez, Casten, Pressley, Tlaib, Garcia, Pettersen, Fields,
Bynum, and Liccardo.
Chairman Hill. The Committee on Financial Services will
come to order.
Without objection, the chair is authorized to declare a
recess of the committee at any time.
Pursuant to Clause 2(j)(1) of House Rule XI, today's
hearing is a continuation of Wednesday's hearing titled,
``American Innovation: The Future of Digital Assets From
Blueprint to Functional Network.''
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 for an opening
statement.
OPENING STATEMENT OF HON. FRENCH HILL, CHAIRMAN OF THE
COMMITTEE ON FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM
ARKANSAS
For years, this committee has worked in a bipartisan manner
to move forward meaningful market structure legislation. Just
last year, FIT21 passed the House with 71 Democrats supporting
the bill, the precursor of our work in this Congress. The
CLARITY Act builds on that work. My colleagues across the aisle
have always had a seat at the table to engage in productive
discussions about digital asset market structure legislation.
These conversations, often tough, but always thoughtful, helped
shape the framework that we have been crafting during this
Congress.
Over the past 5 months, our committee has held four
hearings and a roundtable on digital assets to examine the need
for a dollar-backed payment stablecoin and market structure
framework legislation. The minority has had an opportunity to
ask questions of witnesses, share concerns, and raise issues at
what was supposed to be a joint hearing with the House
Agriculture Committee in early May. Instead, the ranking member
chose to object, walk out, and host her own roundtable
discussion on the exact same topic that we are talking about
here today. Despite last month's theatrics, members from both
parties have had ample opportunity to share their views, voice
their concerns, and engage in thoughtful discussion. Our
consumers, our digital asset developers, and our financial
markets all deserve clarity, and it is past time that the
industry deserves it. We must move forward with our important
work to provide the rules of the road for digital assets.
Currently, there is no Federal framework for non-security
digital assets. We are here today because of the failures of
the past. Any activity taking place in digital assets today is
taking place under that regime, or lack thereof, as set forth
by the Biden Administration. We have had real opportunities to
deliver this much-needed framework in the past, but under the
Biden Administration, and particularly former SEC Chair Gary
Gensler, that progress was stalled. Frustratingly, this is
despite the Biden Administration's executive order urging
Congress to take action on stablecoins, regulating spot
Bitcoin, and crafting a legislated market structure framework.
The administration ended up, though, preferred ruling by
enforcement rather than providing the clarity through a
regulatory framework that would protect investors and consumers
and maintain America as the leader in this innovative
technology.
Now is the time to step up, rise to the occasion. Under the
CLARITY Act, all digital asset companies will be subject to the
rules and regulations within this bill, rules and regulations
that do not currently exist for these assets and all digital
assets and participants engaging with digital assets are
subject to vigorous AML, BSA, anti-fraud, anti-manipulation
rules on the books. Digital assets have historically been a
bipartisan issue in Congress, and we should continue that
tradition. Together we can bring clarity to this industry and
keep America at the forefront of innovation. To my friends
across the aisle, let us continue our work together. Let us
engage in this important effort so that we can move forward
toward meaningful legislation and deliver results deserved for
our financial markets, our innovators, and our consumers.
With that, I yield back, and I recognize the ranking member
of the full committee, Ms. Waters, for 4 minutes for an opening
statement.
OPENING STATMENT OF HON. MAXINE WATERS, RANKING MEMBER OF THE
COMMITTEE ON FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM
CALIFORNIA
Ms. Waters. Thank you very much, Chairman Hill. I would
like to take a moment to give a little bit of an explanation
about what is known as Minority Day. This is Minority Day, and
I did not expect the chairman to be here, but that is his right
to be here. He is the chair of this committee. He knows the
rules, and I am so pleased that he joined us on Minority Day.
Minority Day is organized by the opposite party in order to
get more information out, in order to straighten the record, in
order to make sure that the path that we are on is well
understood, why it is necessary to have more information.
Despite the fact that I did not know that the chairman was
going to take over today, I am very pleased about it because he
will have a chance to hear even some of the information that
has not been explored during the regular committee hearing.
Let me start by saying the unfortunate reality is that
Republicans on this committee refuse to openly admit that
Donald Trump is abusing his position as President to enrich
himself off crypto. This is an unusual time in the history of
this country, and while we disagree on many issues, sometimes
we are able to compromise. We are able to work together. There
are other times it is more difficult, but this is highly
unusual that we have the President of the United States that is
enriching himself off of this cryptocurrency, a President of
the United States who is enriching his family, a President of
the United States in the middle of our negotiations, is
creating more opportunities for himself, whether it is on
crypto as you know it, a stablecoin, et cetera, et cetera.
The Republicans have ignored $TRUMP meme coin that has
collectively lost his investors $2 billion while he pocketed
$350 million. They have ignored the meme coin dinner where
guests--this is outrageous--spent $140 million to curry favor
from the White House but were instead served cheap food and
ditched by Trump after 20 minutes. It was not about a dinner.
It was about connecting with the President and gaining favor,
and so you show up, you spend all of this money, you get to
know him, and you want to ride the train of increasing your
wealth on crypto.
They have ignored the ways Melania and her son, Eric and
Donald Trump, Jr., have used crypto to multiply their family's
wealth. They have ignored World Liberty Financial, and the
various crypto deals Trump has brokered in the Middle East that
have exploded his wealth, even as Americans are getting poor
and being squeezed by Trump's tariffs. They have ignored what
is undoubtedly the biggest scam and abuse of power in history
so they can jam through a dangerous crypto market structure
that I call the Complexity Act. Not a single provision in this
bill addresses the crimes I have laid out. In fact, this bill
only legitimizes it. So, committee Democrats have been left
with no choice but to force Republicans to convene a hearing
with our own witnesses where we will discuss what Republicans
are so afraid to do: openly and honestly address Trump's crypto
crimes.
Let me be clear. Next Tuesday, committee Republicans are
rushing to pass what I call the Complexity Act without
addressing these concerns that not just Democrats, but also the
American public, the crypto industry----
Chairman Hill. The gentlewoman's time has expired.
Ms. Waters [continuing]. and even some in their own
administration have raised regarding this bill.
Chairman Hill. The gentlewoman's time has expired.
Ms. Waters. While the lack of provision to stop Trump's
crypto----
Chairman Hill. I now recognize the Chair of the Digital
Assets Financial----
Mr. Waters. Mr. Chairman?
Chairman Hill. You are over time, Madam Ranking Member,
so----
Mr. Waters. Mr. Chairman?
Chairman Hill. Gentlewoman?
Mr. Waters. Point of privilege. How long did you take with
your opening statement?
Chairman Hill. Four minutes.
Mr. Waters. It looked longer.
[Laughter.]
Chairman Hill. Well, that is because it was the truth.
Mr. Waters. Oh, my goodness. Well, we are going to see who
is telling the truth today.
[Laughter.]
Chairman Hill. I now recognize the Chair of the Digital
Assets, Financial Technology, and Artificial Intelligence
Subcommittee, Mr. Steil, for 1 minute for an opening statement.
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. Thank you very much, Mr. Chairman, another great
opportunity to discuss the bill, and I hope that is what we
actually do today. We have had many opportunities to do just
that. We are building on a lot of great work that was done in a
bipartisan way last Congress. We saw when FIT21 came to the
floor, over 70 Democrats came to the table to try to solve a
complex problem, a problem that, really, Gary Gensler and the
Biden Administration in many ways put us in, delivering us meme
coins, lack of clarity, pushing businesses offshore, and I hope
this does not devolve into discussions of Trump derangement
syndrome. I hope we use this opportunity to truly focus on the
legislative text before us because the legislative text before
us is very good, solving a real-world problem.
I know the ranking member of the full committee objected to
a joint hearing that we held between us and Ag and walked out.
I think that was a missed opportunity to dive into the details
of the bill, and I think if we focus on the bill, we can be
productive. I yield back.
Chairman Hill. The gentleman yields back. The chair
recognizes the Ranking Member of the Digital Assets, Financial
Technology, and Artificial Intelligence, Mr. Lynch of
Massachusetts, for 1 minute for an opening statement.
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. Thank you, Mr. Chairman, and thank you, Ranking
Member Waters, for requesting this Minority Day hearing. My
Republican colleagues are rushing to pass a crypto market
structure bill that not only fails to crack down on Trump's
crypto corruption, but also endangers our traditional banking
system, weakens investor protections, national security, and
lets crypto criminals off the hook. I predict that the next
financial crisis will certainly be driven by reckless crypto
activities that this Congress would have allowed if this bill
passes. We must act to ensure our robust financial and security
laws are not threatened.
Republicans repeatedly rejected my amendments to protect
American taxpayers by prohibiting a taxpayer bailout. My
Republican colleagues refused to even acknowledge President
Trump's crypto corruption, which undermines their efforts to
pass this bill, I assume out of fear and backlash from the
President. My Democratic colleagues and I have no fear of this
President, which is why we will continue to fight this
legislation and any actions that threaten our democracy. Thank
you, Mr. Chairman, and I yield back.
Chairman Hill. The gentleman yields back. Today we welcome
the testimony of Ms. Carole House, who is a Senior Fellow at
the Atlantic Council Geoeconomic Center; Professor Hilary
Allen, who is a Professor of Law at the American University
Washington College of Law; Mr. Bartlett Collins Naylor, a
Financial Policy Advocate and Economist at Public Citizen; Ms.
Amanda Fischer, who is the Policy Director and Chief Operations
Officer at Better Markets; and Hon. Timothy Massad, Research
Fellow and Director of the Digital Assets Policy Project at
Harvard Kennedy School of Government and former Chair of the
CFTC.
We thank each of you for taking time to be with us today.
You will be recognized for 5 minutes to give an oral
presentation of your testimony. Without objection, your written
statement will be made part of the record, and we will start
with you, Ms. House. You are now recognized for 5 minutes.
STATEMENT OF CAROLE HOUSE, SENIOR FELLOW, GEOECONOMICS CENTER,
ATLANTIC COUNCIL, WASHINGTON, DC
Ms. House. Thank you, Chairman Hill, Ranking Member Waters,
and distinguished members of the committee for holding this
hearing continuation and the honor of the invitation to
testify. I applaud your leadership in continuing the year-long
effort of building legislation around cryptocurrency
regulation.
I have spent much of my career leading cryptocurrency
efforts at the National Security Council, at FinCEN, and at an
industry advising three different regulatory bodies. In this
time I have observed massive changes in the digital asset
ecosystem, including enormous growth and collapses,
experimentation in underlying technologies, business models and
use cases, seen rampant fraud and exploitation of consumers as
well as use for money laundering, meeting with victims that had
thought about killing themselves after losing their life
savings and being defrauded in pig butchering scams, and
finally, witnessing innovations by licit actors to explore
avenues like programmable compliance and RegTech solutions, but
also innovations by illicit actors who are continuously
optimizing and obscuring their laundering and scamming
techniques.
The current alignment and implementation of protections in
digital assets is not working. Just as one example, the largest
heist in history just occurred earlier this year targeting this
sector, perpetrated by North Korean actors stealing $1.5
billion in one hack as part of revenue generation for a regime
guilty of human rights violations and proliferation activities,
though you would not know that with attending most
cryptocurrency conferences. Unfortunately, this incident also
was not in a vacuum, but instead, is part of another cyber
theft after part of a years-long building trend in this
industry exploiting both pervasive cybersecurity and money
laundering vulnerabilities. This also underscores how we need
to strengthen implementation of a prudential regulatory
framework for crypto. I applaud Congress for pursuing digital
asset legislation to ensure appropriate regulation in the
United States. Regulation ensures that we demand legitimate and
responsible activity within the industry and provide legitimate
authority and levers to supervisors and enforcement agencies to
hold accountable illicit actors.
The stated goals of the CLARITY Act to help address
regulatory gaps and provide clarity are laudable.
Unfortunately, I do not believe that the current text achieves
these goals. Key tenets of the proposed legislation as drafted
appear to be overly complex as they try to rewrite existing
market regulations into a bespoke regime, forging notable gaps
for coverage under consumer and market protections rather than
closing them. It leaves insufficiently or unaddressed key areas
like meaningful implementation and enforcement measures for
countering illicit finance and cybersecurity, and it departs
from long bipartisan stated principles of tech neutrality that
would enable regulations to persist in the face of continuous
technological innovation.
I am concerned about departing from longstanding precedents
of protections that we expect in markets that appear present
here with less rigorous disclosure and capital requirements,
unclear authorities for non-security spots markets, weaker
restrictions on functions and conflicts of interest across
custody, market making, and trading, and confusing definitions
that appear optimized to expand gaps of coverage for arbitrage
opportunities around concepts like decentralization. At least
in my view, the mark of maturization should not be centered
around there being an absence of entities taking responsibility
and accountability for governance.
I also want to underscore that there seems to be a major
gap in areas of affecting national security in this bill. As
some have said in Wednesday's hearing that legislation should
be based on facts, this bill needs to clearly address the
factual reality of exploitation of crypto by nation-states,
corrupt regimes, and transnational organized crime due to weak
protections. This bill should explicitly outline not just
application of the BSA, but high AML standards that we have for
other covered institutions, like customer identification
programs, as well as cybersecurity requirements around access
management, key protections, and third-party risk management
that have been culprits in a lot of the major incidents. No one
likes getting robbed. It should address the current dismantling
of the enforcement apparatus as well that is happening across
agencies and, instead, ensuring appropriate resourcing,
expanded authorities, capabilities, and prioritization for
timely enforcement against the worst actors in this industry.
I will close with recommending that policymakers consider
an alternative approach, setting out a legislative framework
for joint regulatory action by the SEC and CFTC, which has
precedent in Dodd-Frank. I encourage Congress to consider a
more streamlined approach that sets out clear authorities and a
mandate for joint SEC and CFTC action, creating clear pathways
for registration, outlines clear principles for protecting
markets and consumers, and establishes explicit mandates and
appropriations for AML and cybersecurity protections and
enforcement. Finally, it should initiate work by the SEC and
CFTC together to take the steps that were already advised by
the CFTC's Technology Advisory Committee in the DeFi report to
evaluate and address DeFi's unique features and challenges.
Thank you. I look forward to your questions.
[The prepared statement of Ms. House follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Steil [presiding]. The gentlewoman yields back.
Professor Allen is recognized for 5 minutes.
STATEMENT OF PROFESSOR HILARY J. ALLEN, PROFESSOR OF LAW,
WASHINGTON COLLEGE OF LAW, AMERICAN UNIVERSITY, WASHINGTON, DC
Ms. Allen. Thank you. Chairman Hill, Ranking Member Waters,
and members of the committee, thank you for inviting me to
testify at today's hearing. My name is Hilary Allen, and I am a
Professor of Law at the American University, Washington College
of Law. We are here to talk about a bill designed to supplant
longstanding securities laws that were enacted to protect the
public from harm. In many ways, the timing of this bill could
not be worse. Many Americans already face economic precarity,
with roughly half of the country living paycheck to paycheck.
We are now at a moment, though, when prices are increasing, and
there are legislative attempts afoot to further shrink the
social safety nets that many people rely upon. In times of
increasing economic desperation, people become more vulnerable
to predation and gambling increases.
Crypto investing is not investing in the traditional sense,
where investments in productive enterprises yield the
possibility of a win-win outcome for both the investor and the
enterprise. For most crypto assets, the only reason why they
have any value is because of the possibility that someone else
might be willing to pay a higher price for them. Unless an
everlasting supply of new money can be drawn into buying the
crypto asset, then its price will start to go down whenever the
larger holders cash out, potentially toppling the whole
edifice.
Crypto investing is speculative gambling, and in these
kinds of situations, increasing access by eliminating
regulation of crypto issuers is tantamount to throwing little
fish to the sharks. This bill proceeds on the basis of many
fictions, including that crypto assets have no issuers. Another
such fiction is that digital commodities have a value that is
substantially derived from the blockchain system. I would ask
whether the value of a bank account is derived from the type of
software a bank uses to maintain its deposit records. The
answer is obviously no. No value is conferred by the type of
technological plumbing used to record ownership.
The most glaring fiction in this bill, though, is the idea
that the use of blockchain technology guarantees
decentralization.
Mr. Steil. The witness will suspend. We just want to make
sure we get the tech right. It sounds like the microphone may
not be on the live feed, so let us just suspend for a moment.
Ms. Allen. There we go. Glad to know it was not me. Let us
see.
The most glaring fiction in this bill is the idea that the
use of blockchain technology guarantees decentralization of
economic power. It does not, and the crypto markets are rife
with concentrated economic power, even in the parts that
purport to be DeFi. This fiction is a linchpin of the bill,
notwithstanding that the bill concedes that centralized control
of blockchains will be necessary and can be exercised in
emergencies. It should be obvious that if control can be
exercised to protect blockchain users, it can also be
weaponized against them.
What is even more concerning is that mere aspirations to
decentralization are considered sufficient to invoke some of
the dispensations in this regulatory regime. We do not let
tweens drive cars today because they aspire to one day be
mature enough to do so. We should not let issuers of what would
otherwise be securities escape the securities laws because they
aspire to one day reach decentralization nirvana. If this bill
becomes law, it will upset bedrock legal structures that
undergird our financial markets, particularly because it is
hard to predict how its complexities will play out.
It is somewhat surprising that Congress is moving so
swiftly on legislation that risks undermining the stability of
our financial markets, particularly when so few Americans
currently show any interest in crypto or its underlying
blockchain technology. The Federal Reserve recently reported in
its Survey of Household Economics and Decisionmaking (SHED)
report that only 2 percent of surveyed adults said they use
cryptocurrency to make a financial transaction even once in a
12-month period. The St. Louis Fed recently reported that only
about 4.3 percent of U.S. households owned any cryptocurrency
at all in 2022, and lots of them owned small amounts only.
Tellingly, although the crypto industry was responsible for 44
percent of all corporate expenditures on the 2024 election
cycle, the political advertisements funded by that money did
not mention crypto. The notion of the crypto voter is by and
large a myth.
I want to close by saying a few words about the
relationship between innovation and the law. Regulation is not
an obstacle to innovation. It channels innovation to reflect
priorities determined through the democratic process.
Exemptions from regulation work is a subsidy that can prop up
technologies and business models that might have little to
recommend them on a level legal playing field. If this bill
were to become law, that would be tantamount to the government
picking winners among businesses, allocating a subsidy to those
who use blockchain technology at the expense of other
technological rails. Right now, medical, scientific, and other
important technological innovations are not being funded, so
that begs the question of why blockchain innovation is being
prioritized by our elected representatives at this moment. The
primary use cases for crypto are speculation and funding
illicit activity. If the crypto industry has socially useful
capital formation benefits to offer beyond that, it should be
able to demonstrate that within the existing securities laws
framework. Thank you very much.
[The prepared statement of Professor Allen follows:]
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Mr. Steil. The witness yields back. Mr. Naylor is
recognized for 5 minutes.
STATEMENT OF BARTLETT COLLINS NAYLOR, FINANCIAL POLICY ADVOCATE
AND ECONOMIST, PUBLIC CITIZEN
Mr. Naylor. Chair Steil, Ranking Member Waters, and
members, it is my honor to sit in the reflected esteem of my
fellow panelists and fellow Idahoan. Perhaps the most clear-
headed, articulate finance law professors in the Nation, the
Chief of Staff of the Securities and Exchange Commission, the
Chair of the Commodity Futures Trading Commission. It is also a
solemn time because I believe that when the Ron Chernow or the
Steven Spielberg or the Lin-Manuel Miranda of 200 years from
now writes or does a musical about this President, they may
well take a deep dive into this hearing because what is going
on is the greatest corruption in presidential history.
George Washington alerted his stepson to buy the very land
that we are on before he designated it as the Nation's Capital,
President Lincoln apparently sold sinecures to secure the
Thirteenth Amendment. My source for that is Steven Spielberg,
and President Obama wore a brown suit.
[Laughter.]
Mr. Naylor. Now, these are definitely things to be
concerned about, but the Trump corruption is just beyond any of
that.
Now, I was the head of investigation for the Senate Banking
Committee, but it does not take anything but somebody watching
social media to see these corruptions. I personally believe I
witnessed a Federal crime on May 22 when I stood outside the
Trump golf course and watched the co-conspirators. Now, they
were not wearing ski masks, but they were identifiable because
they had tuxedos on, and these are people that paid a
collective $148 million for the favor of being with the
President, as the ranking member has so articulately put it.
Now, what are these schemes? Again, just look at social
media. There are at least three violations at stake here. One
is that the President may receive gifts. News to me, he may
receive gifts, but he cannot solicit gifts, and that is what I
believe he is doing when he sells the Trump meme, and again, he
is not offering you anything. He says this is not an
investment. His Securities and Exchange Commission put out
guidance saying this is without value, so basically, he is
saying, give me money, I want money. Second, the President
cannot get an emolument. He cannot get a gift from a foreign
king or prince or a government, and he is doing that, many
examples, but the $2 billion stablecoin is just one of them.
You cannot sell favors. You cannot say, give me money and I
will host you at a dinner, or you might be under investigation
by the SEC, but if you give me $30-$50 million, I will
terminate that, so you cannot do any of that.
Now, I appreciate that Pam Bondi and the Office of
Government Ethics are not returning our letters where we have
asked for an investigation, but there is something that you can
physically do beyond this hearing, and that is you can ask the
Government Accountability Office (GAO) to determine that his
Trump meme promotion is a solicitation of a gift, and that in
turn helps the next responsible administration with an
independent Department of Justice and Attorney General to lay
the groundwork for a successful prosecution. He is not immune
from this. This is not an official act. He has helpfully told
us that. His press secretary has said his meme gala was on his
personal time. Again, I would urge that this committee ask for
the GAO report.
Finally, and most importantly, no responsible Member of
Congress can vote on a bill that legitimizes or advances
stablecoins or other cryptocurrencies while we are witnessing
the greatest corruption in presidential history. Thank you.
[The prepared statement of Mr. Naylor follows:]
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Mr. Steil. The witness yields back. Ms. Fischer is
recognized for 5 minutes.
STATEMENT OF AMANDA FISCHER, POLICY DIRECTOR AND CHIEF
OPERATING OFFICER, BETTER MARKETS, WASHINGTON, DC
Ms. Fischer. Good morning. Chairman Steil, Ranking Member
Waters and members of the committee, thank you for inviting me
to testify today. My name is Amanda Fischer, and I am the
Policy Director and COO at Better Markets, a nonprofit,
nonpartisan, and independent organization founded in the wake
of the devastating 2008 financial crisis. Today I want to
provide a few thoughts on the context in which this bill is
being considered, and then I want to provide some thoughts on
specific aspects of the Complexity Act that I think are
dangerous, and all of my comments today are an abbreviation of
a long document that I submitted that thoroughly goes through
the bill.
First, the context in which Congress is considering this
bill. I agree with the ranking member that the chairman has not
allowed adequate time to consider this wide-reaching proposal.
I myself have read it multiple times and consulted with top
securities law experts, and I am still unclear about the
application of many provisions in the bill. Ranking Member
Waters is correct to demand technical assistance from the
subject matter experts at the SEC without any withholding or
editing by the Chair's Crypto Task Force. That is a standard
that we upheld in the last administration, and the professional
experts at the SEC deserve to have their voices heard by all
members and their staff.
Second, the financial regulatory agencies are under siege.
Democratic commissioners nominated by the President and
confirmed by the Senate have been fired without cause. Soon the
CFTC will have only one commissioner. By the end of the year,
the SEC will be down to a three-member Commission of all
Republicans, notwithstanding that they have a statutory mandate
of bipartisanship. The CFPB is on life support. The President
has threatened to fire the Fed chair, and the previous vice
chair self-demoted in avoidance of being fired.
Third, the President signed a dangerous executive order in
February placing the formerly independent regulatory agencies
under White House control. Again, this is dangerous. Fourth,
the administrative law context in the courts has become openly
hostile to regulators using the authorities granted from
Congress to engage in rulemaking. This bill includes many, many
instances where Congress punts on providing specific
directives. Given the speed of recent Supreme Court rulings,
that is very concerning.
As for the bill itself, the bill will blow a hole through
the laws wisely put in place by the Congress after the Great
Depression and replace it with a shoddy regime that is
deliberately fuzzy, and loophole ridden. The bill provides
concepts of a plan on key investor protections, and it sends
most crypto regulation to the CFTC, even though that Agency was
created for non-retail commercial buyers and sellers of futures
and swaps.
To go through a few provisions of the bill, first, the
offering regime. There are so many investor protection
exemptions for crypto to sell their investments to the public
under this bill that I do not even think anyone will resort to
using the dangerously broad process at the SEC. Crypto issuers
will claim their DeFi, claim that they are not offering
investment contracts. They will claim that they are
collectibles or meme coins. They will claim that they are
airdrops, or they will claim that they are subject to the
grandfathering provision. For those that do use the exempt
offering framework at the SEC, that, too, is vastly permissive.
The trading regime in this bill is likewise light touch. It
defers to the crypto exchanges themselves on how to comply with
a vague set of core principles. This is in contrast to the
national securities exchanges, which are subject to tight rules
requiring affirmative SEC approval. Instead of the competitive
tensions we see right now between exchanges and broker dealers,
crypto exchanges will unilaterally set the rules on fees,
trading protocols, and key features. Exchanges may well be able
to keep their venture capital affiliates. There are wide
exemptions for trading on their own exchanges, and there are
weak cybersecurity safeguards.
With regard to the brokering and custody regime; no
fiduciary duty, no regulation, best interest, no best execution
rules. There are very few protections for data breach
notifications or for arbitration, and likewise, there are many
gaps in the custody framework with investors having unclear
rights to their own assets, and we could bring back the crypto
lending models of now bankrupt BlockFi, Voyager, and Celsius.
I will just conclude by saying, perhaps most profoundly,
this bill's regular regulatory gaps will not be quarantined to
crypto. Over time, we will see more and more companies shoehorn
their capital-raising efforts onto the blockchain because of
regulatory arbitrage instead of legitimate business need. The
CEO of Robinhood said on CBNC that it is 10 times cheaper for
him to run his crypto business than his equities and options
business. Why? He does not have to pay for customer protection,
SEC exams, or Securities Investor Protection Corporation (SIPC)
insurance. Of course, it is cheaper. I do not think that is the
type of innovation that is good for consumers.
[The prepared statement of Ms. Fischer follows:]
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Mr. Steil. The witness yields back. Mr. Massad is
recognized for 5 minutes.
STATEMENT OF HON. TIMOTHY MASSAD, RESEARCH FELLOW AND DIRECTOR
OF DIGITAL ASSETS POLICY PROJECT OF THE MOSSAVAR-RAHMANI CENTER
FOR BUSINESS AND GOVERNMENT AT THE KENNEDY SCHOOL OF
GOVERNMENT, HARVARD UNIVERSITY, AND FORMER CHAIRMAN, U.S. CFTC,
WASHINGTON, DC
Mr. Massad. Chair Steil, Ranking Member Waters, members of
the committee, and staff, thank you for inviting me to testify.
The views I express are my own and do not represent the views
of the Kennedy School of Government. I appeared before you on
Wednesday and my views have not changed in 48 hours.
[Laughter.]
Mr. Massad. Thank you for inviting me back. I still believe
the CLARITY Act will not provide the investor protection that
we need, nor will it provide the clarity. It is vital to
understand why that is in some detail because this is not and
should not be about whether you are for or against the
technology. I strongly believe the technology is potentially
very useful. I just think there is a better way to do this. Let
me quickly summarize what I said yesterday--I do not want to
repeat myself verbatim--and then maybe suggest a couple of ways
to think about this.
First of all, I agree with Ranking Member Waters' concerns
about the President's activities. I also agree with some of the
concerns that Chair Hill expressed in terms of what we need to
be doing here. I suggested Wednesday that the primary goal
should be to provide a regulatory framework for the spot market
in digital assets that are not securities. That gap has been
the reason for fraud, manipulation, rampant speculation. That
gap has largely resulted from our fragmented regulatory system;
so, I think the solution does need to bring the Agencies
together, not just in a few rulemakings, but in a structural
way. I outlined an approach that former SEC Chair, Jay Clayton,
a Trump appointee, and I had suggested some 2 years ago, and a
key aspect of that was it is a way to establish jurisdiction
through joint rules without rewriting or overturning existing
securities and derivatives laws.
The CLARITY Act obviously addresses the gap in regulation,
but it does so in a way that I suggested violated two key
principles, the do no harm principle and the keep it simple
principle: do no harm meaning that we should not undermine the
legal framework of our existing securities and derivatives
markets, and the keep it simple principle is self-evident. The
point is that we should not create legislation that is so
complicated, that it creates endless opportunities for
regulatory arbitrage by clever lawyers, arbitrage that will, in
many cases, lead to undermining that traditional framework, and
it should not be so detailed that it puts regulators in a
strait jacket. We do not want to deprive regulators of the
authority and flexibility to respond to the endless ways in
which clever lawyers might subvert legislation, as well as the
authority and flexibility to respond to changes in market
conditions in the evolution of technology.
I hope we can get into a discussion of some of the
specifics. I appreciate, in particular, Ms. Fischer's comments
on some of the particular issues that concern her, and I share
those concerns. I will not repeat those. Let me, though, use
the last minute or so just to give you an analogy of maybe a
way to think about what we are trying to do. Analogies are
never perfect. They should not be taken too far, but imagine
that driverless cars are more common than they are today, but
that they still represent a small part of the market, and
imagine that Hertz and Avis even rent them, and I rent one and
I am in the backseat and the car goes through a red light and
there is a crash, and somebody dies. We should not say, oh,
well, let us do not produce driverless cars because it is
technology. We need to perfect it, we need to move forward, but
we also should not say, well, the guy who died, it is his
fault. He should have known there are driverless cars on the
road, and even if we required them to be painted red with green
spots, he still should not just suffer the liability.
Then the question is, how do we allocate liability? Is the
manufacturer liable? Maybe it produced the car incorrectly,
maybe the code was wrong, and maybe there is someone up the
chain who should be held responsible. Is Hertz liable because
they did not install an upgrade? Am I liable because maybe
there were routing options, and I overrode the routing option
that said observe stop signs or red lights. We need laws, we
need rules, but those should not undermine the rules that
pertain to the rest of the cars, and this is a new area. It is
evolving. We cannot write today something that is anywhere near
as detailed as the CLARITY Act, and all of us can point out
why. We need more of a principles-based approach that allows us
to move forward. Thank you.
[The prepared statement of Hon. Massad follows:]
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Mr. Steil. The gentleman yields back. We will turn to
member questions. I will now recognize the gentleman from Ohio,
Mr. Davidson, Chair of the Subcommittee of National Security,
recognized for 5 minutes for questions.
Mr. Davidson. Thank you, Chairman Steil. Look, thank you
for responding to this opportunity to talk more about the
CLARITY Act. I really think it was sort of unscheduled at the
beginning of the week, but it is a great time to talk about a
great bill. We have worked for years. I remember back in 2017
when the initial coin offering market was exploding and I was a
new member of this Financial Services Committee, being alarmed,
like, should we not be doing something about this, and we did
not. Then 2018 was going by and we did not, and so I convened a
hearing at the Library of Congress to talk about what needed to
be done, and frankly, it still needs to be done. You need a
bright-line test to define what is and what is not a security.
People have tried to apply the Howey Test, but it is a court
decision. It is not even in statute.
Then under the guise of much as Professor Massad just
highlighted, of supporting the bill, people have spent
essentially half a generation working to undermine the
industry. Oh no, I support the industry. Gary Gensler was one
of those guys. He taught at MIT, and then he became the
Chairman of the SEC, and I was hopeful that finally we would
have somebody that really understands the technology, who we
could make progress on, but what he really did was serve the
interests of Elizabeth Warren and become the leader, the face
of the anti-crypto army.
While the industry broadly sees itself as left of center
politically, politics, make no mistake, has stopped the legal
clarity that this market needs. It is 100 percent Democrat
opposition to progress in this bill, and that is continuing to
this day, and I think that is disappointing. I think a lot of
people in the industry would like to see us work together to
get this done, and frankly, I kind of like the policy part of
this and hate the politics part of it, but the politics part
has been fine for Republicans, right? You have single-issue
voters that have come over and said, let us be in support of
the Trump Administration. They were a huge win for us flipping
Silicon Valley. David Sachs being part of Treasury, all this
kind of momentum is great for the GOP and our party, but the
right policy eventually makes good politics, and I think that
is the thing we need to focus on here. What is the policy?
This does provide the bright-line test. While people say,
oh, well, I am just concerned about investor protection, let us
be clear what kind of investor protection you have provided.
You kept people from being able to put Bitcoin in their
401(k)'s for 10 years. In 2013, the first applications for
Bitcoin Exchange-Traded Funds (ETFs) were made, and the market
wanted to do this, the market was ready to do that, the demand
was there for it, but the regulators would not provide the
clarity that was there. As it turned out, the SEC seemed to
have the authority to do it all along because they did. It was
not because we took action and passed a law, so thankfully, the
industry has not waited for us. In that time, Bitcoin
appreciated from, well, in 2013, $200 to now $105,000, but I
guess everybody is wrong, right? You have these people that are
just convinced that this is not really going to be a thing.
What you have protected people from is making money.
The last thing, one of the best ways to protect people, we
finally got in this bill in a very important way, which is
self-custody. We like to trust our institutions. We have
regulatory bodies that are supposed to make sure that the
institution and, frankly, the industry is providing good
consumer protections, and I think this bill does a pretty good
job of doing that. I trust myself with my assets. It is
personal property at the end of the day, and so the protection
for self-custody is vital. I think in the future you are going
to see things that take from where this bill leaves off where
we create something called a digital commodity, so of course,
there has to be a way to do capital formation for something
that is not a security or is not a commodity. It is a digital
commodity, so it has its own path for capital formation.
Securities are securities, but there are going to be people
that want to tokenize them, and they are. There will be
tokenized exchanges, and people will want the list on those,
and this bill says to the SEC, do a study on that. I hope we
follow up and provide legal clarity on exactly how to tokenize
securities. The same is going to happen with tokenized
commodities, and we are seeing a massive market for tokenized
real-world assets, and so I think this is the start of
progress, that we need to get through the finish line. We need
to stop pretending that we are for an industry while working to
undermine it by preventing legal clarity. We need to pass this
bill. I yield back.
Mr. Steil. The gentleman yields back. We will do one more
member question prior to breaking for votes. I now recognize
the ranking member of the full committee, Ms. Waters.
Mr. Waters. Thank you very much. I do believe that our
panelists here have identified the complexity and the problems
with this bill. Market structure is a bad bill. It is a bad
bill in every way that you can possibly describe what is wrong
with this bill, and so some members have talked about
amendments to the bill. Some members have talked about
jurisdiction. You heard a little bit about, still, the
confusion around whether or not it is a security or commodity,
on and on and on.
Now, Mr. Taylor, you made a very, very strong, profound
statement. You said that what this President is doing is more
corrupt than what has been done by any President in the history
of this country. So, those who are interested in trying to make
it a better bill and coming up with all these amendments, the
President of the United States is now in control of all our
independent agencies. He said to the SEC, ``You do not do
anything before you bring it to me.'' I am in charge here. What
good does it do to talk about amendments when you have a
corrupt President who is enriching himself and his family, who
is brazen in the way that he is doing it? Please comment for
me.
Mr. Naylor. Yes. Ranking Member Waters, if you wrote this
bill with the help of Elizabeth Waters and Brad Sherman and all
the smart, progressive, consumer-minded people, but you did not
have a ban that forced the sale of Trump's crypto, that would
be inferior. Even your bill, we would oppose if you did not ban
Trump's crypto grip.
Mr. Waters. Well, and I feel strongly about that. The
President has demonstrated that he has no concern or respect
for the people of this country in the way that he has brazenly
taken on enriching himself with the ownership of crypto. Mr.
Davidson just said that what we are doing is stopping people
from making money. No, I want to stop the President of the
United States and his family, Melania and his sons, from all
owning crypto, and the Members of Congress and the Cabinet.
None of us should be in a position where we own crypto and
enrich ourselves at the expense of the people.
My bill is all about stopping Trump in the Crypto Act. My
bill is very clear, and I want to just say this, to mention
that I am not adamantly, forever opposed to crypto. Perhaps we
can work out some of the jurisdictional issues, et cetera, et
cetera, sometime in the future. What I am opposed to is in this
act, my bill that I have, again, and I will reiterate, the
crooked President of the United States of America who has
decided to use the Office of the Presidency to enhance his
access to profits. I mean, that is what it is all about and so
thank you.
If we do all these amendments that people are talking
about--I am going to vote for crypto because we are going to
amend it--it does no good. What you are doing is strengthening
the President. Democrats cannot do this because we are trying
very hard to change the direction of this country. We are
trying to encourage voters that something is wrong with the
direction and the President of the United States, but we
empower him if, in fact, we leave him as being able to own and
control crypto and enrich himself. I want to be very, very
clear about that.
This bill, with all the amendments that can be made, if we
allow the President, and the Cabinet, and the family, and the
Members of Congress to own and control crypto, we have done
nothing but enhance his ability to stay in office with
additional money, more money coming to him from all over the
world, as been done with Abu Dhabi. How much did Abu Dhabi put
into this TRUMP?
Mr. Naylor. I am aware of $2 billion.
Mr. Waters. Two billion dollars through Biance? That is
where I think it went. Look, we are very clear about all of
this, and we just want to make sure that the members have the
correct information and all of the information by which to make
a decision.
Mr. Steil. The gentlewoman's time has expired.
Pursuant to the previous order, the chair declares the
committee in recess, subject to the call of the chair. We will
reconvene immediately following votes.
The committee stands in recess.
[Recess.]
Chairman Hill [presiding]. The committee will reconvene and
come to order.
The gentleman from Wisconsin is recognized.
Mr. Steil. Thank you very much, Mr. Chairman. Again, we are
here having a conversation, hopefully about the bill. I got an
opportunity to listen to the Democratic witnesses. There were a
couple of comments on the bill, but a lot of comments on
President Trump, which is a little bit of the continuation of
Trump derangement syndrome that we sometimes see on this
committee. I think it could be a real opportunity to dive into
the substance of the bill, which is, I remind everyone, a
bipartisan piece of legislation.
It is not common that I would quote Minority Leader
Jeffries, but it might be appropriate just to remind everyone
what he said just as of Tuesday of this week at a hearing. When
asked about crypto legislation, he said, ``There are allies of
the crypto industries on both sides of the aisle in the
House.'' He then went on to say, ``I think substantively,
figuring out how we arrive at a bipartisan resolution of the
crypto issues that are currently pending before Congress is
what will best serve the American people, and also best in
appropriately regulating the industry that allows for
innovation, but also as guardrails to protect the American
consumer.''
You see Leader Jeffries, you see this piece of legislation
actually calling for all of us to come together to recognize
that the current state of affairs is incredibly unproductive
and here is the fallacy that I often see of the argument of the
left of some of those on this committee, not those that have
engaged substantively. Again, I recognize this legislation has
strong bipartisan support. The fallacy of the left of some of
those who do not want to engage is what I call the nanny state
fallacy, which is, if you have to go to the government to get
permission to act, it is an idea that failure to get that
permission will then end the behavior, and the fallacy there is
that, really, that behavior just simply moves offshore outside
the realm of regulation. That is exactly really what we saw
during the Biden Administration with Gary Gensler in charge of
the SEC. What we actually saw was a lot of the innovation and
development occurring outside the United States, outside our
norms and standards, without appropriate regulation. If you are
concerned for consumer protection, as I am, and you do not want
to see another FTX where individuals lost their money----
Mr. Chairman, the committee is not in order. I will
continue.
Chairman Hill. The gentleman can proceed.
Mr. Steil. What we really saw during the Biden
Administration with Gary Gensler in charge was this innovation
development occurring offshore, really to the detriment of many
people who were putting investment, money, time, or effort into
this space. If you look back at FTX, the lesson that I think in
many ways that should be learned was instead of allowing that
to occur offshore in an unregulated manner, in addition to
having unethical individuals in charge, we should be working to
bring this innovation development into the United States in a
regulated space with clear rules of the road, which is exactly
what your bill does, Mr. Chairman. It puts forth clear rules of
the road so that individuals can invest, innovate, and develop
in this space; so, I think this is a real opportunity to make
sure that we are getting this right.
There are many Democrats who have come to the table in this
regard, co-sponsored the legislation that you brought forward,
put forward thoughtful ideas, suggestions, but instead, some of
our colleagues--not all--some of our colleagues have taken an
approach of putting their head in the sand. We saw earlier this
year, we had a joint committee scheduled between the Financial
Services Subcommittee that I chair along with the Digital
Assets Subcommittee, the Agriculture Committee, chaired by my
friend Dusty Johnson. At the beginning of that, the ranking
member of the full committee, rather than engaging in
thoughtful, productive conversations on the merit of the bill,
made a decision to object. I thought that was disappointing. It
is her right, but I found it disappointing because what we are
trying to do is have this conversation and discussion to get
this legislation correct and I think the introduction of the
final text that you brought forward at the end of last week is
a spectacular step forward to make sure that this innovation
and development occurs here in the United States.
It is not often that I would align myself with Minority
Leader Jeffries, but I think he was right in saying that we
need to come together, as we have between committees, between
parties, because this is not about Republicans or Democrats.
This is about the United States of America leading in the Web3
space. This legislation dramatically moves us forward. It is
disappointing that some of the comments are not focused on the
substance of the bill or, rather, focused on extraneous topics,
but, Mr. Chairman, I thank you for your leadership moving us
forward in this nonpartisan manner that you have with the
legislation. I yield back.
Chairman Hill. The gentleman yields back. The chair
recognizes the gentleman from California, Mr. Sherman, who is
the Ranking Member of our Capital Markets Subcommittee, for 5
minutes.
Mr. Sherman. Mr. Chairman, I do not oppose to crypto due to
Trump derangement syndrome. I was against crypto before Trump
came down the escalator, and Trump was against crypto for years
and years until he discovered he could make money on it, and
Mr. Flood accuses some of us of falsely pretending to be trying
to help the crypto industry. No one should accuse me of that.
[Laughter.]
Mr. Sherman. I want to thank the chair for being here. It
is true that crypto is innovative. A tremendous innovative
process is being made in foreign countries on recreational
drugs, on AI deepfakes. Not everything that is innovative is
wonderful. I agree with the proponents of this bill and the
crypto industry that says 55 percent of Americans want clear
rules of the road, and divining the rules to regulate crypto by
looking at a Supreme Court case involving Orange Grove's
applying a 1930s law to a 1940s. That is an absurd way to
figure out what are the rules, but this industry does not want
clarity. It wants a patina of regulation; so, what would be
good, clear rules? Let me lay out what it would take for me to
vote for this bill.
First, no bailouts. I am sure my Republican colleagues will
agree that there should be no bailouts, but they will never
agree to any text that prohibits bailouts because all the money
and power on this issue is on the side of crypto, and they want
to be able to tell people that bailouts are available. So many
people will speak about bailouts, but there will always be a
reason not to put it in the bill. Second, no purchases with
U.S. taxpayer dollars. The goal of crypto is to become the
reserve currency for the reserve currency. Obviously, Americans
do not want us to use their dollars to buy Bitcoin, let alone
Skibidi Toilet coin. He could be richer than Musk if the U.S.
Government could buy Trumpcoin.
Fourth, no government corruption. We saw with Hunter Biden
a situation where you create something at virtually no cost and
effort and then allege it to have an enormous value and he made
$100,000 here and there, but we have seen with Trumpcoin, you
create something at virtually no cost, allege it to have an
enormous value, and for $300 million you sell it to the Chinese
interests on TikTok, and then you wonder why the President
refuses to enforce the law he has to enforce against TikTok
because they will not sell to American interests. No insider
trading. Musk says he did it all for three. Somebody made $37
billion in 1 week because they knew that this new Agency would
be called DOGE--what an absurd name--and a dog, $37 billion to
the people who knew in advance.
Fourth, no campaign contributions. Mr. Steil tells me that
it would be bad for his political career if a $1,000
contribution was made in his name to the Bernie Sanders
campaign. Now, I cannot get a credit card in his name, I cannot
get a checking account in his name, but I could go and use
crypto to make a $1,000 contribution to Bernie Sanders and just
fill out this is Mr. Steil. Now, the reason I do not do that is
not because I am too cheap, although I am. It is not because I
am too honest. It is because Bernie's too honest to accept
unhosted wallet anonymous crypto campaign contributions.
Mr. Steil. Will the gentleman yield?
Mr. Sherman. No, because I have limited time, but I will
have to find another way to cause the gentleman from Wisconsin
a problem. Fourth, we need the Know Your Customer/Anti-Money
Laundering throughout the system. The industry will never
accept that. They named their product hidden money:
``cryptocurrency.'' If you take the ``hidden money'' out of
hidden money, it is like taking the ``THC'' out of weed, and
nobody is going to buy it.
[Laughter.]
Mr. Sherman. Self-custody makes crypto the perfect device
for drug dealers, for bankruptcy fraud, for human traffickers,
but most importantly, for tax evaders. That is the big money.
We have great witnesses here, but one witness is missing:
Donald Trump 1.0. Let me speak in his voice when he said in
2019, ``I am not a fan of Bitcoin and other cryptocurrencies,
which are not money and whose value is highly volatile and
based on thin air. Unregulated crypto assets can facilitate
unlawful behavior, including the drug trade.''
Chairman Hill. The gentleman's time has expired.
Mr. Sherman. Mr. Trump, you are absolutely right. Thank
you.
Chairman Hill. The gentleman's time has expired. The
gentleman from Nebraska, the Chairman of our Housing and
Insurance Committee, Mr. Flood, you are recognized for 5
minutes.
Mr. Flood. Thank you, Mr. Chairman. It is funny, I feel
like I am having deja vu. The arguments we are hearing today
from my colleagues across the aisle sound exactly like the same
ones they raised when we had the first portion of this hearing
on Wednesday. It makes me wonder, is this really a substantive
conversation about the legislation at hand, or has this just
devolved into another partisan exercise? I mentioned this on
Wednesday, but I think it bears repeating in this context.
While I know that some of our friends on the other side of the
aisle like to talk about President Trump, it is important to
remember that any current activity in digital assets is taking
place under the regime set forth by the previous administration
and the previous SEC.
If you do not like what is happening with meme coins, you
should probably agree that we need legislation. If you are
concerned with what happened with the collapse of FTX in 2022,
which I will add took place squarely during the time of the
Biden Administration and Chairman Gensler, then you should
probably agree that we need legislation. This committee is
acting to fill a void that was left by the inaction and the
foolishness of the previous administration, particularly the
previous SEC. What we saw over the last 4 years was a series of
repeated and embarrassing failures by the Commission. Rather
than regulate, the SEC chose to litigate, and they kept losing
over and over and over again.
I mentioned the DEBT Box case on Wednesday, a particularly
embarrassing example where a judge actually said the SEC
committed ``gross abuse of power,'' but that is not the only
instance of the Commission failing on its face during Gensler's
time as chair. The D.C. Circuit unanimously ruled against the
SEC in the Grayscale case, with the Court vacating the SEC's
denial of a Bitcoin ETF as capricious and unsupported by the
facts. The judge in the Ripple case rejected the SEC's sweeping
attempt to label all secondary market token sales as security
transactions, a ruling that gutted the Commission's entire
legal theory and enforcement approach. Repeatedly, over the
last 4 years, it is clear that the SEC was not living in
reality, that Chairman Gensler was steering us down on a path
that would leave us to less investor protection, less clarity,
and more embarrassing defeats for the SEC.
During that intervening time period, there was an
opportunity for my Democratic friends across the aisle. In the
absence of leadership from the SEC, they could have stepped up
to the plate and offered their own solutions. They could have
answered the call of some Biden-appointed officials, like CFTC
Chair Benham, to provide greater authority to the CFTC to
regulate this industry. They could have been part of the
solution. They could have either done that in 2021 or 2022 when
the Democrats controlled the House, the Senate, and the White
House. They did nothing. Instead, we are here today listening
to tired political rhetoric and not much substance.
I understand that some of my colleagues do not like
elements of this bill. That is okay. We are here to work out
differences and move forward. My fundamental question is this:
what is your proposal? If not this, then what? If someone wants
to put out a proposal that protects investors while making the
serious attempt to meaningfully regulate the industry, I will
take a look at it. I am sure I would not be the only one
either, but if we have learned anything over the last 4 years,
it is that the status quo is absolutely unacceptable. It does
not work for investors. It does not work for the industry. No
one is better off by keeping things as they are now.
The reality is there is only one bill out there that
provides the CFTC with spot market authority over digital asset
commodities. There is only one proposal out there that provides
meaningful investor protections and works to apply the
principles of security law to this novel asset class. There is
only one bill that would provide regulatory stability needed to
secure America's place as a hub for blockchain innovation.
Instead of politics, let us roll up our sleeves and do the hard
work of legislating. If you do not like the bill as it is now,
engage with the chairman. Engage with the subcommittee Chairman
Steil. Instead of a show hearing, let us engage in a dialog
that can get us closer to regulatory clarity. Thank you.
Mr. Steil. Will the gentleman yield? Will the gentleman
yield?
Mr. Flood. Yes.
Mr. Steil. I appreciate the time. I would note to my
colleague, Mr. Sherman, on a sidebar here, the work we are
doing in the investigation into ActBlue actually addresses the
concern you raised that an individual--just for your
awareness--an individual can make a donation in a credit card
of someone else and load that information in, and there is no
process that catches that. Maybe we have an opportunity to
actually engage in some of the work we are doing on improving
our campaign finance system. I would note that. I would also
note to----
Mr. Sherman. Will the gentleman yield?
Mr. Steil. We have 25 seconds, but I will have a sidebar
with you later because I actually think we could do some really
good work in this space. I would just build on a note that the
ranking member said when she was speaking of her bill, she
said, ``My bill is all about stopping Trump.'' I believe that
speaks volumes about the other side's work in this space. Mr.
Flood, I yield back to you.
Mr. Flood. I yield back.
Ms. Waters. That is what it is.
Chairman Hill. The gentleman yields back to Mr. Flood. Mr.
Flood yields back. The gentleman from Connecticut, the Ranking
Member of our Intelligence Committee, Mr. Himes, you are
recognized for 5 minutes.
Mr. Himes. Thank you, Mr. Chairman. Thank you to Ranking
Member Waters for holding this. Mr. Steil, I am going to answer
your prayers for a discussion on the substance of the bill. The
context here, though, is, as I think you know, I have been a
yes vote on both stablecoins bill and FIT21. I am struggling
with this one for two big reasons. Number one, the innovation
point, I have been a yes because of innovation, but 8 years
ago, I was promised flying cars, and instead I got FTX, and
time has passed, and I just do not see the applications out
there compelling enough to take a big risk on what is untrod
territory.
I do not agree with the witnesses in some cases, by the
way. Decentralization is very vaguely defined, but
decentralization is a new thing. We learned this in Bitcoin. It
is a thing, and I think it is an innovative thing, and Mr.
Massad has called repeatedly for more jurisdiction and scope of
action for the regulators. Then I asked myself the question,
which is will the regulators get decentralization and maturity
and all these new novel concepts right? I look at those
regulators and I say, do I trust these, and I look at my
colleagues with whom I have worked with a long time. I am not
going to get into the Trump thing, but has any single one of
them condemned the corruption that we are seeing in the White
House? The Senate bill on stablecoins apparently carves out
activities by the President and Vice President.
I am struggling with this one, and I want to ask two
questions. Number one, I keep focusing on Section 202 because
it is a clear exemption for the offering of what would
otherwise be securities, including language, and let me read
you the language. By the way, I know the majority understand
that this is a sensitive issue because in a week, we went from
$150 million of offering to $75 million in offering. Thank you,
but this all seems to rely on the issuer intends for the
blockchain system to which the digital commodity relates to be
mature. I am thinking of those guys in tuxedos that went to the
dinner. I am thinking about the legal difficulty of
establishing intentions.
My question to the witnesses is--I asked this question in
the larger hearing--is there any compelling reason for the
existence of the 4A8 carveout, Section 202? I got cutoff by the
chairman because my time was up in the last hearing. I asked
the witnesses in the other hearing, is there a reason to have
that, and nobody jumped to the mic. My question in my remaining
2-and-a-half minutes, and I am happy to enter into a colloquy
with anybody on the majority side. What is the reason for the
exemption, and what are the risks associated, beyond what I
just asked outlined, of trying to determine the intention of my
tuxedo crowd?
Ms. Fischer. I will jump in, Congressman Himes. That is a
great question. I would say that offering exemption is
extremely permissive, and not just because of the vague
intentionality requiring a psychiatrist to determine the intent
of the issuer, but the offering limitations are way broader
than anything that exists in Reg A, A+, D, crowdfunding; so, we
are tipping the scales to push issues, yes.
Mr. Himes. Let me interrupt you very quickly there because
attorneys that have been supportive of the other side on this
have said that it actually mimics the liability standards and
other characteristics associated with Reg A and Reg D, which,
of course, as you know, allows for retail solicitation; so, be
specific with me on how this is different from traditional Reg
A and Reg D.
Ms. Fischer. You can offer larger offerings in terms of
monetary value, no limits on accredited investor.
Mr. Himes. No, this is capped at $75 million in the draft,
right?
Ms. Fischer. Per year over 4 years----
Mr. Himes. Okay.
Ms. Fischer [continuing]. which can be waived by the SEC to
go further, you can sell to non-accredited investors. There are
no limits on general solicitation, and FiT21 had limits on per-
person ownership that teed to income or wealth thresholds, and
that gets rid of it, but I have an important point. I do not
think any issuer will even use this new exemption because there
are so many ways to issue tokens and claim that they are
digital commodities at the outset, claim that they are
collectibles, meme coins, whatever. I do not----
Mr. Himes. How do you do that without violating or crossing
the Howey Test?
Ms. Fischer. Coinbase in court with the SEC said that all
the tokens on their platform were collectibles akin to beanie
babies. It is going to require robust enforcement by the SEC.
Just as in the last administration how we went whack-a-mole to
try to find the unregistered investment company contracts, they
will go whack-a-mole to try to fund the unregistered investment
contracts because no one will avail themselves of the new
exemption because it is so easy to raise capital outside of it,
and it is going to require the Enforcement Division marauding
around for people that violated the exemption.
Mr. Massad. If I can add a few things, Congressman. I think
the argument as to why it is needed was not really answered. I
have heard the following explanations. One is disclosure, and
there are some thoughtful provisions in here as to what type of
disclosure would be appropriate for this type of sale.
Chairman Hill. The gentleman's time has expired.
Mr. Massad. I will come back to you on it.
Chairman Hill. The gentleman yields back. I recognize
myself for 5 minutes, and first, let me say to my friend from
Connecticut, of course we are very happy to engage in a
constructive dialog about the exemption and the structure of
the exemption. I hope you will work with us on that as we not
only prepare to mark the bill up, but carry on with the
discussions, even post-markup, as we prepare for working with
the Senate on a bicameral basis on this legislation.
A couple of comments. The gentleman from Connecticut talked
about use cases, and I think that has been an interesting thing
over the evolution of the digital asset space, something that
the gentleman and I have certainly talked about before.
Representative Torres has a study in the bill, I think, that
talks about the value of what he has seen in our stablecoin
bill for stablecoins outside the United States on financial
access, financial security, financial availability, and the
power that he has seen outside the United States in lowering
the cost, and that is one of the key things, I think, about
writing applications on a blockchain is lowering the cost. My
colleagues on both sides of the aisle, I think, acknowledge
that blockchain operating systems and distributed ledgers
definitely have value, and I have heard them all at one time or
another acknowledge that as they have seen both corporate
America and entrepreneurial America begin to experiment and
write applications in this space.
For example, you look at Filecoin, which is a distributed
token on a decentralized ledger. It has been litigated in the
past, that is true, but it is deemed decentralized, the
benefits to public libraries and university libraries to be
able to use their excess computing system and be paid for that
excess computing system by the Filecoin system, for example.
Consumers benefiting from one of the biggest companies in the
world, Franklin Templeton, that has offered their money market
fund on a blockchain that has resulted in lower expenses for
consumers and their ability to offer a money market account
down at a $500 level, offering more financial access to that
savings vehicle at low cost with better fraud protections,
better accuracy, lower bookkeeping costs. Franklin Templeton
has demonstrated in this one experiment of taking a money
market fund and putting it on a blockchain of the benefits to
consumers, and there are others. As we all know, the cross-
border benefits of the dollar being used on a blockchain to
lower Agency costs for remittances or for business
transactions.
In preparing for the hearing today, I went back and pulled
the FSOC--the Financial Stability Oversight Council--report on
digital assets that was produced quite ably and under Secretary
Yellen's leadership in the Biden Administration. It says, ``The
FSOC recommends the passage of legislation for providing
rulemaking authority for Federal financial regulators over the
spot market for crypto assets that are not securities; steps to
address the regulatory arbitrage, including coordination
legislation related to regulators' authorities to have
visibility into and otherwise supervise the activities of all
affiliates and subsidiaries of crypto asset entities; and
appropriate service provider regulation.
I would turn to Ms. House, distinguished service in the
Biden Administration. Do you agree with that statement, and is
it important to fill the regulatory gap over the spot market
for digital assets?
Ms. House. Yes, I support the FSOC report as well as that
statement that we----
Chairman Hill. Thank you, and former Chairman Massad, do
you agree with the report's assertion and the spot market
regulation?
Mr. Massad. Yes, I do.
Chairman Hill. Thank you very much. Ms. House, in your
view, could the creation of new digital asset registrants at
the CFTC to oversee the trading of digital commodities also
help fill this market gap?
Ms. House. I think it can as long as it is matched with
enforcement----
Chairman Hill. Right.
Ms. House [continuing]. which is the concern I have.
Chairman Hill. Yes, I could not agree more, and I do not
know that there is any disagreement that we have strict
enforcement, and that we also remind everyone that the base law
in securities and commodities exists in addition to what we are
adding through clarity, meaning all the anti-manipulation,
anti-fraud provisions in both markets are Federal law. They
stand because I think that is good news in her point because
the CLARITY Act addresses exactly those entities in the
comments that were made in the FSOC report.
Related, stepping down a little further, Ms. House, do you
agree that the joint rulemakings that require the CFTC and the
SEC to coordinate the oversight supervision, and I will add
enforcement, in the digital commodity marketplace is a step in
the right direction?
Ms. House. A step in the right direction, excepting my
concerns about a lot of gaps, but on the need for it to be
joint, I think, is exactly where we need to go.
Chairman Hill. Good, and we welcome comments, if you have,
on enforcement, and I yield back the balance of my time, and I
thank the panel for being with us today. I turn to the
gentleman from Illinois, Mr. Casten, for 5 minutes.
Mr. Casten. Thank you. I am going to either embarrass
myself or my family by telling you about what a dork I was in
August 1986. There was a comic bookstore down the road from my
house called Fantasia. There was this guy, Danny. Picture the
comic book guy from ``The Simpsons.'' He was kind of that guy,
and he convinced me that Spider-Man Issue 252--Google it--was
going to be a collectible because Spider-Man, for the first
time, was in a black costume, and that was going to be worth a
lot of money, and he convinced me to give him $10 for a comic
book that on the shelf was 60 cents. I do not know what it
would be worth today, but I bought it, and I remember my mom
screaming at me, going down and yelling at Danny, ``How dare
you take advantage of a 14-year-old kid convincing him to spend
a couple weeks' worth of allowance on this Spider-Man issue.''
The CLARITY Act says that meme coins are collectibles. I do
not know what that is. The SEC has taken the position that meme
coins are collectibles and not considered securities. Ms.
Fischer, is that different from the Spider-Man comic that I
have somewhere in my house? Like, if it is a collectible, I
know what the Howey Test is for securities. I know what a
commodity is. What is a collectible, and where does that live
jurisdictionally?
Ms. Fischer. I actually think it is easy, and I think you
look at facts-and-circumstances determination based on the
offering. If you look under Howey, it comes down to investment
of money--yes, you are given money for the comic book or the
meme coin--with the expectation of profit. Yes, the guy told
you the value of the comic book would go up based on the
managerial efforts of others. There is where it comes in.
Mr. Casten. I guess, like, I am not arguing that Danny
should be subject to an SEC. I do not even know if he is still
with us.
Ms. Fischer. I do not think he should.
[Laughter.]
Mr. Casten. What I am asking is if we have agreed that this
is a collectible----
Ms. Fischer. Mm-hmm.
Mr. Casten [continuing]. by definition, it is now not a
security. It is not a commodity. Does anybody have jurisdiction
other than my mom?
Ms. Fischer. I think that there is probably FTC
jurisdiction over marketing and sales of collectibles, but when
the proprietor of that collectible represents to you that they
are going to create an ecosystem to make that collectible go up
in worth and that this can be a lucrative investment to you,
and there is testimonials and LinkedIn profiles, then we start
looking like a security.
Mr. Casten. Okay. Mr. Massad----
Mr. Massad. Yes.
Mr. Casten [continuing]. if meme coins are carved out of
the definition of digital commodities, does that not mean that
Trump would not have to disclose any information about his meme
coins that he is issuing? Trump derangement syndrome----
Mr. Massad. Yes.
Mr. Casten [continuing]. this is because I give a rat's ass
about the emoluments clause of the Constitution.
Mr. Massad. I think that is right. If the SEC is saying
they are not securities and they are carved out of digital
commodities, then there is still no regulation of them. Now,
you could say these really should not be treated like a
commodity product that the CFTC regulates, but the fact is what
has happened in this industry is, because there has been no
regulation, we have had so many things like meme coins where
people are just pushing up the price and people are getting
defrauded, and so we need to create a regulatory framework
around that even if you then say, okay, maybe we are going to
treat these as gambling and we are going to have gambling
regulation.
Mr. Casten. Let me just pick at this a little bit more.
This dinner that Trump had at the White House--Lincoln Bedroom
on steroids--there were people there from Magic Eden who trade
digital trading cards, which sounds like something I could have
bought at Fantasia. Earlier this week, it was reported that
Trump has partnered with Magic Eden to issue a digital wallet.
Section 105 of the CLARITY Act says that users' rights to self-
custody and engage in peer-to-peer transactions do not have to
comply with any anti-money laundering rules, which I think the
issuance of this digital wallet would qualify. Ms. House, under
this bill, would Trump's meme coin digital wallet be required
to monitor or pay any attention to who its customers are? Just
yes or no.
Ms. House. By my reading, no.
Mr. Casten. Would they be required to keep any records of
transactions?
Ms. House. By my reading, no.
Mr. Casten. Would they be required to report illicit
activity to FinCEN?
Ms. House. By my reading, no.
Mr. Casten. Okay. A question for all of you in the time we
have left, is there a better way for bad actors to launder
money to the President of the United States----
[Laughter.]
Mr. Casten [continuing]. than with the Trump meme coin
stapled to the CLARITY Act?
Mr. Massad. No, and can I just go to this bit about self-
custody? It is very simple. If I put my money in a Swiss bank
account, I am entitled to do that, but I am not entitled to not
report the interest on it under our tax laws. If I put the
money under my mattress, I am entitled to do that, but that
does not mean I can then take the money and do something
illegal. It is fine to say people should be entitled to self-
custody, but that does not mean that their transactions are
then exempt from the laws.
Mr. Casten. Okay. I am out of time, but if any Chinese
foreign nationals want to buy Spider-Man 252--it is $300
million--give me a call.
[Laughter.]
Mr. Himes. Mr. Chairman?
Chairman Hill. The----
Mr. Himes. Mr. Chairman, point of information. Mr.
Chairman, if the chairman knew that according to Go Collect,
Issue Number 25 in 1961 is now worth $3,600----
[Laughter.]
Mr. Himes [continuing]. would he permit a second round of
questioning?
[Laughter.]
Chairman Hill. While the chair would not present a second
round of questions, I would say that I have gone long Casten on
this, and I wish him well in collecting that.
[Laughter.]
Chairman Hill. I have already texted his mother, and we are
in partnership to do that, so I want to thank the gentleman for
yielding back. We will now turn to the gentlewoman from
Massachusetts, Ms. Pressley, for 5 minutes.
Ms. Pressley. Thank you to Ranking Member Waters for
convening this Minority Day hearing. Thank you to our witnesses
for joining us.
Today, I would like to speak not about market structure,
but actually about people, specifically women and survivors of
intimate partner violence. Now, we already know financial abuse
is a core component of intimate partner violence. Abusers
frequently control bank accounts, restrict access to money,
stalk survivors through financial transactions, or drain shared
assets to leave their partner economically trapped. With
traditional financial systems, there are red flags and
mechanisms to detect this, such as bank alerts and flag
withdrawals, but in the crypto world, these protections vanish.
Abusers can stash funds in anonymous wallets, bypass court-
ordered freezes, or empty crypto accounts without a trace. We
have seen reports where a husband hid $500,000 in Bitcoin
during divorce proceedings, and abusers used blockchain tools
to exert coercive control. Professor Allen, you have researched
this issue. In your view, how does the decentralization of
financial services, such as in blockchain-based wallets, make
it harder to protect survivors of intimate partner violence
from economic abuse, such as stalking?
Ms. Allen. Thank you very much for this important question.
I think it helps us to talk about the things that are not in
the bill that should be, right, and there are lots of them.
This bill does not address conflicts of interest within
exchanges, it does not address the operational risks associated
with blockchain, and it does not address the privacy risks
associated with using the blockchain. Public blockchains are
public. Anyone can see them, so if someone knows your public
identifier, they can see every transaction that you do, and
that can give away information about your location. It can give
away information about if you are trying to put away funds in
order to leave an abusive partner. All of that is going to be
visible for all the world to see, so that is before we even get
to the issue of the abusers themselves using crypto for
criminal purposes or abusive purposes. This publicity of the
blockchain is something that this law does not grapple with at
all.
Ms. Pressley. You know, and certainly intimate partner
violence is one of the most underreported crimes, making it
challenging to quantify how many specifically have been victims
of economic abuse, but it is safe to say that without those
elements being added, that many could be vulnerable.
Ms. Allen. Of course, yes, I mean, without addressing the
privacy issue. It is not just an issue for, for women, it is
also an issue for immigrants who do not want their locations
necessarily revealed. It is an issue for people being profiled
by law enforcement officers. This kind of publicity about
literally every transaction you do, being visible to the whole
world, is something that just has not even scratched the
surface.
Ms. Pressley. Thank you, Professor. Traditional banks are
subject to Know Your Customer rules and fraud monitoring, but
crypto platforms, especially decentralized ones, currently
operate outside that framework. Professor Allen, can you expand
on this regulatory gap and how it allows abusers to hide and
move money in ways that would be impossible in the traditional
banking system?
Ms. Allen. Yes. The thing about crypto and the blockchain
is that the technology is actually very inefficient. It is
slower and clunkier than your average database. Where it gets
its efficiencies from is skipping regulatory requirements that
apply to others, including AML and KYC checks. So, using this
technology, sort of the end goal is skipping that process, and
so when you have fewer barriers along the way, then there are
fewer intervention points where law enforcement officers and
others can crack down on illicit activity, including using
funds in ways that could be used to harm women.
Ms. Pressley. Right, fewer barriers, fewer intervention
points. I am particularly concerned by reports where abusers
access their partners' crypto wallet if they know the password
and raid the account, preventing their partners from recovering
lost funds since crypto transactions are irreversible.
Let me just close here and say that the promise of
decentralization may be empowering for some, but for survivors
of intimate partner violence, there is often no recourse due to
the regulatory gaps in our system. We cannot allow blockchain
tools to become safe havens for abusers and predators.
Congress--Congress--in the whole, needs to close these gaps.
Protecting survivors of abuse should not be a partisan issue,
and it certainly should not be an afterthought in our digital
financial future.
Mr. Steil [presiding]. The gentlewoman's time has expired.
The gentleman from Illinois, Mr. Foster, the Ranking Member on
the Subcommittee on Financial Institutions, is now recognized
for 5 minutes.
Mr. Foster. Thank you. It has frequently struck me in these
conversations that there is a relatively straightforward way of
dealing with all the abusive things we have been talking about,
which is simply to have mandatory KYC on wallets. This is not a
big burden on someone using crypto assets. Whether you spin it
up on your hardware wallet or you go to some platform and get a
new wallet, you just register it with FinCEN. This thing can
take half a second to say, okay, you present a secure digital
ID that proves you are who you say you are, and this is your
wallet. At that point, anyone who deals with you in the future
can have an assurance that the person on the other side of that
transaction is, if necessary, if you prove a crime has been
committed, that there is a legally traceable person at the
other end of that. Ms. Fischer, you mentioned that there
actually have been Republican proposals for mandatory KYC on
wallets. Could you go through that for a moment?
Ms. Fischer. That is true. When Secretary Mnuchin was at
the Treasury Department, the Department did, during a different
political environment that----
Mr. Foster. This was back when President Trump thought
crypto was a scam?
Ms. Fischer. I believe that is true, and there was
significant pushback from the industry, and that proposal was
never finalized, but to give them credit, I thought it was a
really robust, good effort, and I would have liked to have seen
it continued.
Mr. Foster. Yes. It seems like that would solve a bunch of
problems. For example, if you could just have your software
look on the blockchain, make sure that there was a continuous
chain of transactions among KYC wallets, then you would know,
in some sense, that this was clean money, that it had not just
been used for drug smuggling or human trafficking, or all the
other abuses you worry about.
Ms. Fischer. I think that is correct, but I want to have
two provisos. One is, we still have mixers that operate, and
the government under the Biden Administration tried to track
down on these services. They are open source code that
literally lets people scramble wallet addresses so they cannot
be tracked, and it is how North Korea launders a lot of money,
and two is----
Mr. Foster. Still, if there were mixers if you had a
requirement that all legitimate transactions had to have 100-
percent KYC upstream of those after some date of enactment of
some legislation, then anything that went into a mixer that was
un-KYC'd would just pollute the entire output of that mixer as
a matter of law and would seem to solve that problem.
Ms. Fischer. I think we need to think through the
consequences of that, but I was going to mention one other
point, which is rules are only as good as enforcement of those
rules. The Justice Department put out a memo in April saying
that they were effectively ceasing enforcing the Bank Secrecy
Act against a host of different crypto companies, including
virtual currency exchanges. When there is an explicit policy of
non-enforcement articulated by the Department of Justice, it
makes me a little bit nervous about the efficacy of the rules.
Mr. Foster. Yes, so the idea of KYC'ing wallets solves a
lot of the illicit finance problems. It does not necessarily
solve market manipulation. If you are talking about an asset
which has a fixed value--stablecoins, for example--the main
worries are whether the backing assets are safe and sound, and
you do not worry about market manipulation. If you are talking
about the NFT market that collapsed, just a shower of
frontrunning and wash trading and everything else, it seems
like if you ever want a healthy market in that kind of asset,
you need to have some regulator that sees the true identity
behind people on both sides of every trade.
Ms. Fischer. I think that is extremely true. I would add
that the SEC endeavored to do this with the consolidated audit
trail in the equity space and made a bunch of progress, and now
there is progress rolling back on that. Again, getting the
rules in place is incredibly important and then having the
fortitude to enforce those rules and see them through is also
important.
Mr. Foster. Yes. Mr. Massad?
Mr. Massad. Yes, I would agree with your comment,
Congressman, and obviously one of the problems on the digital
trading platforms has been things like wash trading that have
been such a high amount of the total volume because that is a
way for people to push up the price; so, the idea of regulating
those platforms is good. The problem with the CLARITY Act is it
does not cover all of those tokens. Again, maybe some of them
ultimately should not be regulated as commodity products, but I
think to start, you have to impose a regulatory framework
around them to prevent the kinds of market manipulation things
you are talking about, and then decide, oh, maybe we can
regulate them in a different way as gambling or something like
that.
Mr. Foster. Yes, and so would the United States equities
and commodities markets have their dominant position if we
allowed anonymous trading?
Mr. Massad. No.
Mr. Steil. The gentleman's time has expired. You can
provide additional comments for the record.
[The information referred to was not submitted prior to
printing.]
Mr. Steil. The gentleman from California, Mr. Liccardo, is
now recognized for 5 minutes.
Mr. Liccardo. Thank you, Mr. Chair. Ms. House, I am very
interested in what you said in your written testimony on page 7
about DeFi and the importance of taking steps to address this
regulatory perimeter. It seems as though where we are seeing
the industry going, maybe a couple years ago perhaps 5 percent
of transactions were DeFi. It is increasing rapidly, and I am
guessing it is going to be a majority of transactions very
soon. I am concerned about this bill and, essentially,
launching a global naval strategy and putting all your ships on
Lake Superior when you know there is an ocean out there that
you are not covering.
With regard to DeFi, I understand we may not get to the
place, as Mr. Foster suggested, where we have KYC for all
users, but at the very least, we should probably want to create
some kind of safe harbor or sandbox, as it is often called, for
users. I imagine some users may want that because they do not
want to be defrauded, and they want to know that if they are
defrauded, they can litigate and get a subpoena and find out
who just defrauded them so there could be some action. How
would you address, in the DeFi context, the need to create some
sandbox?
Ms. House. Thank you so much for the question, and I
appreciate the point since sandboxes, of course, have
boundaries and guardrails, right? When you think about most of
them, like, there are the little wood pillars and then the area
where kids are playing in sight, so I think that it is thinking
about what those guardrails and protections should be. When I
think about FinCEN, the anti-money laundering regulator, our
sandbox authority was called exceptive relief. Generally that
could work in a timed delimited basis where we said, great, you
can operate. Tell me what obligation you want relief from and
let us talk about how we can monitor whether or not this new
approach, this innovative technology is mitigating that risk.
Those kinds of sandboxes, I think, are the right ways to think
about this, to put in place those guardrails.
I appreciate Congressman Foster's point on digital identity
and his great work. I do not know that KYC for every unhosted
wallet and the essential equivalent of having, like, an
identity tied to your peer-to-peer transfer everywhere but also
appreciate Congressman Himes' point that decentralization is
unique and special. I think the work that the CFTC Technology
Advisory Committee (TAC) did to outline that we need to assess
the regulatory perimeter. I know we talk about that crypto is
intermediary-less. That is not entirely true. It is not
regulated intermediaries, but I would say that I view that
entities at the network layer. Validators and miners are
intermediaries. The transactions cannot occur without their
intervention.
That does not mean that I think that they are Money Service
Businesses (MSBs) or regulated in another way, but that kind of
consideration of other areas in the tech stack and the
ecosystem and moving the regulatory perimeter is what the CFTC
Tech Advisory Committee suggested really deserves a strong
assessment and evaluation of the ecosystem, where the points of
visibility and control are, where burden would be highest or
lowest. That kind of really concerted effort has not happened.
It is absent from this legislation. I feel that kind of effort
jointly between the CFTC and SEC and with the other regulators
as well would be beneficial to mitigate the major risks that
have been highlighted on the DeFi side.
Mr. Liccardo. I recognize there is a difference of view on
the committee about the extent of regulation. This is, I know
ideological and historic, and goes back many, many decades. Is
there room for there to be a mandate for an Self-Regulatory
Organization (SRO) here to accomplish some of these tasks, that
is, industry-run mechanisms? I know that there are those who
believe that National Futures Association (NFA) and Financial
Industry Regulatory Authority (FINRA) are not adequate for
crypto. Should there be a separate crypto SRO?
Ms. House. My general position is that I do not think that
we need another one. I think that empowering the existing ones
is best, but either way I will take it if the industry would
start regulating itself. That was something that we, certainly
when we were at FinCEN, encouraged them to do in order to drive
better implementations of standards, development of reg tech
solutions, cybersecurity standards and capabilities. There has
been some evolution in that space, but not enough, not nearly
quickly enough to deal with the risk, so I think that there is
room for it.
Mr. Liccardo. Finally, just on this question of
collectibles, if we assume for a moment collectibles are not
securities and they are not even commodities, how exactly do we
regulate them? How should we? At this point, we think Federal
Trade Commission (FTC) may have some regulatory authority. What
is the right approach?
Ms. House. This is tough. I think an economic-function-
based approach is the right one. Something could be called a
collectible by label but may not function that way, and
especially since a token can represent anything, whether a deed
to a house or a piece of information, and blockchain is
function neutral as a technology. We need to think about it
based on that economic function, and that is the principle to
use.
Mr. Steil. The gentleman's time has expired.
Mr. Liccardo. I yield.
Mr. Steil. The gentlewoman from Texas, Ms. Garcia, is now
recognized for 5 minutes.
Ms. Garcia. Thank you, Mr. Chairman, and thank you to all
our witnesses today, and, Mr. Massad, I wanted to start with
you. Does this act in any way, as currently drafted, support or
hinder the goal of building a faster, cheaper, and more
transparent remittance ecosystem, especially for immigrant
families that are underserved? That is something that has been
a selling point from day one that, frankly, I do not buy, but
now that we have this Calamity Act, do you think that it gets
us there?
Mr. Massad. Congresswoman, I do not think the CLARITY Act
goes to that. I do think stablecoin legislation can potentially
help. Remittances are one of the potentially use cases of
stablecoins. Of course, we have to make sure we have a proper
regulatory framework, and there are a lot of issues about
whether they would be as efficient if they complied with
regulation, but I think more in terms of stablecoins dealing
with the remittance case than this legislation.
Ms. Garcia. Right. Professor, tell me what the profile is
of the average investor.
Ms. Allen. Sure. I am glad you asked that question as a
follow up to your previous question because what we are
actually seeing is pretty low use of crypto for remittances.
Right now, stablecoins make up less than--sort of less than 1
percent of people according to the Federal Reserve----
Ms. Garcia. That does not surprise me.
Ms. Allen. Yes.
Ms. Garcia. Who is using it? Is it just the people who do
want to cash in, perpetuate fraud, money laundering----
Ms. Allen. No, there is a lot of----
Ms. Garcia [continuing]. because I keep hearing we really
need this. We need----
Ms. Allen. So----
Ms. Garcia. We are not protecting the average American in
this bill, are we?
Ms. Allen. the average American does not use crypto, so let
us be clear, but this----
Ms. Garcia. Correct. That is why it does not.
Ms. Allen. Yes, but the small group of Americans that use
it for legal purposes are primarily using it for speculation
and gambling. The question you have to ask is: as we are going
into a place of increasing economic precarity, do you want to
make people essentially do Hail Mary bets to try and keep their
head above water, or do you want to actually take steps to make
the financial system fairer for everyone, because what I see
here is not investor protection. It is encouraging people to
gamble, and I do not think that is a viable way of dealing with
financial and economic precarity.
Ms. Garcia. This is sort of like, let us build a bill that
can make Trump richer again.
Ms. Allen. The crypto industry, too.
Ms. Garcia. The crypto industry, too, but again, what is
the profile of the average investor?
Ms. Allen. The average investor is, I think, typically a
young man. You do see, according to some surveys,
disproportionate use by black and Hispanic Americans, which, to
me, I find concerning because I think that is predatory
inclusion, much like subprime mortgages were. I think the most
vulnerable people are being targeted, but also, there are young
men who are less vulnerable who enjoy the gambling aspect.
Ms. Garcia. What is the average investment that they make?
Ms. Allen. That I do not know. I would have to get back to
on that.
[The information referred to was not submitted prior to
printing.]
Ms. Garcia. Any members of the panel, can they help me
here? The other side seems to be ramming this bill to protect
Donald Trump's investments----
Ms. Allen. I can----
Ms. Garcia [continuing]. so he could just get richer. I
mean, is there anything in here for poor people, for people
who----
Ms. Allen. No, I mean----
Ms. Garcia. Is there anything here in this bill that is
going to protect them if they do decide to gamble and take a
risk?
Ms. Allen. No, and further, to a point that I made earlier,
the thing with this technology is you cannot reverse
transactions. This is a place where fraudsters have really sort
of congregated because if they can induce you to send the
crypto, it is gone forever. We are seeing stories of these
Bitcoin ATM kiosks cropping up in places where you have check
cashing and payday lending services, and they are not really
ATMs because you can use cash to buy crypto, but you cannot get
cash back out again. What we are seeing is stories of people
walking into bodegas on a phone with a scammer, being told to
put their money into the Bitcoin ATM, and then that is the end
of the money. They never see it again.
Ms. Garcia. No protection, nothing. Really, this should be
called the Protect Corruption Act.
Ms. Waters. Will the gentlelady yield?
Ms. Garcia. Yes, ma'am.
Ms. Waters. Thank you very much. Mr. Naylor, once more, can
you describe quickly how many ways that Trump is stealing and
promoting his crypto?
Mr. Naylor. Well, I cannot count that high----
[Laughter.]
Mr. Naylor [continuing]. but the Trump meme is, by his own
account, worthless, and yet he has made hundreds of millions of
dollars simply in trading fees. Now, it is difficult to
believe, but he has something that is even worth less, and that
is the World Liberty Coin, where, if you buy it, that is it.
You cannot sell it. There is nothing.
Ms. Waters. Thank you very much. Thank you.
Mr. Steil. The gentlelady's time has expired. I would like
to thank our witnesses for their testimony today.
Without objection, all members will have 5 legislative days
to submit additional written questions for the witnesses to the
chair. The questions will be forwarded to the witnesses for
their response. The witnesses will please respond no later than
July 11.
[The information referred to can be found in the appendix:]
Mr. Steil. This hearing is adjourned.
Ms. Waters. Thank you.
[Whereupon, at 11:10 a.m., the committee was adjourned.]
APPENDIX
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