    [House Hearing, 119 Congress]
    [From the U.S. Government Publishing Office]

                    AMERICAN INNOVATION AND THE FUTURE OF
                                DIGITAL ASSETS

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

                                    HEARINGS

                                   BEFORE THE

                   SUBCOMMITTEE ON COMMODITY MARKETS, DIGITAL
                         ASSETS, AND RURAL DEVELOPMENT

                                    AND THE

                            COMMITTEE ON AGRICULTURE
                            HOUSE OF REPRESENTATIVES

                        ONE HUNDRED NINETEENTH CONGRESS

                                 FIRST SESSION
                                   __________

                          APRIL 9, 2025; JUNE 4, 2025
                                   __________

                                Serial No. 119-5

                     [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

              Printed for the use of the Committee on Agriculture
                             agriculture.house.gov

                                   ______

                     U.S. GOVERNMENT PUBLISHING OFFICE

    63-755 PDF                WASHINGTON : 2026

                            COMMITTEE ON AGRICULTURE

                     GLENN THOMPSON, Pennsylvania, Chairman

    FRANK D. LUCAS, Oklahoma             ANGIE CRAIG, Minnesota, Ranking
    AUSTIN SCOTT, Georgia, Vice          Minority Member
    Chairman                             DAVID SCOTT, Georgia
    ERIC A. ``RICK'' CRAWFORD, Arkansas  JIM COSTA, California
    SCOTT DesJARLAIS, Tennessee          JAMES P. McGOVERN, Massachusetts
    DOUG LaMALFA, California             ALMA S. ADAMS, North Carolina
    DAVID ROUZER, North Carolina         JAHANA HAYES, Connecticut
    TRENT KELLY, Mississippi             SHONTEL M. BROWN, Ohio, Vice
    DON BACON, Nebraska                  Ranking Minority Member
    MIKE BOST, Illinois                  SHARICE DAVIDS, Kansas
    DUSTY JOHNSON, South Dakota          ANDREA SALINAS, Oregon
    JAMES R. BAIRD, Indiana              DONALD G. DAVIS, North Carolina
    TRACEY MANN, Kansas                  JILL N. TOKUDA, Hawaii
    RANDY FEENSTRA, Iowa                 NIKKI BUDZINSKI, Illinois
    MARY E. MILLER, Illinois             ERIC SORENSEN, Illinois
    BARRY MOORE, Alabama                 GABE VASQUEZ, New Mexico
    KAT CAMMACK, Florida                 JONATHAN L. JACKSON, Illinois
    BRAD FINSTAD, Minnesota              SHRI THANEDAR, Michigan
    JOHN W. ROSE, Tennessee              ADAM GRAY, California
    RONNY JACKSON, Texas                 KRISTEN McDONALD RIVET, Michigan
    MONICA De La CRUZ, Texas             SHOMARI FIGURES, Alabama
    ZACHARY NUNN, Iowa                   EUGENE SIMON VINDMAN, Virginia
    DERRICK VAN ORDEN, Wisconsin         JOSH RILEY, New York
    DAN NEWHOUSE, Washington             JOHN W. MANNION, New York
    TONY WIED, Wisconsin                 APRIL McCLAIN DELANEY, Maryland
    ROBERT P. BRESNAHAN, Jr.,            CHELLIE PINGREE, Maine
    Pennsylvania                         SALUD O. CARBAJAL, California
    MARK B. MESSMER, Indiana
    MARK HARRIS, North Carolina
    DAVID J. TAYLOR, Ohio

                                     ______

                         Parish Braden, Staff Director
                     Brian Sowyrda, Minority Staff Director

                                     ______

         Subcommittee on Commodity Markets, Digital Assets, and Rural
                                  Development

                     DUSTY JOHNSON, South Dakota, Chairman

    JOHN W. ROSE, Tennessee, Vice Chair  DONALD G. DAVIS, North Carolina,
    FRANK D. LUCAS, Oklahoma             Ranking Minority Member
    AUSTIN SCOTT, Georgia                DAVID SCOTT, Georgia
    DAVID ROUZER, North Carolina         NIKKI BUDZINSKI, Illinois
    TRACEY MANN, Kansas                  JONATHAN L. JACKSON, Illinois
    KAT CAMMACK, Florida                 SHRI THANEDAR, Michigan
    BRAD FINSTAD, Minnesota              ADAM GRAY, California
    ZACHARY NUNN, Iowa                   KRISTEN McDONALD RIVET, Michigan
    ROBERT P. BRESNAHAN, Jr.,            SHOMARI FIGURES, Alabama
    Pennsylvania                         EUGENE SIMON VINDMAN, Virginia,
    MARK B. MESSMER, Indiana             Vice Ranking Minority Member
    DAVID J. TAYLOR, Ohio                JOHN W. MANNION, New York
                                         APRIL McCLAIN DELANEY, Maryland

                                      (ii)

                                 C O N T E N T S

                                  ----------
                                                                       Page

                            Wednesday, April 9, 2025

    Craig, Hon. Angie, a Representative in Congress from Minnesota,
      opening statement..............................................     7
    Davis, Hon. Donald G., a Representative in Congress from North
      Carolina, opening statement....................................     3
        Prepared statement...........................................     4
    Johnson, Hon. Dusty, a Representative in Congress from South
      Dakota, opening statement......................................     1
        Prepared statement...........................................     2
    Thompson, Hon. Glenn, a Representative in Congress from
      Pennsylvania, opening statement................................     5
        Prepared statement...........................................     6

                                   Witnesses

    Hughes, J.D., William ``Bill'' C., Senior Counsel and Director of
      Global Regulatory Matters, Consensys Software Inc., Arlington,
      VA.............................................................     8
        Prepared statement...........................................     9
    Tague, Mark, Co-Founder and Chief Revenue Officer, CattleProof
      Verified Inc., Cheyenne, WY....................................    11
        Prepared statement...........................................    13
    Horton, Mike A., Project Creator, GEODNET Foundation, Los Altos
      Hills, CA......................................................    23
        Prepared statement...........................................    25
    Brummer, Ph.D., J.D., Chris, Chief Executive Officer, Bluprynt;
      Agnes Williams Sesquicentennial Professor of Financial
      Technology, Georgetown University Law Center; Faculty Director,
      Institute of International Economic Law, Washington, D.C.......    30
        Prepared statement...........................................    31
    Garrison, J.D., Coy, Partner, Steptoe LLP, Arlington, VA.........    35
        Prepared statement...........................................    37

                            Wednesday, June 4, 2025

    Craig, Hon. Angie, a Representative in Congress from Minnesota,
      opening statement..............................................    61
        Prepared statement...........................................    62
    Thompson, Hon. Glenn, a Representative in Congress from
      Pennsylvania, opening statement................................    59
        Prepared statement...........................................    60
        Submitted transcript.........................................   129

                                   Witnesses

    Ching, Ph.D., Avery, Chief Executive Officer and Co-Founder,
      Aptos Labs, Palo Alto, CA......................................    63
        Prepared statement...........................................    65
    Piwowar, Ph.D., Hon. Michael, Executive Vice President, Finance
      Pillar, Milken Institute; President, Economic Mobility
      Alliance, Milken Institute; former Commissioner and Acting
      Chairman, U.S. Securities and Exchange Commission, Fairfax, VA.    66
        Prepared statement...........................................    67
    Miller, J.D., Ryne, Partner, Lowenstein Sandler LLP; Chair,
      Lowenstein Crypto; Co-Chair, Commodities, Futures, Derivatives
      Group, New York, NY............................................    74
        Prepared statement...........................................    75
    Pizzola, J.D., Chelsea, Partner, Willkie Farr & Gallagher LLP,
      Charlotte, NC..................................................    80
        Prepared statement...........................................    81

                    AMERICAN INNOVATION AND THE FUTURE OF
                                DIGITAL ASSETS

                    (ON-CHAIN TOOLS FOR AN OFF-CHAIN WORLD)

                                  ----------

                            WEDNESDAY, APRIL 9, 2025

                      House of Representatives,
        Subcommittee on Commodity Markets, Digital Assets, and
                                             Rural Development,
                                      Committee on Agriculture,
                                                       Washington, D.C.
        The Subcommittee met, pursuant to call, at 2:00 p.m., in
    Room 1300 of the Longworth House Office Building, Hon. Dusty
    Johnson [Chairman of the Subcommittee] presiding.
        Members present: Representatives Johnson, Rose, Lucas,
    Austin Scott of Georgia, Mann, Nunn, Messmer, Taylor, Thompson
    (ex officio), Davis, Budzinski, Jackson, Thanedar, McDonald
    Rivet, Figures, Vindman, McClain Delaney, and Craig (ex
    officio).
        Staff present: Paul Balzano, Wick Dudley, Timothy
    Fitzgerald, Kyle Upton, John Konya, Britton Burdick, Joshua
    Lobert, Clark Ogilvie, Ashley Smith, and Jackson Blodgett.

     OPENING STATEMENT OF HON. DUSTY JOHNSON, A REPRESENTATIVE IN
                       CONGRESS FROM SOUTH DAKOTA

        The Chairman. The Committee will come to order. Welcome,
    and thanks for joining this hearing. It is entitled, American
    Innovation and the Future of Digital Assets: On-Chain Tools for
    an Off-Chain World. After brief opening remarks, Members will
    receive testimony from our excellent witnesses today, and then
    the hearing will be open to questions. In consultation with the
    Ranking Member, and pursuant to Rule XI(e), I want to make
    Members of the Subcommittee aware that other Members of the
    full Committee may join us today.
        I am pretty excited. This is our first hearing of this
    Subcommittee on Commodity Markets, Digital Assets, and Rural
    Development, and I am particularly excited about the gentleman
    sitting to my right. Don Davis is a great human being, a great
    Member of Congress. We worked together on this digital assets
    stuff in the last Congress. I enjoyed working with Yadira, and
    I am going to enjoy working with Don as well.
        Mr. Davis isn't the only one in a new role. Half of this
    Subcommittee are new Members to the Subcommittee. So we are
    going to be doing a lot of learning together, and I am sure I
    speak for Don as well in that we are excited to have a new crop
    of people, excited to make sure that these commodity markets
    and rural development and crypto issues work well. And, of
    course, a portion of our work, an important portion, is digital
    assets, and that is what today's hearing is on. But it is
    certainly not the only thing we deal with in this Committee. Of
    course, rural development, rural energy, Commodity Futures
    Trading Commission, legislation to reauthorize the CFTC, this
    is all going to be a part of the work that we are going to do
    together.
        In the digital assets space, the way it was last Congress,
    that the full Committee did an extraordinary job, working in a
    bipartisan way, and with the folks at Financial Services, to
    craft and then pass the bipartisan comprehensive market
    structures bill, the Financial Innovation and Technology for
    the 21st Century Act, FIT21 (H.R. 4763, 118th Congress). It
    passed the House floor by 279 to 136. I think Don has those
    numbers tattooed on his upper arm. He will show you if you ask,
    pretty please, nicely.
        And we are going to pick up right where we left off.
    Earlier today, Chairman Steil's Digital Assets Subcommittee on
    the Financial Services side held their first hearing on market
    structure. That was not a coincidence. Just like last Congress,
    everything we do, we are going to be doing in tandem and
    working together. We are united and committed to advancing
    comprehensive, bipartisan market structure legislation, and
    getting it to the President's desk. Our legislation will bring
    legal certainty to issuers and to users of digital assets.
    There will be clear customer protections to buyers of digital
    assets. And it is going to foster an environment of investment
    and innovation, and that is going to benefit the whole country.
        Today, we are going to hear from entrepreneurs who are
    using blockchain and digital assets to solve real-world
    problems. Again, we get back to the title of this hearing, On-
    Chain Tools for an Off-Chain World. Some of these concepts,
    some of these solutions are really fun. And then that way it is
    not about crypto, it is about cattle guys, trying to figure out
    how to make it easier and more profitable for ranchers to
    market their cattle. It is about a gifted engineer trying to
    make a less expensive, more robust, more precise GPS system for
    precision agriculture and other location-based systems. It is
    about a law professor who is building automated systems to help
    developers comply with legal disclosures in a way that
    consumers can actually understand.
        Our work on market structure legislation is ultimately
    about how to ensure that those ranchers, those engineers, those
    professors, and many, many others, can use digital tools to
    bring their ideas to life, and to power the American Dream.
        We have a terrific panel of witnesses to help us understand
    that work, and the legal landmines which can disturb and slow
    innovation. I am looking forward to today's hearing and our
    work over the new few months. And, of course, ultimately,
    punching FIT21 across into the end zone and onto the
    President's desk.
        [The prepared statement of Mr. Johnson follows:]

    Prepared Statement of Hon. Dusty Johnson, a Representative in Congress
                               from South Dakota
        Good afternoon. Welcome to our first meeting of the Subcommittee on
    Commodity Markets, Digital Assets, and Rural Development for the 119th
    Congress.
        I want to congratulate Don Davis from North Carolina as our new
    Ranking Member. I know I'll enjoy working with you as I enjoyed working
    with your predecessor, Yadira Caraveo.
        Mr. Davis isn't the only one in a new role--almost half our
    Subcommittee is new compared to last Congress. I think I can speak for
    the Ranking Member and say that we are thrilled to have you on this
    Committee.
        A portion of our work is digital assets, which we will focus on
    today. In the coming months, we will focus on the Committee's rural
    development and rural energy priorities, oversight of the Commodity
    Futures Trading Commission, and legislation to reauthorize the CFTC.
        Last Congress, this Committee did extraordinary work with our
    colleagues on the Financial Services Committee to craft and pass a
    bipartisan, comprehensive digital asset market structure bill--the
    Financial Innovation and Technology for the 21st Century Act. FIT21
    passed the House with great bipartisan support by a 279-136 vote.
        We are picking up right where we left off last Congress. Earlier
    today, Chairman Steil's Digital Asset Subcommittee of the Financial
    Services Committee held their first hearing on market structure. This
    was not a coincidence--we'll be working side by side on legislation
    again this Congress.
        We are united and committed to advancing comprehensive, bipartisan
    market structure legislation to the President's desk. Our legislation
    will bring legal certainty to issuers and users of digital assets,
    clear customer protections to buyers of digital assets, and new
    innovations to all Americans.
        Today, we are going to hear from entrepreneurs who are using
    blockchains and digital assets to solve real-world problems.
        This conversation isn't really about crypto, but it's about a few
    cattle guys trying to figure out how to make it easier and more
    profitable for ranchers to market their cattle.
        It's about a gifted engineer trying to make a less expensive, more
    robust, and more precise GPS network for precision agriculture and
    other location-based systems.
        It's about a law professor who is building automated systems to
    help developers comply with legal disclosure requirements in a way that
    consumers can actually understand.
        It's about new ways to solve old problems, and these new ways use
    public blockchains.
        Our work on market structure legislation is ultimately about how to
    ensure that ranchers, engineers, college professors, and others can use
    digital tools to bring their ideas to life and unleash their American
    Dream.
        We have a terrific panel of witnesses to help us understand the
    work to develop new projects and the legal landmines which can disturb
    that effort and slow innovation.
        I am looking forward to today's hearing, our work over the next few
    months, and ultimately, putting a bill on President Trump's desk.
        With that, I will recognize my friend, the new Ranking Member of
    the Committee, Don Davis.

        The Chairman. With that, I want to welcome the
    distinguished--and recognize the distinguished Ranking Member,
    the gentleman from North Carolina, Mr. Davis, for any opening
    remarks he would like to give.

    OPENING STATEMENT OF HON. DONALD G. DAVIS, A REPRESENTATIVE IN
                      CONGRESS FROM NORTH CAROLINA

        Mr. Davis. Well, thank you so much, Mr. Chairman, and I
    look forward to continued service with you on this Committee.
    Thank you so much for not only your service to our country, but
    in particular for the work that we have done, and I believe
    what we will continue to do, on this Committee. And to all of
    the Members, and to our witnesses, thank you for being with us
    today.
        I would like to--in particular--to highlight and just thank
    our Ranking Member as well as our Chairman for their leadership
    and giving us guidance for the work before us in the 119th
    Congress.
        Just this past month I had the privilege of participating
    in the Digital Chambers' chambers of the DC Blockchain Summit.
    We came together to reinforce what I think is a simple but
    powerful idea, and that is digital asset policy remains vital
    for American innovation.
        My priorities in particular as we move forward over the
    119th for our Subcommittee: market structure, one, getting
    digital market structure legislation across the finish line to
    provide our markets with certainty, the certainty that is
    necessary so that we can continue to operate to ensure that the
    United States remains a leader. The future is counting on us,
    and I truly believe that, and we must rise for this occasion
    that is before us now. Number two, CFTC. Next, we must
    reauthorize the CFTC with increased work for the CFTC coming on
    the future market structure and other related legislation, we
    need to ensure the CFTC is reauthorized and that they are
    provided with adequate ability and staffing to carry out its
    job. And third, which is shifting gears a little bit for me,
    but I think I speak volumes for rural America, which I
    understand in the First Congressional District of North
    Carolina, we rely tremendously on Rural Development. Broadband
    deployment, community facility support, and all the USDA rural
    development programs. These are essential for our rural
    communities. These priorities come with the need for a
    commitment to move forward on this Subcommittee, a commitment
    for holding hearings, roundtables, events, whatever it takes,
    we are committed, Mr. Chairman, and to those who are here.
        As the House Financial Services Committee advances
    legislation, it is vital that our Subcommittee keeps pace. Our
    jurisdiction--commodity markets, digital assets, and rural
    development--places us at an intersection of innovation and
    making a difference in the lives of many people across this
    nation, and I do not take that lightly. Any legislative
    framework we move forward must account not only for market
    structure and investor protection, but also for innovation
    happening far from the trading floors, innovation that can
    empower rural America, improve public services, and unlock
    economic opportunity where it is needed most.
        I look forward to working with you, Mr. Chairman. And thank
    you so much for the witnesses that are here again today.
        [The prepared statement of Mr. Davis follows:]

        Prepared Statement of Hon. Donald G. Davis, a Representative in
                          Congress from North Carolina
        Good afternoon. I thank our Subcommittee Chairman, Dusty Johnson,
    and our witnesses for your service and commitment to such an important
    topic.
        Just this past month, I had the privilege of participating in The
    Digital Chamber's DC Blockchain Summit. We came together to reinforce a
    simple but powerful idea: digital asset policy remains vital for
    American innovation.
        My priorities for the Subcommittee are:
        Getting digital market structure legislation across the finish line
    to provide our markets with the certainty they need to continue to
    operate and to ensure they remain in the U.S. and not abroad. The
    future is counting on us and we must rise for the occasion.
        Next, we must reauthorize the CFTC. With increased work for the
    CFTC coming under future market structure and other related
    legislation, we need to ensure the CFTC is reauthorized and provided
    with the adequate ability and staffing to carry out its job.
        Finally, North Carolina's First Congressional District and rural
    America rely on Rural Development. Broadband deployment, community
    facilities support, and all of the USDA RD programs that support our
    rural communities.
        These priorities come with the need for the Subcommittee to hold
    hearings, roundtables, and events focused on the Subcommittee's work.
        As the House Financial Services Committee advances legislation,
    it's vital that our Subcommittee keeps pace. Our jurisdiction--
    commodity markets, digital assets, and rural development--places us at
    the intersection of innovation and making a difference in the lives of
    many across the nation.
        Any legislative framework we move forward must account not only for
    market structure and investor protection but also for innovation
    happening far from the trading floors, innovation that can empower
    rural America, improve public services, and unlock economic opportunity
    where it's needed most.
        I look forward to working with Chairman Johnson to schedule these
    events and to move forward with good legislation that unlocks American
    ingenuity.
        Now to shift to the focus of the hearing today. Blockchain
    technologies uses for non-crypto applications.
        So often, when we hear about blockchain, it's focused on
    cryptocurrencies and digital finance. Many don't understand that
    blockchain technology can be used across industries for countless
    reasons.
        Today's hearing provides us with an opportunity to educate the
    Members of the Subcommittee so that we can educate our constituents and
    better connect the technology to how it impacts their daily lives.
        The potential of this technology in improving processes for
    industries across the U.S. is limitless. That is why we need to be
    better messengers and communicators around this complicated technology.
    I know the first time I heard about it from my son, it took me a while
    to grasp it.
        For the House Agriculture Committee, the usage of this technology
    increases across the country, and as the technology continues to
    improve, all districts across the country will benefit. Whether it be
    small businesses, farmers, rural communities, or under-invested
    communities like the ones I represent in eastern North Carolina.
        I look forward to hearing from the witnesses about the various ways
    that they are using blockchain technology. I think it will serve as an
    opportunity to learn how we can help assist our home communities in
    accessing and using the technology to allow them to thrive.

        The Chairman. Before we recognize the Chairman and the
    Ranking Member for their opening comments, after consultation
    with Ranking Member Craig and Ranking Member Davis, I would ask
    for a UC to limit the questioning time for Members to 4
    minutes, and I will tell you why we want to do that. Votes are
    going to get called, and rather than just shut down people at
    the end of the dais, we thought if we all took a little bit
    less, we could share more bountifully with all. And so I would
    ask for a UC on that. Is there any objection? Hearing no
    objection, Members will be given 4 minutes of questioning time.
    And listen, if there are issues we still have to resolve and
    votes haven't been called yet, we will do another round. Right?
    It is not about shutting anybody down.
        And then for our witnesses, Mr. Davis and I will kind of
    run this thing together. So if he recognizes you, don't think
    he is going rogue, we just kind of like to tag team this a
    little bit.
        And so with that, I would recognize the Chairman of the
    full Committee, Mr. Thompson, for whatever remarks he would
    make.

     OPENING STATEMENT OF HON. GLENN THOMPSON, A REPRESENTATIVE IN
                       CONGRESS FROM PENNSYLVANIA

        Mr. Thompson. Well, thank you, Mr. Chairman. I am going to
    congratulate you, Mr. Chairman, on your reappointment as
    Chairman of the Subcommittee. You were a key part of our
    success on digital assets last year, and I am so pleased that
    you have agreed to take on this role again. And, Ranking Member
    Davis, congratulations on your appointment as Ranking Member. I
    know how excited you are to take on this role. I know that the
    two of you are going to do a great job leading the Committee's
    work on digital assets, rural development, and derivatives. I
    also want to welcome all the Members of the Subcommittee here
    today. And again, for the 119th Congress there was a great
    demand to serve on this Subcommittee, in no small part because
    of the opportunity to work on the digital asset issues.
        I am so excited for the work of the Subcommittee to
    continue. I want to thank you all for your willingness to serve
    on it. There is great potential for digital assets to provide
    significant value for the American public and American
    agriculture, not just in monetary terms, but as tools to solve
    real world problems as we will hear about today. But as we will
    also hear about today, digital asset developers, users, and
    institutions still need clear, thoughtful rules of the road to
    create these solutions. Congress wants to act so that we do not
    lose out on this American innovation. And I want to underscore
    what Chairman Johnson said, we are once again working hand in
    glove with the House Financial Services Committee to craft
    legislation that would do just that. This is perhaps unusual
    for Congress, but it is the right thing to do to make good
    public policy.
        I want to thank House Financial Services Chairman French
    Hill and their Digital Assets Subcommittee Chairman Bryan Steil
    for their partnership. Chairman Steil held a great Subcommittee
    hearing on digital assets earlier today.
        No one can solve this issue alone. It takes cooperation of
    committees and regulators to build a workable framework to
    oversee digital assets. The result of this approach last
    Congress was our digital asset market structure bill, FIT21,
    passing the House with a strong bipartisan vote.
        Finally, I also want to thank our witnesses for coming
    today from different parts of the country to share their
    expertise with us, and I look forward to your testimony and
    discussion that follows.
        Thank you, Mr. Chairman, Mr. Ranking Member, and I yield
    back.
        [The prepared statement of Mr. Thompson follows:]

    Prepared Statement of Hon. Glenn Thompson, a Representative in Congress
                               from Pennsylvania
        Thank you, Mr. Chairman.
        I want to congratulate you on your reappointment as Chairman of the
    Subcommittee. You were a key part of our success on digital assets last
    year, and I am so pleased you've agreed to take on this role again.
        And Ranking Member Davis, congratulations on your appointment as
    Ranking Member. I know how excited you are to take on this role.
        I know that the two of you are going to do a great job leading the
    Committee's work on digital assets, rural development, and derivatives.
        I also want to welcome all of the Members of the Subcommittee here
    today.
        Again for the 119th Congress, there was a great demand to serve on
    this Subcommittee, in no small part because of the opportunity to work
    on digital asset issues.
        I am excited for the work of the Subcommittee to continue. I want
    to thank you all for your willingness to serve on it.
        There is great potential for digital assets to provide significant
    value for the American public and American agriculture.
        Not just in monetary terms, but as tools to solve real world
    problems, as we'll hear about today.
        But, as we'll also hear about today, digital asset developers,
    users, and institutions still need clear, thoughtful rules of the road
    to create these solutions.
        Congress must act so we do not lose out on this American
    innovation.
        I want to underscore what Chairman Johnson said. We are once again
    working hand-in-glove with the House Financial Services Committee to
    craft legislation that will do just that.
        This is perhaps unusual for Congress, but it's the right thing to
    do to make good public policy.
        I thank House Financial Services Chairman French Hill and their
    Digital Assets Subcommittee Chairman Bryan Steil for their partnership.
        Chairman Steil held a great Subcommittee hearing on digital assets
    earlier today.
        No one can solve this issue alone. It takes the cooperation of
    committees and regulators to build a workable framework to oversee
    digital assets.
        The result of this approach last Congress was our digital asset
    market structure bill, FIT21, passing the House with a strong
    bipartisan vote.
        Finally, I also want to thank our witnesses for coming today from
    different parts of the country to share their expertise with us.
        I look forward to your testimony and the discussion that follows.
        I yield back.

        The Chairman. The gentlewoman from Minnesota, Ms. Craig, is
    recognized.

      OPENING STATEMENT OF HON. ANGIE CRAIG, A REPRESENTATIVE IN
                        CONGRESS FROM MINNESOTA

        Ms. Craig. Thank you so much, Mr. Chairman. I want to thank
    the Subcommittee for holding this hearing. The two of you are
    already demonstrating an amazing ability to work on a
    bipartisan basis, so thank you for that, particularly in this
    Congress.
        There is a wide range of views in Washington, of course,
    surrounding cryptocurrencies, and while these new financial
    products have their supporters and detractors, I think there is
    one thing everyone can agree on; we need to establish a clear
    and comprehensive regulatory structure to govern crypto. Today
    though, this Subcommittee is reviewing a different question,
    which I appreciate, by looking beyond crypto at the potential
    other uses of the underlying technology that makes crypto
    possible, blockchain technology.
        Blockchain technology is not crypto, but basically is the
    operating system upon which it is built. And like other
    operating systems we are more familiar with on our phones or
    computers, people can build applications on the blockchain that
    serve real-world, non-crypto purposes.
        Today we will be hearing from some of our witnesses who
    will talk about those non-crypto use cases of distributive
    ledger technology, like blockchain, and it is important that we
    learn about these uses.
        As Congress works to develop legislation to establish a
    regulatory structure for the financial products that use
    blockchain technology, we do not want to inadvertently stifle
    innovation of non-financial uses of the technology. At a time
    when it seems that many of the bills that Congress votes on
    seem designed to foster partisan conflict, I am hopeful that
    the Committee's and Subcommittee's potential work in this space
    can lead to legislation that can win broad, bipartisan support.
    If we are successful in that effort, it will not be because of
    the meme coins issued by the President and his family, or the
    cryptocurrency companies they buy. Those efforts actually
    undermine the credibility of the entire industry. Instead, our
    success will be built on the stories we hear today; stories of
    ordinary Americans trying to do what Americans do best;
    innovate.
        I look forward to hearing our witnesses today. And I thank
    the Chairman and Ranking Member of this Subcommittee, as well
    as Chairman Thompson, for bringing all of us together.
        And with that, I yield back.
        The Chairman. If there are any other Members with opening
    statements, of course, they can submit those for the record.
        And with that, we will recognize our witnesses. Our first
    witness is Mr. Bill Hughes, Senior Counsel and Director of
    Global Regulatory Matters, with Consensys Software, Inc.
        Mr. Davis. And our next witness is Mr. Mark Tague, the Co-
    Founder and Chief Revenue Officer of CattleProof Verified, LLC.
    And our third witness today is Mr. Mike Horton, the Project
    Creator at GEODNET Foundation.
        The Chairman. Next witness is Dr. Chris Brummer, who is the
    Sesquicentennial Professor of Financial Technology at
    Georgetown. He is also the Chief Executive Officer at Bluprynt.
        Mr. Davis. And our fifth and final witness today is Mr. Coy
    Garrison, who is a Partner at Steptoe LLP.
        The Chairman. Although we are cutting ourselves a little
    short, we are not cutting your testimony time short, of course.
    And so, Mr. Hughes, you are recognized for 5 minutes.

     STATEMENT OF WILLIAM ``BILL'' C. HUGHES, J.D., SENIOR COUNSEL
                   AND DIRECTOR OF GLOBAL REGULATORY
            MATTERS, CONSENSYS SOFTWARE INC., ARLINGTON, VA

        Mr. Hughes. Thank you, Mr. Chairman, Chairman Johnson,
    Ranking Member Davis, and the distinguished Members of the
    Subcommittee. I thank you for this invitation to testify about
    how blockchain is a special technology that allows us to
    innovate in all aspects of the American economy, including the
    agriculture sector.
        I work as a senior legal counsel at Consensys Software, a
    software developer that is headquartered in Forth Worth, Texas.
    Our business is helping to build the next version of the
    internet, often called Web3, using primarily the Ethereum
    blockchain. Ethereum is the first and most established
    programmable blockchain. So just like Bitcoin, it allows you to
    safeguard your own assets without a bank or custodian, and to
    send funds without a payment intermediary. But unlike Bitcoin,
    it additionally supports software programs, often called smart
    contracts, that greatly expand what the network can do.
        New computer networks like Ethereum have enticed meaningful
    computer engineering talent to migrate to the blockchain space
    to build the apps that will impact our future. What we see with
    Ethereum is the building of a new world computer where anyone
    can build software programs that replace service providers, and
    where everyday people can enjoy better access to important
    services.
        Consensys has been closely tied to Ethereum since 2016. Our
    flagship offering is the MetaMask Wallet, which you can find in
    basically every app store. It is the most popular self-custody
    wallet software in digital assets, with over 100 million users
    worldwide. MetaMask is a browser interface, essentially. It
    allows you to read the blockchain, to execute transactions on
    your own behalf, and to safeguard your digital assets. Those
    assets include digital dollars. Native digital assets like
    Bitcoin and Ether and NFTs that could represent art or
    essentially any ownership of a real-world asset.
        A wallet like MetaMask is the link that brings the digital
    assets to today's internet, so it is a critical piece of
    tooling. Blockchain unlocks a software application frontier
    that can meaningfully impact the real world in ways that the
    current internet simply cannot. Much attention is paid to the
    financial applications of decentralized finance and to payment
    stablecoins, and rightly so. They are indeed powerful new
    innovations that will mature as the technology evolves, and the
    economic and investment activity in traditional finance slowly
    moves to blockchain. But blockchain applications are much more
    diverse than finance, and I think we have recognized this today
    so far. Developers are creating apps with commercial and social
    applications.
        Blockchains and blockchain apps, if we take a step back,
    are all grounded on basic economic incentives. On most
    blockchains there is a native digital asset, which is the
    foundation of that incentive structure. For example, on the
    Ethereum network, Ether is the native digital asset. It is how
    users pay for moving value, or accessing software applications
    on the network. Ether is how the people who maintain the
    network infrastructure voluntarily are paid for their work. You
    can think of it this way, if the Ethereum blockchain was an
    engine, Ether is the gasoline on which it runs.
        There are thousands of developers using these blockchains
    to build services to solve real-world problems. I am very
    interested to hear more about two such projects which are going
    to be testifying here today. They are just two examples of what
    is possible if the market is provided the freedom and clarity
    to innovate. We are at a watershed moment today with an
    opportunity to move on from the past several years of outdated
    thinking. While the rest of the world has updated policies to
    embrace innovation, the U.S., unfortunately, has lagged behind,
    threatening its leadership role on this issue, but I think it
    is a new day and America is back open for blockchain businesses
    of all stripes. And you see that out in the market, people are
    coming back, new companies are coming into the space,
    especially from overseas. Durable clarity on the law is what we
    need today to ensure that we can capture the opportunities
    presented by blockchain technology. What we can build is only
    limited by our imagination and the law.
        So I am pleased to be with you today to explore these
    topics, and we at Consensys applaud this Committee, and this
    Subcommittee in particular, for taking an important leadership
    role on these issues. Thank you.
        [The prepared statement of Mr. Hughes follows:]

    Prepared Statement of William ``Bill'' C. Hughes, J.D., Senior Counsel
      and Director of Global Regulatory Matters, Consensys Software Inc.,
                                 Arlington, VA
        Chairman Johnson, Ranking Member Davis, and distinguished Members
    of the Subcommittee, I thank you for the invitation to testify about
    how blockchain is a special technology that allows us to innovate in
    all aspects of the American economy, including the agriculture sector.
    Regulation of the blockchain space is an important debate for our
    elected representatives to have, especially this year as industry-
    defining legislation is brought to the fore. Permission-less blockchain
    networks are new technologies that have real value and present exciting
    new opportunities that will impact our real-world lives.
        I work as a senior legal counsel at Consensys Software Inc., a
    software developer that is headquartered in Fort Worth, Texas and
    employs over 300 persons across the U.S. and another 300 around the
    world. Our business is helping to build the next version of the
    internet, often called Web3, using the Ethereum blockchain. Ethereum is
    the first and most established programmable blockchain. Just like
    Bitcoin, it allows you to safeguard your own assets without a bank or
    other custodian and to send funds without a payment intermediary. But
    unlike Bitcoin, it additionally supports software programs that greatly
    expand what the network can do. Anyone in the world with the requisite
    computer skills can publish a software program on Ethereum for anyone
    else in the world to access. Anyone can also participate in maintaining
    the network itself and processing new transactions.
        New computer networks like Ethereum have enticed meaningful
    computer engineering talent to migrate to the blockchain space to build
    the apps that will impact our future. What we see with Ethereum is the
    building of a new world computer for which anyone can build software
    programs that replace service providers, and everyday people can enjoy
    better access to important services. And this world computer has
    special characteristics: a Big Tech company cannot pick winners and
    losers; there are no software black boxes; and the data is resilient
    and incorruptible. It gives us the chance to move past this era of tech
    oligopoly where we can trust systems again.
        Consensys has been closely tied to Ethereum since 2016. Both those
    who build on blockchain and those who use blockchain day to day are the
    main audience for our flagship offering, the MetaMask wallet, which you
    can find in every app store. It is the most popular self-custody wallet
    software in digital assets with over 100 million users. MetaMask is a
    browser interface that allows you to read the blockchain and to execute
    transactions on your own behalf. Wallets ensure Web3 user security
    because they are the technology safeguarding a user's digital
    assets.\1\ Those digital assets can represent almost any kind of asset:
    digital dollars, native digital assets like Bitcoin or Ether, or NFTs
    that represent art or ownership of real-world assets.
    ---------------------------------------------------------------------------
        \1\ To learn more about self-custody digital wallets, please visit
    MetaMask Learn found at https://learn.metamask.io/ (last visited April
    7, 2025).
    ---------------------------------------------------------------------------
        A wallet like MetaMask is the link that brings digital assets to
    today's internet, so it is a critical piece of tooling. And as wallet
    technology matures, it will make Web3 accessible, intuitive, and useful
    for everyone, giving rise to a swath of new applications that can be
    brought to market directly and that users can connect with directly,
    cutting out Big Tech gatekeepers.
        When you use a wallet to access on-chain software, programs which
    are frequently referred to as ``smart contracts'', you unlock a
    software application frontier that can meaningfully impact the real
    world in ways that the current internet with today's apps simply
    cannot. Much attention is paid to the financial applications in
    decentralized finance (``DeFi'') or to payment stablecoins. And rightly
    so--they are indeed powerful new innovations that will mature as more
    economic and investment activity move online.\2\
    ---------------------------------------------------------------------------
        \2\ Indeed, Ethereum has more DeFi activity and stablecoin volume
    than any other chain.
    ---------------------------------------------------------------------------
        But blockchain applications are much more diverse than finance.
    Developers are creating apps with commercial and social
    applications.\3\ Other applications focus on building out physical
    networks by incentivizing people to build and maintain network
    infrastructure. Yet others are delving into the world of artificial
    intelligence, both by changing how AI models work and by improving how
    we use them. Some projects aim at solving tricky problems while
    preserving privacy, including how we can fight deep fakes so we can
    begin to trust information we get over the internet.
    ---------------------------------------------------------------------------
        \3\ Consensys highlighted some of these app developers in our
    ``Web3 Builders'' series, which may be found at https://consensys.io/
    blog/builder-stories-back-represent-web3-innovation-matters-most (last
    accessed April 7, 2025) and https://consensys.io/blog/the-essence-of-
    web3-is-its-people-meet-the-builder-stories (last accessed April 7,
    2025).
    ---------------------------------------------------------------------------
        The foundation for these apps and the blockchains upon which we
    build them are basic economic incentives. Open computer networks allow
    anyone to join and anyone participate in them, but they do not work
    without incentives that drive participants to play by the system's
    rules. Starting with Bitcoin, blockchains are built so that people are
    heavily incentivized to play by the rules. Regulation should embrace
    that. Maintaining the conditions for those incentives to work their
    economic magic should be the goal of any regulation of the space.
        On most blockchains, including the Bitcoin blockchain, Ethereum,
    and many others, there is a native digital asset which is the
    foundation of that incentive structure. For example, on the Ethereum
    network, Ether is the native digital asset, and it is how Ethereum
    users pay for moving value or accessing software applications on the
    network. Ether is paid to the people who maintain the infrastructure of
    the network and confirm the transactions. Ether has value because it is
    the only way to access the Ethereum network and the applications that
    people have built on it.
        In this way, Ether is akin to gasoline, while the blockchain itself
    is akin to an engine. Without Ether, blockchain transactions would not
    process, and without the blockchain, there would be no need for Ether.
    Together, they allow millions of Americans and other people around the
    world to coordinate productively to operate the first truly global
    computer platform.
        We should embrace the fact that blockchains like Ethereum
    incentivize participants to play by the rules by offering a financial
    reward in the form of a token. Those tokens exist only on the
    blockchain ledger, and serve an important function without which the
    blockchain would not work.
        There are thousands of developers using these blockchain-based
    tools to build services to solve real-world problems. A network like
    Ethereum is the foundation of their applications. Two such projects are
    here to testify about their own work. But, they are just two examples
    in an almost limitless universe. Just like we could not imagine the
    services that people would develop in the early days of the internet,
    we can only speculate today about what people will develop in the
    future with blockchains and digital assets, if provided the freedom to
    do so.
        We are at a watershed moment today with the opportunity to move on
    from the past several years of outdated thinking. While the rest of the
    world has updated policies to embrace innovation, the U.S. has lagged
    behind, threatening its leadership role on this issue.
        But it is a new day, and America is back open for blockchain
    businesses of all stripes. Those in this space are heartened by
    bipartisan interest in the technology and the growing familiarity among
    the ranks of Congress. Durable clarity on the law is what we need today
    to ensure we can capture the opportunities presented by blockchain
    technology. What we can build is limited only by our imagination and
    the law. I am pleased to be with you today to explore these topics, and
    we at Consensys applaud this Committee for taking an important
    leadership role on these issues.

        Mr. Davis. At this time we will recognize Mr. Mark Tague
    for up to 5 minutes.

             STATEMENT OF MARK TAGUE, CO-FOUNDER AND CHIEF
              REVENUE OFFICER, CattleProof VERIFIED INC.,
                              CHEYENNE, WY

        Mr. Tague. Chairman Johnson, Ranking Member Davis,
    distinguished Members of the Subcommittee, thank you for the
    opportunity to speak with you today.
        My name is Mark Tague and I come to you not just as a tech
    founder, but as a fourth-generation cattleman. My family has
    stewarded the same land in Oklahoma for over a century; land
    that was originally allotted to my Chickasha great-grandmother
    by the Dawes Act of 1887 (Pub. L. 49-43, An Act to provide for
    the allotment of lands in severalty to Indians on the various
    reservations, and to extend the protection of the laws of the
    United States and the Territories over the Indians, and for
    other purposes.), following the Indian Removal Act of 1830
    (Pub. L. 21-148, An Act to provide for an exchange of lands
    with the Indians residing in any of the states or territories,
    and for their removal west of the river Mississippi.). Our
    ranch is proudly recognized by the State of Oklahoma as a
    centennial ranch, honoring 100 years of continuous family
    ownership.
        I am also the Co-Founder and Chief Revenue Officer of
    CattleProof Verified, a Wyoming-domiciled and USDA certified
    process verified program provider, operating at the
    intersection of agricultural provenance, blockchain
    infrastructure, and rural economic development. Our mission is
    to bring integrity, transparency, and innovation to one of the
    most critical and most overlooked sectors of the American
    economy, the livestock and commodity markets.
        At the core of our solution is something deceptively
    simple; it is verifiable data. In an age where trust drives
    markets, American agriculture is still being held back by
    fragmented systems, paper trails, and lack of transparency.
    That is not just inefficient, it is expensive, and it is unfair
    to both producers and consumers.
        CattleProof is building on-chain tools for off-chain
    assets; namely, real-world commodities, like cattle feed and
    pasture, that need provenance, auditability, and programmable
    trust. But let me be clear, we are not asking ranchers to
    become technology experts or replace markets. We are building
    tools that work in the background, quietly adding security,
    efficiency, and access.
        Here is how it works. One, verification at the source.
    Ranchers enter data, upload verified documents--breed
    registration, vaccination records, feed logs, location data,
    into our system. That information is cryptographically signed
    and anchored on chain, creating a USDA-certified digital
    identity for each animal.
        Two, proof of provenance. Once these credentials are in
    place, downstream partners; blenders, packers, insurers,
    regulators, even retailers, can verify claims instantly without
    relying on a centralized authority.
        Three, tokenization of livestock and inputs. Representing
    ranch assets as tokens on a blockchain enables fractional
    ownership, collateralization and real-time liquidity, opening
    the door for real financial inclusion. For instance, a young
    rancher could tokenize part of a verified herd to raise working
    capital through decentralized lending pools.
        Four, settlement and reporting. Using blockchain ensures
    audit trails and automated compliance with evolving and
    domestic and export regulations, something that is increasingly
    important in global trade.
        And five, stablecoin payments. CattleProof intends to
    integrate on-chain payments for cattle and other assets using
    the anticipated Wyoming Stable Token. WYST can enable users to
    transmit dollar-denominated transactions of any value, anywhere
    in the world, nearly instantly with significantly reduced fees
    compared to traditional ACH or wires. This reduces counterparty
    risk and the concept of float from transactions.
        Let me emphasize, this is not hypothetical, this is live.
    Our ranchers are already using CattleProof today. For example,
    the Choctaw Nation ranches, a sovereign Tribe in Oklahoma, are
    using CattleProof to create public trust and transparency in
    their progressive animal handling and land stewardship
    practices via USDA process verified programs.
        But if we want rural America to be part of the digital
    economy, truly part of it, we need regulatory clarity and
    digital infrastructure to match. Here is why this matters.
    Rural America is often left behind when it comes to fintech
    innovation. Blockchain gives us the rare opportunity to reverse
    that. Digital assets need real-world use cases. Agriculture is
    the perfect test-bed, combining blockchain technology with
    inputs from RFID tags and other data captured can create
    verifiable records of an asset's lifecycle. Commodities
    represent trillions in value. If we bring these assets on chain
    with transparency and trust, the U.S. can lead the next era of
    programmable real-world markets.
        To help us get there, we need your help to make digital
    asset market structure right. New digital asset tools depend on
    low cost, fast, and transparent settlement, a clear legal
    framework for stablecoins like the STABLE Act of 2025 (H.R.
    2392, Stablecoin Transparency and Accountability for a Better
    Ledger Economy Act of 2025) passed by the Financial Services
    Committee last week, especially those backed by U.S. dollars or
    U.S. Treasuries that will empower real communities to access
    compliant, next generation financial products.
        While legislation must be bipartisan and well informed,
    time is of the essence. Uncharacteristically, foreign
    jurisdictions are ahead of America in deploying regulatory
    frameworks to accommodate the rapid proliferation of digital
    assets.
        In closing, with the right tools and the right policies, we
    can ensure that America doesn't just keep up, but leads the
    world in unlocking the value of real-world assets on-chain.
        I thank you again for your time, and I look forward to your
    questions.
        [The prepared statement of Mr. Tague follows:]

    Prepared Statement of Mark Tague, Co-Founder and Chief Revenue Officer,
                    CattleProof Verified Inc., Cheyenne, WY
    I. Executive Summary
        The traditional cattle transaction system, largely unchanged for
    the past 150 years, faces significant challenges today that hinder
    efficiency, transparency, and trust within the industry. Ranchers
    contend with a lack of comprehensive data regarding their livestock,
    leading to difficulties in verifying quality and origin. Slow payment
    processes can create cash flow issues and uncertainty for producers.
    Furthermore, the industry grapples with persistent problems such as
    fraud, impacting both buyers and sellers. These archaic processes
    contribute to inefficiencies and prevent ranchers from fully realizing
    the full value of their cattle. The absence of an easily accessible
    reliable record-keeping system impedes traceability and the ability to
    provide consumers with verifiable information about the beef they
    purchase.
        Blockchain technology offers a transformative solution to the long-
    standing issues plaguing the cattle industry. At its core, blockchain
    is a secure, immutable, and distributed ledger that records
    transactions and data across a network of computers. This decentralized
    nature enhances transparency and makes it extremely difficult to tamper
    with recorded information. In the context of cattle transactions,
    blockchain enables the creation of unique digital identities for
    individual animals, allowing for the recording and tracking of crucial
    data points such as origin, health records, and ownership throughout
    their lifespan. This comprehensive data trail can follow the animal
    through the entire supply chain, from ranch to consumer, providing an
    unprecedented level of transparency and accountability. The ability to
    tokenize these digital animal identities and their associated data also
    paves the way for more efficient and secure online marketplaces for
    buying and selling cattle.
        The adoption of blockchain technology presents numerous benefits
    for ranchers of all sizes. Enhanced transparency and verifiable data
    can enable ranchers participating in USDA Process Verified programs to
    receive premium prices for their certified cattle. Blockchain
    facilitates faster settlement of transactions, improving cash flow and
    reducing financial uncertainty. The digitization of animal records
    streamlines administrative processes, reducing paperwork and improving
    overall efficiency on the ranch. For smaller ranchers, blockchain can
    provide access to broader markets and potentially level the playing
    field by offering a secure and verifiable way to showcase the quality
    of their cattle, regardless of scale. The increased trust fostered by
    blockchain could also lead to stronger relationships with buyers and
    greater access to capital through more transparent and secure
    transaction histories. By addressing inefficiencies and providing a
    platform for verifiable quality, blockchain empowers ranchers to focus
    on their core business of raising cattle while capturing more of the
    value they create.
        For the American beef-buying population, blockchain technology in
    the cattle industry translates to safer and more trustworthy food
    products. The enhanced traceability provided by blockchain allows
    consumers to gain insights into the origin and history of the beef they
    purchase, fostering greater confidence in its quality and safety. This
    transparency addresses the growing consumer demand for more information
    about their food sources and production practices. In the event of
    foodborne illness outbreaks, blockchain can facilitate faster and more
    precise recalls, minimizing harm to public health. The ability to
    verify claims related to animal welfare and sustainable farming
    practices through blockchain can also empower consumers to make more
    informed purchasing decisions that align with their values. Ultimately,
    blockchain contributes to a more reliable and accountable beef supply
    chain, ensuring that American consumers have access to high-quality,
    safe, and transparently sourced beef.
        In sum, the integration of blockchain technology into the cattle
    industry holds significant and mutual advantages for both producers and
    consumers. By addressing the longstanding challenges of inefficient and
    opaque traditional transaction methods, blockchain offers a pathway
    towards a more transparent, efficient, and trustworthy beef supply
    chain. Ranchers, regardless of their size, stand to benefit from
    premium pricing, faster payments, reduced administrative burdens, and
    potentially broader market access. Simultaneously, the American beef-
    buying population will gain greater confidence in the safety and origin
    of their food through enhanced traceability and verifiable information.
    The adoption of blockchain represents a crucial step in modernizing the
    cattle industry, bridging the gap between innovative technology and the
    practical needs of ranching, ultimately fostering a more sustainable
    and resilient future for beef production and consumption in the United
    States and globally.
    II. Introduction: The Current State of Cattle Transactions
    A. Historical Overview of Cattle Transactions and Their Lack of
            Significant Change
        For over 150 years, the way cattle have been bought and sold has
    remained fundamentally unchanged. This lack of significant evolution in
    cattle transactions stands in stark contrast to advancements seen
    across numerous other industries. The core processes involved in
    transferring ownership, providing assurances of quality and origin, and
    facilitating payment have largely persisted without the benefits of
    modern technology.
        Some of the very issues that plagued cattle transactions a century
    and a half ago continue to be prevalent today. Fraud, for instance,
    remains a significant concern within the industry. The absence of
    readily available, reliable data and transparent processes creates
    opportunities for misrepresentation and disputes regarding the
    characteristics and history of individual animals.
        Furthermore, traditional cattle transactions suffer from
    inefficiencies that hinder ranchers and other stakeholders in the
    supply chain. Slow payments are a common frustration, creating cash
    flow challenges for producers. The lack of verifiable data on
    individual animals, including their health records, breeding history,
    and other relevant information, limits the ability of buyers to make
    informed decisions and for sellers to capture the full value of their
    high-quality cattle.
        While demand for cattle remains strong, ranchers are increasingly
    challenged by issues of efficiency. The antiquated nature of
    transaction processes contributes to these challenges, acting as a
    bottleneck that prevents the industry from fully capitalizing on its
    potential. The need for technological solutions to bridge this gap and
    bring cattle transactions into the 21st century has become increasingly
    apparent. The introduction of blockchain and peer-to-peer transaction
    platforms will address these long-standing problems by providing
    solutions for verification, secure data storage and sharing, and
    streamlined transactions, which were simply not available in the
    historical context of cattle commerce.
    B. Problems with Current Cattle Transactions
    1. Lack of Data and Traceability
        Current cattle transactions are hampered by a significant lack of
    readily available and reliable data. This absence of information makes
    it difficult to track individual animals and their history throughout
    the supply chain. Ranchers lack the tools to easily record and share
    crucial details about their cattle, such as health records and breeding
    history. This limits transparency and makes it challenging for buyers
    to make informed decisions about the animals they are purchasing. The
    inability to trace an animal's history also impacts food safety and
    compliance efforts. Without a system for individual animal
    identification and data sharing, the industry operates with a
    significant information deficit, hindering efficiency and trust.
    2. Rigid and Limited Distribution Channels
        The traditional methods of buying and selling cattle often involve
    rigid and limited distribution channels that have not evolved
    significantly in over a century. The current environment lacks diverse
    and accessible avenues for ranchers to connect with potential buyers.
    The fact that technology is needed to ``bridge the gap'' indicates that
    the existing channels may not be efficient in reaching a wider range of
    buyers or in adapting to modern market demands. This limitation can
    prevent ranchers from accessing optimal prices and can slow down the
    overall movement of cattle through the supply chain.
    3. Slow Payment Processes
        Slow payment processes represent a persistent problem in
    traditional cattle transactions. This inefficiency creates cash flow
    challenges for ranchers and can impact their ability to reinvest in
    their operations. By bringing transactions onto a blockchain, the aim
    is to achieve faster settlement. The current reliance on outdated
    methods means that ranchers often have to wait for extended periods to
    receive payment after a sale, creating unnecessary financial strain.
    Modernizing these processes is crucial for improving the financial
    well-being of producers and streamlining the overall transaction cycle.
    4. Lack of Reliable Proof of Ownership and History
        A significant challenge in current cattle transactions is the lack
    of reliable proof of ownership and the difficulty in tracing an
    animal's history. Current methods of tracking ownership and history are
    inadequate and potentially unreliable. The blockchain's immutable and
    transparent nature offers a solution by providing a secure and
    verifiable record of an animal's journey and ownership changes
    throughout its life. Restoring trust in the provenance of cattle
    requires a more robust and tamper-proof system for documenting
    ownership and historical data.
    5. Susceptibility to Fraud
        The cattle transaction industry remains frustratingly susceptible
    to fraud. The lack of transparent data and verifiable records creates
    opportunities for fraudulent activities. Current, largely unchanged
    transaction methods lack the necessary safeguards to effectively
    prevent fraud. Implementing technologies that provide immutable records
    and verifiable information is crucial for mitigating the risk of
    misrepresentation and ensuring fair dealings within the cattle market.
    6. Inefficiencies Impacting Rancher Profitability
        Ranchers today are facing challenges not primarily due to a lack of
    demand, but because of inefficiencies in the transaction processes.
    These inefficiencies negatively impact their profitability and make it
    harder for them to ``keep ranching''. Antiquated transaction methods
    contribute to these inefficiencies, preventing ranchers from fully
    capturing the value of their cattle and adding unnecessary costs or
    delays to the process.
    C. The Need for Modernization and Technological Solutions in the Cattle
            Industry
        The cattle industry stands at a critical juncture, facing the
    imperative of modernization to overcome long-standing inefficiencies
    and embrace the potential of technological solutions. For over a
    century and a half, the fundamental processes of cattle transactions
    have remained largely unchanged, creating a growing disconnect with the
    advancements seen in other sectors. This lack of evolution has left the
    industry grappling with problems that not only hinder productivity but
    also limit the profitability and sustainability of ranching operations.
    The time has come for technology to bridge this gap and bring cattle
    commerce into the 21st century.
    III. CattleProof: A Blockchain Solution Purpose-Built for the Cattle
            Industry
    A. CattleProof's Mission To Digitize Cattle Transactions
        CattleProof's central mission is to digitize cattle transactions,
    bringing a centuries-old industry into the 21st century by leveraging
    cutting-edge technology to solve its fundamental problems. We are
    overhauling outdated processes that are hindering efficiency,
    transparency, and profitability within the cattle industry. Our core
    objective is to unlock value by addressing the critical shortcomings of
    the current system and empowering ranchers to thrive in a modern
    marketplace.
        The foundation of CattleProof's mission lies in the digitization of
    agricultural assets through a blockchain-based platform. This involves
    creating individual animal IDs that are securely stored and shared on a
    blockchain. This unique identification forms the basis for recording
    and tracking comprehensive animal data throughout the supply chain. By
    moving away from traditional, often paper-based or fragmented
    recordkeeping, we eliminate the problem of ``no data'' that plagues the
    industry. This digital record-keeping enables traceability, allowing
    for a clear understanding of an animal's history, health, and origin.
        Furthermore, CattleProof seeks to revolutionize the transactional
    aspect of the cattle industry. Our platform facilitates buying and
    selling animals directly on the blockchain, with the animal's data
    seamlessly following it through each transaction in the supply chain.
    This approach directly addresses the issue of slow payments by
    promising faster settlement through the efficiency of blockchain
    technology. By streamlining the payment process, CattleProof improves
    cash flow for ranchers and reduce the financial burdens associated with
    traditional transaction delays.
        A key component of CattleProof's mission is to enhance trust and
    security within the industry. The current system suffers from a lack of
    reliable proof of ownership and history, contributing to the persistent
    problem of fraud. By utilizing a secure blockchain to store individual
    animal IDs and transaction records, CattleProof provides restored trust
    and a verifiable history for each animal. This immutability and
    transparency inherent in blockchain technology offer a significant
    advantage over traditional methods, creating a more secure and reliable
    environment for all stakeholders.
        Ultimately, our mission is driven by an understanding that ranchers
    aren't struggling for demand--they're struggling with efficiency. Our
    platform is designed to bridge the gap between the cattle industry and
    modern technology, providing tools that enhance operational efficiency
    and future-proof compliance. In essence, CattleProof's mission is to
    empower ranchers to keep ranching by providing them with the
    technological solutions needed to operate more efficiently, securely,
    and profitably in the 21st century.
    B. Key Features of the CattleProof Platform
    1. Verification: USDA Process Verified Program Service Provider
        A core feature of the CattleProof platform is its role as a USDA
    Process Verified Program Service Provider. We offer a trusted and
    recognized mechanism for verifying cattle, a process that can yield
    significant benefits for ranchers. Ranchers who utilize USDA Process
    Verified programs can receive up to a 150% premium on their cattle,
    highlighting the economic advantage of this verification. By offering
    this service, CattleProof directly addresses the industry's need for
    proof and enables ranchers to differentiate their high-quality
    livestock in the marketplace. This feature contributes to restored
    trust within cattle transactions by providing buyers with assurance
    regarding the origin and quality of the animals. CattleProof's
    verification service leverages established USDA standards, integrating
    them into a modern digital platform to enhance transparency and value
    for producers of certified cattle. This ensures that data regarding the
    cattle's adherence to specific USDA process-verified attributes is
    securely recorded and readily accessible to authorized parties
    throughout the supply chain.
    2. Blockchain Technology: Individual Animal IDs Creation, Secure
            Storage, and Sharing on a Blockchain
        The CattleProof platform is built upon blockchain technology, a
    foundational element that underpins its ability to digitize and track
    cattle. This technology enables the creation of individual animal IDs,
    which are securely stored on a distributed and immutable ledger. Each
    animal's unique ID serves as the anchor for a comprehensive record of
    its life and transactions. The blockchain's inherent security ensures
    the integrity and tamper-proof nature of this data, addressing the
    problem of no data and the risk of fraud prevalent in traditional
    systems. Furthermore, the blockchain facilitates the secure sharing of
    this animal data with relevant stakeholders across the supply chain.
    This enhanced data transparency and traceability are crucial for
    building trust, improving supply chain efficiency, and potentially
    future-proofing compliance requirements. By leveraging blockchain,
    CattleProof provides a robust and transparent infrastructure for
    managing and exchanging critical information about individual cattle.
    3. Tokenization: Digitizing Physical Assets and Providing 24/7/365
            Transactability
        CattleProof embraces the concept of tokenization by digitizing
    physical assets--the cattle themselves--through the creation of
    individual animal IDs on the blockchain. This digital representation
    transforms cattle into assets that can be transacted more efficiently.
    The use of blockchain technology paves the way for 24/7/365
    transactability, moving beyond the limitations of traditional auction
    schedules and physical marketplaces. Ranchers gain the flexibility to
    buy and sell their cattle at any time, potentially expanding their
    market reach and accelerating transaction cycles. This continuous
    availability for transactions contributes to bringing cattle
    transactions into the 21st century, offering a significant improvement
    over the historically slow and restricted nature of cattle commerce.
    Tokenization on the blockchain allows for a more dynamic and accessible
    market where physical cattle are represented by secure digital records,
    enabling continuous trading opportunities.
    4. Marketplace: Platform for Buying and Selling and Financing Cattle on
            the Blockchain
        CattleProof provides a dedicated marketplace built on the
    blockchain, specifically designed for buying and selling animals. This
    platform aims to create more marketplaces for ranchers, expanding their
    access to a wider network of potential buyers and sellers beyond
    geographical limitations. By digitizing the transaction process,
    CattleProof streamlines the exchange of ownership and facilitates
    faster settlement, addressing key inefficiencies in the traditional
    cattle market. This blockchain-based marketplace fosters a more
    transparent and efficient environment for cattle commerce, allowing
    ranchers to directly participate in a modern, digital ecosystem and
    potentially access new avenues for capital and market opportunities.
    C. Data Tracking Real-Time Throughout the Supply Chain
        Real-time data tracking throughout the supply chain is a crucial
    element in modernizing the cattle industry, and it forms a cornerstone
    of CattleProof's mission to digitize cattle transactions and unlock
    value. The current state of cattle transactions suffers from a
    significant lack of readily available and reliable data, hindering
    efficiency and contributing to problems like fraud and the inability to
    capture the full potential value of cattle. CattleProof's platform
    directly addresses this by implementing a system for individual animal
    IDs created and securely stored on a blockchain. This foundational step
    enables the continuous and real-time tracking of vital information as
    an animal moves through each stage of the supply chain, from ranch to
    consumer.
        The creation of a unique digital identity for each animal allows
    for the recording of a comprehensive dataset, including origin, health
    records, vaccination history, feeding information, and ownership
    transfers. Because this data is immutably recorded on the blockchain,
    it provides an auditable and trustworthy history for each animal. This
    real-time tracking offers stakeholders an unprecedented level of
    visibility into the supply chain. Ranchers can monitor the health and
    well-being of their animals more effectively. Feedlots can optimize
    feeding practices based on the documented history. Processors can
    access critical information relevant to food safety and quality. And
    ultimately, consumers can have greater confidence in the provenance of
    the beef they purchase.
        Furthermore, our role as a USDA Process Verified Program Service
    Provider enhances the value of this real-time data tracking. By
    integrating USDA verification processes into the platform, CattleProof
    ensures that data related to specific quality attributes is captured
    and linked to the animal's digital ID. This verifiable data can then be
    shared in real-time with buyers, allowing ranchers to demonstrate the
    value of their USDA Process Verified Cattle. The ability to access this
    verified information instantly streamlines transactions and builds
    trust between buyers and sellers.
        The benefits of real-time data tracking extend beyond individual
    animal management and transactions. At a broader level, it enhances the
    overall efficiency of the cattle supply chain. Knowing the precise
    location and status of animals in real-time can optimize logistics,
    reduce transportation delays, and minimize waste. This improved
    efficiency directly addresses the fact that ranchers aren't struggling
    for demand--they're struggling with efficiency.
        By providing the technological tools for real-time data management,
    CattleProof aims to bridge the gap and empower ranchers to operate more
    effectively and profitably. The transparency afforded by this system
    also contributes to a more secure marketplace, mitigating the risks
    associated with inaccurate or fraudulent information. CattleProof's
    commitment to real-time data tracking throughout the supply chain
    represents a significant step towards a more efficient, transparent,
    and trustworthy cattle industry.
    D. How CattleProof Aims To Bring Cattle Transactions Into the 21st
            Century
        CattleProof directly addresses the long-standing inefficiencies of
    the cattle transaction process. The platform aims to revolutionize this
    sector by bringing cattle transactions into the 21st century through
    the strategic integration of cutting-edge technologies and a focus on
    data, trust, and efficiency. Traditionally plagued by no data, slow
    payments, and no proof, the cattle market is ripe for modernization,
    and CattleProof offers a comprehensive solution to these archaic
    problems.
        At its core, CattleProof utilizes blockchain technology to create a
    secure and transparent environment for cattle transactions. This
    involves the creation of individual animal IDs that are stored on an
    immutable ledger, ensuring the integrity and traceability of each
    animal's history. This digital foundation moves the industry away from
    reliance on outdated paper-based records, providing a single source of
    truth for critical animal data. This lays the groundwork for greater
    trust and efficiency throughout the supply chain.
        Furthermore, CattleProof acts as a USDA Process Verified Program
    Service Provider, integrating a trusted verification mechanism directly
    into the platform. By providing this verification service, CattleProof
    injects much-needed proof into the transaction process, fostering
    greater confidence among buyers and contributing to restored trust in
    the market.
        The concept of tokenization is central to CattleProof's
    modernization efforts. By digitizing physical assets--the cattle--
    through their unique blockchain IDs, the platform enables 24/7/365
    transactability. This eliminates the constraints of traditional auction
    schedules and physical marketplaces, offering ranchers greater
    flexibility and access to a wider pool of buyers. This continuous
    availability for transactions represents a significant leap forward
    from the historically slow and geographically limited nature of cattle
    commerce.
        CattleProof aims to create more marketplaces for ranchers,
    expanding their reach and streamlining the transaction process. The use
    of blockchain technology facilitates faster settlement of payments,
    addressing another critical pain point in the traditional system. By
    addressing fundamental issues like lack of data, slow payments, and the
    risk of fraud, and by leveraging modern technologies like blockchain,
    verification services, tokenization, and a dedicated marketplace,
    CattleProof is poised to bring cattle transactions into the 21st
    century.
    IV. Benefits for Ranchers of All Sizes
        CattleProof offers a suite of benefits designed to modernize
    ranching operations and enhance profitability for producers of all
    sizes. By digitizing cattle transactions and unlocking value, the
    platform addresses critical pain points that have persisted in the
    industry for over a century. Ranchers stand to gain significantly
    through enhanced efficiency and reduced costs. The implementation of a
    blockchain-based system with individual animal IDs facilitates
    streamlined data management and record-keeping, moving away from
    cumbersome traditional methods. This digital approach has the potential
    for a reduced administrative burden associated with tracking animal
    history, health records, and ownership transfers, freeing up ranchers
    to focus on core ranching activities. Furthermore, the faster
    settlement of transactions facilitated by the blockchain marketplace
    can improve cash flow and reduce the financial uncertainties associated
    with traditional payment systems.
        Increased trust and transparency are central to the CattleProof
    value proposition. By creating immutable and verifiable records on the
    blockchain, the platform contributes to restored trust within the
    cattle market. Buyers can have greater confidence in the provenance and
    quality of the cattle they are purchasing, leading to more secure and
    reliable transactions. CattleProof provides ranchers with access to
    premium markets and increased profitability. As a USDA Process Verified
    Program Service Provider, the platform enables ranchers to easily
    participate in value-added programs and receive up to 150% premium on
    USDA Process Verified Cattle. The easier verification for premium
    certifications through blockchain records streamlines the audit process
    and reduces the complexities associated with proving specific animal
    attributes. Additionally, the CattleProof marketplace provides access
    to more marketplaces beyond traditional auction houses, potentially
    widening the pool of buyers and creating more competitive pricing.
        Finally, CattleProof facilitates improved data management and
    decision-making. The platform's focus on individual animal data
    tracking allows ranchers to compile comprehensive records on health,
    breeding, and other vital metrics. This detailed information has the
    potential for better insights into herd management and performance,
    enabling data-driven decisions that can optimize ranching practices and
    improve overall productivity. Moreover, the readily available and
    verifiable data on the blockchain contributes to future-proofed
    compliance by simplifying the process of meeting regulatory
    requirements related to animal health, traceability, and other industry
    standards.
        CattleProof is designed to offer significant advantages to both
    small and large ranching operations, addressing the unique challenges
    and opportunities associated with different scales of production. Small
    ranchers can gain access to wider markets and potentially higher prices
    through verification and the marketplace. Traditionally, smaller
    ranches might be limited by geographical constraints and access to a
    smaller pool of buyers. CattleProof's digital marketplace breaks down
    these barriers, allowing small producers to showcase their cattle to a
    national or even international audience. The ability to obtain USDA
    Process Verification and have those credentials immutably recorded on
    the blockchain provides small ranchers with a credible and cost-
    effective way to differentiate their cattle and tap into premium
    markets. This levels the playing field, allowing smaller operations to
    compete more effectively on quality and verified attributes,
    potentially leading to increased profitability and sustainability.
        Furthermore, the streamlined data management offered by CattleProof
    can be particularly beneficial for small ranchers who may have limited
    administrative resources. The platform simplifies record-keeping,
    freeing up valuable time that can be better spent on animal husbandry
    and other core activities. The increased transparency and trust
    facilitated by the blockchain can also help small ranchers build
    stronger relationships with buyers, as their animal data is readily
    available and verifiable.
        Large ranchers, on the other hand, can realize significant benefits
    from the increased efficiency, streamlined data management, and
    enhanced traceability at scale offered by CattleProof. Managing large
    herds involves complex logistical challenges and extensive data
    tracking. The platform's ability to assign individual digital IDs and
    track animal movements and health records in real-time provides a
    powerful tool for optimizing operations across a large number of
    animals. This can lead to reduced labor costs associated with manual
    record-keeping and improved decision-making regarding herd health,
    feeding strategies, and market timing.
        The enhanced traceability provided by CattleProof is also crucial
    for large-scale operations in ensuring food safety and meeting consumer
    demands for transparency. The immutable record of each animal's journey
    through the supply chain provides a high level of accountability and
    facilitates quick response in the event of any issues. Moreover, large
    ranchers can leverage the USDA Process Verification capabilities at
    scale, efficiently documenting and verifying the attributes of a
    significant number of cattle to access premium markets and maximize
    returns. The platform's ability to integrate with existing ranch
    management systems (although not explicitly detailed, this would be a
    logical feature for scalability) would further enhance its value for
    large operations, making it a powerful tool for modernizing and
    optimizing large-scale cattle production.
    V. Benefits for the American Beef-Buying Population
    A. Increased Food Safety
        CattleProof's implementation of blockchain technology enhances the
    traceability of cattle through the entire supply chain. The creation of
    individual animal IDs stored on a secure and immutable ledger allows
    for a comprehensive record of each animal's journey, from birth to
    processing. This enhanced traceability offers significant benefits for
    food safety. In the event of a foodborne illness outbreak, the ability
    to quickly and accurately trace the affected product back to its origin
    is crucial. CattleProof's system provides a robust mechanism for
    tracking animal health and origins, potentially reducing the risk and
    spread of foodborne illnesses. This detailed tracking can help identify
    the source of contamination more efficiently, allowing for quicker and
    more targeted recalls, thereby minimizing the impact on public health.
        Furthermore, the platform's integration with USDA Process Verified
    Programs adds another layer of assurance for consumers. This
    verification process involves adherence to specific standards and
    practices, and CattleProof's blockchain provides a transparent and
    auditable record of this verification. This can increase consumer
    confidence in the safety of beef products, as they have greater
    certainty that the cattle were raised and handled according to verified
    protocols. The immutable nature of the blockchain ensures that these
    records cannot be tampered with, providing a higher level of trust
    compared to traditional, potentially less secure record-keeping
    methods.
        By digitizing animal data, including health records, CattleProof
    can also contribute to proactive food safety measures. Ranchers and
    other stakeholders in the supply chain can have better access to
    information about animal health, potentially identifying and addressing
    health issues earlier, before they can impact the food supply. This
    proactive approach, facilitated by improved data management, can
    further bolster the safety of beef products for consumers. Ultimately,
    CattleProof's focus on traceability and verified data through
    blockchain technology aims to provide American consumers with safer and
    more trustworthy beef options, leading to increased confidence in the
    food they purchase.
    B. Greater Transparency and Information
        CattleProof holds the potential to bring greater transparency and
    information to the often complex and opaque beef supply chain. The use
    of blockchain technology allows consumers to access information about
    the origin and history of the beef they purchase, going beyond basic
    labeling requirements. For example, consumers might one day be able to
    scan a QR code on a beef product to view verified claims about the
    animal's origin, how it was raised, and any relevant certifications.
        Blockchain's immutability plays a crucial role in helping to expand
    and maintain heightened trust in the beef supply chain. The inability
    to alter records once they are on the blockchain provides a high degree
    of confidence in the accuracy and integrity of the information. This is
    particularly important in an industry where consumers may have concerns
    about the authenticity of claims and the potential for misinformation.
    By providing a tamper-proof record of key information, CattleProof can
    empower consumers to make more informed purchasing decisions based on
    verified data.
        This increased transparency can also extend to practices related to
    animal welfare and sustainability, as verified claims related to these
    aspects can be securely recorded on the blockchain. Consumers who
    prioritize these values can then seek out and support beef products
    with verifiable proof of adherence to such practices. Our underlying
    technology could be adapted in the future to accommodate other types of
    verified claims, further enhancing transparency for consumers. By
    providing a more transparent and informative beef supply chain,
    CattleProof can empower American consumers and foster greater trust in
    the products they buy.
    C. Support for Ranchers and Sustainable Practices
        By facilitating premium pricing for USDA Process Verified Cattle,
    CattleProof can create a market-driven incentive for ranchers to adopt
    sustainable and higher-quality practices. Ranchers who choose to
    participate in these verified programs and meet the required standards
    can earn up a premium for their cattle. This economic advantage
    encourages more ranchers to invest in practices that go above and
    beyond standard production methods, potentially leading to improvements
    in animal welfare, environmental stewardship, and the overall quality
    of beef.
        American consumers can indirectly support ranchers who prioritize
    quality and verification by purchasing beef that originates from cattle
    tracked and verified through the CattleProof platform. As more ranchers
    adopt verified practices to access premium markets, the availability of
    beef produced under these standards is likely to increase, providing
    consumers with more options that align with their values. This creates
    a positive feedback loop where consumer demand for higher-quality and
    sustainably produced beef drives greater adoption of such practices
    within the ranching community.
        While CattleProof's primary focus is on improving the efficiency
    and transparency of cattle transactions, its ability to facilitate
    value-added programs has a direct impact on supporting ranchers who are
    committed to quality and potentially sustainable practices. By enabling
    these ranchers to capture the economic benefits of their efforts, the
    platform contributes to a more resilient and potentially more
    sustainable beef industry. Consumers who value these attributes in
    their food choices can feel confident that by supporting beef from
    verified sources, they are also supporting the ranchers who are
    investing in these practices. Ultimately, CattleProof's mechanism for
    premium pricing based on verification can help align consumer
    preferences with ranching practices that prioritize quality and
    sustainability.
    VI. Blockchain as a Key Technology Solution in Agriculture
    A. Existing Barriers for Ranchers
        The adoption of new technologies, including blockchain, in the
    agricultural sector, particularly for ranchers, faces several existing
    barriers. The challenges faced by rural communities in accessing
    resources and technical assistance are well known. These challenges
    directly translate to potential hurdles in technology adoption for
    ranchers. The lack of human and financial capacity in many rural areas
    can impede the understanding, implementation, and maintenance of
    complex systems like blockchain. Furthermore, the digital divide in
    rural America, where internet access and digital literacy may be
    limited, presents a significant obstacle to the widespread use of
    blockchain-based platforms. Without reliable connectivity and the
    necessary skills, ranchers may find it difficult to engage with and
    benefit from such technologies.
        The cost of implementing and maintaining blockchain solutions can
    also be a significant barrier for ranchers, especially smaller
    operations. The initial investment in hardware, software, and training
    to participate in new technology may be prohibitive for some. Simply
    applying existing regulations to new technologies can be inadequate and
    inappropriate. Current financial support mechanisms or regulatory
    frameworks may not adequately address the specific costs associated
    with blockchain adoption in agriculture. Overcoming these barriers
    often requires targeted support, including financial assistance,
    technical training tailored to the agricultural context, and
    infrastructure development to improve rural connectivity.
    B. Data Privacy and Security Concerns on the Blockchain
        While blockchain is often lauded for its security features, data
    privacy and security concerns within the agricultural context warrant
    careful consideration. The immutable nature of blockchain, a key
    feature for traceability and trust, also means that once data is
    recorded, it cannot be easily altered or removed. This raises questions
    about the types of data being stored on agricultural blockchains and
    who has access to it. For instance, individual animal IDs and their
    associated data could contain sensitive information about a rancher's
    operations, animal health, and business practices. Concerns may arise
    regarding the potential for unauthorized access or misuse of this data,
    even if the blockchain itself is secure against tampering.
        Blockchain has great potential to provide secure and transparent
    data management. In the agricultural sector, ranchers need assurance
    that their data is protected and that they have control over who can
    view and utilize it. This necessitates careful design of blockchain-
    based systems with robust access controls and potentially privacy-
    enhancing techniques. In agricultural blockchain, clarity is needed
    regarding data ownership, privacy regulations, and the responsibilities
    of different stakeholders in managing data on the ledger. Addressing
    these concerns through transparent data governance frameworks and the
    implementation of appropriate security measures is crucial for
    fostering trust and encouraging adoption of blockchain in agriculture.
    C. Interoperability with Existing Ranching and Supply Chain Systems
        For blockchain to be effectively integrated into the agricultural
    sector, it must be interoperable with the diverse array of existing
    ranching and supply chain systems. Ranchers and other stakeholders
    currently utilize various software, databases, and record-keeping
    methods. The ability of a new blockchain-based platform to seamlessly
    interact and exchange data with these legacy systems is critical for
    minimizing disruption and maximizing efficiency. Without
    interoperability, ranchers may face the burden of maintaining parallel
    systems or manually transferring data, which can negate the benefits of
    blockchain technology.
        Web3 aims for decentralized networks offering increased security,
    privacy, and transparency. In this context, interoperability becomes
    even more crucial to avoid the creation of new data silos within the
    decentralized landscape. As this Subcommittee explores the regulatory
    gaps in digital assets, you should also consider the technical
    requirements for interoperability in agricultural applications of
    blockchain to ensure that these solutions can integrate smoothly into
    existing workflows and infrastructure.
    D. Scalability of the Blockchain Solution
        The scalability of blockchain solutions is a critical factor for
    their successful implementation across the vast and varied agricultural
    sector. Agriculture involves a massive volume of transactions and data
    points, from individual animal tracking to supply chain logistics. A
    blockchain platform intended for widespread use must be capable of
    handling this scale efficiently without compromising speed, cost-
    effectiveness, or security.
        The technical infrastructure required for handling large volumes of
    transactions in the agricultural sector is necessarily substantial. The
    chosen consensus mechanism, network architecture, and data storage
    solutions will significantly impact the scalability of the blockchain.
    Ensuring that agricultural blockchain platforms can accommodate the
    demands of the industry, including peak seasons and the increasing use
    of IoT devices for data collection, is essential for their long-term
    viability and impact.
    E. Regulatory Landscape for Blockchain in Agriculture
        The regulatory landscape for blockchain in agriculture is currently
    evolving and often mirrors the broader uncertainty surrounding digital
    assets. There is still a significant debate regarding the
    classification of digital assets as securities or commodities, and a
    lack of comprehensive Federal regulation for the spot market. This
    regulatory ambiguity extends to the application of blockchain
    technology in agriculture, particularly when involving digital tokens
    or cryptocurrencies related to agricultural products or processes.
        For agricultural blockchain platforms that facilitate the trading
    of digital representations of agricultural commodities or involve
    financial transactions, clarity on whether these activities fall under
    the jurisdiction of the CFTC or the SEC is crucial. As Congress
    considers legislation in this area, understanding the specific needs
    and potential of blockchain in agriculture is essential to create a
    regulatory environment that fosters innovation while ensuring consumer
    protection and market integrity.
    VII. Conclusion: The Future of Cattle Transactions with Blockchain
    A. Benefits for Ranchers and the American Beef-Buying Population
        The integration of blockchain technology into cattle transactions
    holds significant promise for both ranchers and the American beef-
    buying population. For ranchers, blockchain offers the potential to
    address long-standing inefficiencies in the industry. The current
    system is characterized by a lack of data, slow payments, and
    insufficient proof of origin and quality, issues that have persisted
    for 150 years. Blockchain aims to rectify these problems by providing
    individual animal IDs stored on a secure, shareable ledger, enabling
    verification and traceability throughout the supply chain. This
    enhanced transparency can lead to restored trust among stakeholders.
    Economic incentives, coupled with faster settlement of transactions
    facilitated by blockchain, directly benefit ranchers' bottom lines and
    efficiency. Improving access to capital and fostering rural economic
    development is crucial. Blockchain can contribute to this by creating
    more transparent and potentially more accessible marketplaces for
    cattle transactions.
        For the American beef-buying population, blockchain offers the
    prospect of safer food through enhanced traceability. The ability to
    track an animal's history and data from birth to processing can provide
    consumers with greater confidence in the origin and quality of the beef
    they purchase. This aligns with the growing consumer demand for
    transparency and information about their food sources. The digitizing
    of physical assets ultimately aims to bring cattle transactions into
    the 21st century, benefiting all participants in the supply chain, from
    the rancher to the consumer. By addressing issues like fraud and
    enabling future-proofed compliance, blockchain contributes to a more
    reliable and trustworthy beef market, ultimately serving the interests
    and well-being of the American public.
    B. The Transformative Potential of Blockchain Technology in the Cattle
            Industry
        Blockchain technology possesses transformative potential for the
    cattle industry by revolutionizing how transactions are conducted, data
    is managed, and value is unlocked. The traditional cattle transaction
    process suffers from inefficiencies and a lack of transparency.
    Blockchain offers a paradigm shift by providing a secure, immutable,
    and distributed ledger for recording critical information about
    individual animals. This includes not only their origin and ownership
    but also health records, feeding practices, and other relevant data
    points that can follow them through the supply chain. This
    individualized data tracking contrasts sharply with the current
    aggregated and often opaque systems.
        The ability to tokenize individual animals and their associated
    data, as envisioned by CattleProof, opens up new possibilities for
    creating more efficient and transparent marketplaces. Buying and
    selling cattle on a blockchain platform can streamline the process,
    potentially reducing transaction times and costs. Moreover, the
    enhanced traceability enabled by blockchain can improve supply chain
    management, reduce the risk of disease outbreaks, and provide consumers
    with verifiable information about the beef they are purchasing.
    Blockchain technology offers increased security, privacy, and
    transparency, solving many issues of the Web 2.0 era. Applying these
    principles to the cattle industry can foster greater trust and
    efficiency across the entire value chain, ultimately leading to a more
    resilient and sustainable beef production system. The transformative
    potential lies in its ability to digitize a traditionally physical
    asset and unlock its inherent data value.
    C. CattleProof's Role in Bridging the Gap Between Innovative
            Technologyand Ranching Efficiency
        CattleProof is positioned to play a crucial role in bridging the
    gap between innovative blockchain technology and the need for enhanced
    efficiency in the ranching sector. Our core offering centers around
    digitizing cattle transactions and leveraging blockchain to unlock
    value for ranchers. By providing a USDA Process Verified Program
    Service Provider for verification, CattleProof directly addresses the
    opportunity for ranchers to earn premium prices for their certified
    cattle. The creation of individual animal IDs on a secure blockchain is
    fundamental to their approach, enabling the collection, storage, and
    sharing of vital animal data. This data can then follow the animal
    throughout the supply chain, providing transparency and traceability.
        CattleProof's focus on verification, blockchain integration, and
    facilitating transactions on the blockchain directly tackles the
    problems of no data, slow payments, and a lack of proof that plague the
    traditional system. Our business model, centered on digitizing physical
    assets, aligns with the broader trend of bringing traditional
    industries into the digital age. By offering a platform that caters
    specifically to the needs of ranchers, CattleProof can help overcome
    the barriers to technology adoption discussed earlier, such as the lack
    of technical expertise and the perceived cost of implementation.
    Ultimately, we empower ranchers to keep ranching by providing them with
    tools to improve their efficiency, access new markets, and capture
    greater value for their product.
    D. The Importance of Supporting Innovation in Agriculture in the U.S.
            and Globally
        Supporting innovation in agriculture, including the adoption of
    technologies like blockchain, is of paramount importance for the U.S.
    and global food security and economic prosperity. Ranchers are
    struggling with efficiency, not demand. Technology offers a crucial
    pathway to bridge this gap and ensure the sustainability of
    agricultural production. Supporting agricultural innovation, such as
    blockchain-based solutions, aligns with this goal by potentially
    creating new economic opportunities for ranchers and rural communities.
        Furthermore, other jurisdictions are actively creating regulatory
    certainty for digital assets and blockchain technology. The U.S. risks
    falling behind if it does not foster an environment that encourages and
    supports innovation in this space. The transformative potential of
    blockchain extends beyond cattle transactions to areas like supply
    chain traceability and sustainability. Supporting its adoption in
    agriculture can lead to more efficient resource management, reduced
    waste, and a more transparent and resilient food system. Without a
    sound regulatory framework tailored to the technology, the U.S. may not
    see the full benefits and could lose its leadership position in
    blockchain development. Therefore, proactive support for agricultural
    innovation, including blockchain, is essential to maintain the
    competitiveness of the U.S. agricultural sector and contribute to
    global food system resilience.
    E. The Long-Term Impact of Blockchain on the Future of Beef Production
            and Consumption
        In the long-term, blockchain technology has the potential to
    fundamentally reshape the future of beef production and consumption. By
    providing a secure and transparent record of each animal's life and
    journey through the supply chain, blockchain can foster greater trust
    and accountability among all stakeholders, from ranchers to consumers.
    This enhanced transparency can lead to a more efficient and responsive
    supply chain, potentially reducing costs and improving the quality and
    safety of beef products. The ability for consumers to access detailed
    information about the origin and characteristics of their beef could
    also lead to more informed purchasing decisions and a closer connection
    between producers and consumers.
        CattleProof's efforts to digitize cattle and leverage blockchain
    represent a significant step in this direction. As the technology
    matures and adoption broadens, we can envision a future where premium
    U.S. beef, verified through blockchain, becomes the global standard,
    rewarding American ranchers for sustainable and high-quality practices.
    The interoperability of blockchain platforms with other agricultural
    supply chain systems will be crucial for realizing the full potential
    of this technology. While regulatory clarity for blockchain and digital
    assets is essential for fostering innovation and ensuring consumer
    protection, the long-term impact on the beef industry promises a more
    transparent, efficient, and trustworthy ecosystem that benefits both
    producers and consumers.
        Ultimately, blockchain can contribute to a more sustainable and
    resilient future for beef production and consumption in the U.S. and
    globally.

        The Chairman. Mr. Horton, you are up. Let's go.

         STATEMENT OF MIKE A. HORTON, PROJECT CREATOR, GEODNET
                    FOUNDATION, LOS ALTOS HILLS, CA

        Mr. Horton. All right. Good afternoon, Chairman Johnson,
    Ranking Member Davis, and Members of the Subcommittee. It is a
    pleasure to be here to tell you a bit about the GEODNET
    Foundation, and the great technology the GEODNET community has
    developed to help American farmers.
        By way of background, I am from Austin, Texas, and I
    received a Bachelor's and Master's in electrical engineering
    from UC Berkeley in 1996. Prior to initiating the GEODNET
    project, I co-founded two successful startups in the field of
    navigation.
        Today, precision agriculture is a well-proven technology
    that provides substantial economic benefit to the American
    farmer through efficient crop applications, which is also good
    for the environment. Precision agriculture depends on precision
    GPS, and I am going to describe how blockchain has enabled
    GEODNET to improve their reliability and reduce the cost of
    precision GPS for the American farmer.
        The global positioning system, or GPS, is known by most
    people as the way to find directions when driving. Typical GPS
    accuracy is measured in feet, not inches. Standard GPS is
    useful for finding a grocery store, but it is not capable of
    identifying where a specific plant is planted, or to help steer
    a tractor without running over the plants themselves. To
    enhance GPS accuracy, precise positioning, or precision GPS
    techniques, are able to improve GPS location accuracy from
    several feet to sub-inch accuracy. The most precise method of
    precise positioning is RTK, or real-time kinematics. Precise
    positioning techniques like RTK require either a direct or
    indirect connection to one or more GPS reference stations. This
    is what a GPS reference station looks like. For this technology
    to work at scale and across the country, a network of these GPS
    antenna is necessary.
        As I attempted to launch GEODNET, it quickly became
    apparent that it would cost billions of dollars to place
    antenna around the country; capital that we did not have.
    Through my research, I discovered that blockchain can solve
    this problem. Utilizing blockchain technologies, the GEODNET
    network has grown quickly, and it is now the largest precise
    positioning RTK network in the world, with more than 15,000
    registered stations. In any given week, more than 10,000
    professionals use the network, accessing 6 to 7,000 GEODNET
    stations daily.
        This type of application of blockchain now has a name. It
    is called DePIN, or Decentralized Physical Infrastructure
    Networks. GEODNET is one of the leading DePIN networks, but
    there are many, many more DePIN networks being built globally,
    including DePIN networks for broadband internet, mobile
    internet, decentralized energy, and more. GEODNET is extremely
    useful because it offers reliable, high-accuracy positioning
    needed to conduct precision agricultural farm practices, as
    well as the precision required by many robotics and drone
    systems.
        In agriculture, GEODNET is beloved for its low cost,
    accessibility to small and big farm operators alike, and its
    compatibility with both new and old equipment. The USDA's Dale
    Bumper Small Farm Research Center has been an active GEODNET
    node operator for over a year, and USDA research staff has
    validated quality and accuracy on both new and old machines. To
    the end farmer who requires the precise position signal,
    GEODNET subscriptions offer savings from 33 percent to 90
    percent per annum, compared to centralized corporate
    competitors. And the southern states where small farms are
    diverse in size and scope, GEODNET provides small farmers an
    ROI to use precision ag, while higher-cost centralized
    solutions are out of reach or simply don't provide RTK coverage
    in the area. In the Midwest, GEODNET's unprecedented station
    density in places like Sioux Falls, South Dakota, provides the
    best immunity to solar weather, which in 2024 knocked more
    expensive services offline during the critical planting season,
    causing significant economic damage. On the West Coast, fully
    robotic farm practices are becoming popular, and GEODNET is the
    solution of choice for two of the leading autonomous farm
    equipment companies. The GEOD blockchain token is the key
    mechanism which allows the network to operate and grow
    successfully, without capital investment required from a
    centralized entity, corporate or government. For this
    innovative digital infrastructure to function, GEODNET depends
    on reliable blockchain networks.
        Because of blockchain technology and networks, GEODNET has
    been able to grow quickly. GEODNET encourages the Subcommittee
    to consider ways to enhance clarity on digital asset regulation
    so that high utility applications of blockchain can thrive in
    the United States.
        Thank you, and I look forward to answering your questions.
        [The prepared statement of Mr. Horton follows:]

        Prepared Statement of Mike A. Horton, Project Creator, GEODNET
                        Foundation, Los Altos Hills, CA
        Good afternoon, Chairman Johnson, Ranking Member Davis, and Members
    of the Subcommittee. It is a pleasure to be here to tell you a bit
    about the GEODNET Foundation and the great technology the GEODNET
    community has developed to help American farmers. By way of background,
    I am from Austin, TX and I received a Bachelors and Masters in
    Electrical Engineering from UC Berkeley. Prior to initiating the
    GEODNET project, I co-founded two successful startups in the field of
    navigation. I am a co-author on over 20 U.S. patents related to
    navigation technology.
        My first company, Crossbow Technology, started after leaving UC
    Berkeley, was a pioneer in the field of sensors, and the first to
    receive FAA approval for a new gyroscope sensor technology that
    improved the safety of civilian aircraft. I sold this business to Moog
    Aerospace in 2011. In 2018 I co-founded a new sensor company, Anello
    Photonics, which is a pioneer in the use of Silicon Photonics for
    navigation.
        The Global Positioning System or GPS is known by most people as the
    way to find directions when driving today. GPS works using satellites.
        Typical standard GPS accuracy is measured in feet not inches.
    Standard GPS is useful for finding a grocery store on a street full of
    shops, but GPS is not, by itself, capable of identifying where a
    specific plant is planted or help steer a tractor without running over
    the plants themselves. Image 1 shows how monitoring individual plant
    seedlings requires inch level absolute accuracy.
    Image 1: 1" Accuracy to Locate Individual Plant Seedlings

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        To enhance GPS accuracy, Precise Positioning techniques are able to
    improve GPS location accuracy from several feet to sub-inch accuracy.
    With Precise Positioning, you can locate an individual plant in a
    field, you can accurately measure the width of a door frame on a
    construction site, and you can navigate a robot through a dense field
    reliably. Precise positioning techniques require either a direct or
    indirect connection to one or more nearby GPS reference stations. A GPS
    reference station is a fixed GPS antennae mounted on a roof and
    connected to the internet. Image 2 illustrates what a GPS antennae
    installation looks like. For this technology to work at scale and
    across the country, a network of these GPS antennae is necessary. As I
    attempted to launch GEODNET it quickly became apparent that it would
    cost billions of dollars to place antennae around the country, capital
    that we did not have.
    Image 2: Typical GEODNET Antennae Installation

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Without going into great detail given limited time today, through
    my research I discovered that blockchain can solve this problem. I
    initially presented this idea of using blockchain as a foundational
    technology to build a large global network of these reference stations
    at the Institute of Navigation's--Global Navigation Satellite Systems
    Plus Conference in Saint Louis 2021.\1\ The presentation, authored by
    me and several industry colleagues, was awarded Best Presentation at
    the Conference, and the GEODNET whitepaper was subsequently published
    as a peer reviewed article in the Journal of Navigation.\2\
    ---------------------------------------------------------------------------
        \1\ Early Concept Presentation at ION GNSS+ 2021, St Louis https://
    www.ion.org/publications/abstract.cfm?articleID=17882.
        \2\ Peer-reviewed GEODNET White Paper, published in Journal of
    Navigation https://navi.ion.org/content/70/4/navi.605.
    ---------------------------------------------------------------------------
        Utilizing Blockchain technologies, the GEODNET network has grown
    quickly and is now the largest precise positioning network in the world
    with more than 15,000 registered stations [Image 3]. In any given week,
    more than 10,000 professionals use the network accessing 6000 to 7000
    GEODNET stations daily.\3\ GEODNET's expansive coverage includes all
    major cities in the United States and Europe, as well as ever-expanding
    coverage in rural areas.
    ---------------------------------------------------------------------------
        \3\ GEODNET Station Map https://console.geodnet.com/map.
    ---------------------------------------------------------------------------
    Image 3: The GEODNET Station Network as of Friday April 4, 2025

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        GEODNET is extremely useful because it offers the reliable high-
    accuracy positioning needed to conduct precision agriculture farm
    practices as well as the precision required by many robotics and drone
    systems.
        In agriculture, GEODNET is beloved for its low-cost, accessibility
    to small and big farm operators alike, and its compatibility with both
    new and old equipment.
        The USDA's Dale Bumper Small Farm Research center has been an
    active GEODNET node operator for over a year, and research staff has
    validated quality and accuracy on both new and old machines. The USDA
    has also conducted numerous studies on the benefits of Precision
    Agriculture. As an example, Image 4 shows a USDA study demonstrating
    the efficiency benefits of automated tractor guidance utilizing precise
    positioning.
    Image 4: USDA Study on Efficiency Gains from Accurate Tractor Guidance

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              20-30% efficiency using tractor guidance.

        To the end-farmer who requires the precise position signal, GEODNET
    subscriptions offer savings from 33% to 90% per annum as compared to
    centralized corporate competitors. Lower-cost allows more farmers to
    utilize precision agriculture practices resulting in reduced input
    costs, higher-yields, and reduced environmental waste. The relative
    adoption of precision agriculture practices is shown in Image 5 in a
    slide generated by the USDA.
    Image 5: Relative Adoption of Precision Ag by Farm Type and Application

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        In the southern states, where farms are diverse in size and scope,
    GEODNET provides small farmers with a return on investment (ROI) to use
    precision agriculture while higher-cost centralized solutions are out
    of reach, and creates significant savings for larger operations that
    are currently required to pay exorbitant per-unit subscription fees.
        In the Midwest, GEODNET's unprecedented station density in places
    like Sioux Falls South Dakota, provides the best immunity to Solar
    Weather which in 2024 knocked more expensive precise positioning
    services offline during the critical planting season causing
    significant economic damage.\4\
    ---------------------------------------------------------------------------
        \4\ Article on 2024 Solar Storm Impact to Farmers https://
    www.farmprogress.com/planting/this-spring-s-solar-storm-could-cost-
    american-farms-500-million.
    ---------------------------------------------------------------------------
        On the West Coast, fully robotic farm practices are becoming
    popular and GEODNET is the solution of choice for two of the leading
    autonomous farming equipment companies.
        The GEOD blockchain token is the key mechanism which allows the
    network to operate and grow successfully without capital infrastructure
    investment required from a centralized entity--corporate or government.
        Customer usage of GEODNET precise positioning services requires the
    consumption or so called ``burning'' of GEOD tokens. On the other side,
    those GEODNET users who chose to purchase and operate a GEODNET
    compatible reference station, receive GEOD tokens in exchange for
    providing a high-quality location and stable internet for the station.
    This process is called token ``emission'' or ``minting.'' Blockchain
    transactions emitting and burning these GEOD tokens permit both
    autonomous and decentralized network operation.*
    ---------------------------------------------------------------------------
        * Editor's note: there is no footnote reference ``5'' in the
    submitted statement. However, this paragraph appears to meet the
    criteria of footnote 5. Therefore, footnote 5 follows:
        \5\ GEODNET Dune Dashboard which tracks on-chain network activity
    including usage revenue https://dune.com/geodnet_console/geod-console.
    ---------------------------------------------------------------------------
        For this innovative digital infrastructure to function, GEODNET
    requires reliable blockchain technology. GEODNET itself does not run a
    blockchain, but it is an active user of blockchain networks. The GEOD
    Token is live on Solana and IoTeX Layer 1 chains, and the Polygon Layer
    2 chain. The Smart Contract addresses are found below.
        GEODNET has leveraged many technologies from the blockchain
    ecosystem including the creation of its native GEOD utility tokens used
    to consume GEODNET precise location services, specialized GEODNET
    location Non-Fungible Tokens used to facilitate a geographically well-
    structured and efficient network,\6\ as well as Decentralized
    Governance,\7\ Decentralized Finance,\8\ and Staking.\9\
    ---------------------------------------------------------------------------
        \6\ GEODNET Location NFT awarded to first station to establish
    reliable coverage in a new region https://opensea.io/collection/
    geodnet-location-nft.
        \7\ GEODNET Governance Website https://vote.geodnet.com/.
        \8\ Example DeFi Swap Link for GEOD to USDC https://raydium.io/
    swap/?inputMint=
    EPjFWdd5AufqSSqeM2qN1xzybapC8G4wEGGkZwyTDt1v&outputMint=7JA5eZdCzztSfQbJ
    vS8a
    VVxMFfd81Rs9VvwnocV1mKHu.
        \9\ GEODNET Staking portal utilized to create incentivized regions
    requiring additional GEODNET station coverage in a decentralized way
    https://console.geodnet.com/stake.
    ---------------------------------------------------------------------------
        Image 6 provides an overall summary of the GEOD utility token.
    Image 6: GEOD Utility Token Summary

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Because of blockchain technology, GEODNET has been able to grow
    quickly and scale the reach of the network across the country,
    including in typically underserved rural communities. This success is
    attributable to the fact that we were able to incentivize unrelated
    third parties to build out the network using the GEOD token, a digital
    asset. While we have been successful, it is imperative that future
    innovators have absolute clarity around how digital assets are to be
    regulated. A lack of clarity stifles innovation and discourages
    investment in the US. We commend this Committee's pioneering work in
    promoting legislation like FIT21 which seeks to provide clarity for
    companies like mine hoping to build innovative projects utilizing
    blockchain technology. Absent regulatory clarity that legislation will
    provide, it will be difficult for America to lead in this space.
    GEODNET encourages the committee to continue its work to enhance
    clarity on digital asset regulation so that high-utility applications
    of blockchain can thrive in the United States. Thank you.
    GEOD Smart Contract Addresses
        Solana: https://explorer.solana.com/address/
    7JA5eZdCzztSfQbJvS8aVVxMFfd81
    Rs9VvwnocV1mKHu.
        Polygon: https://polygonscan.com/address/
    0xac0f66379a6d7801d7726d5a94335
    6a172549adb.
        IoTeX: https://iotexscan.io/token/
    0x8e33229206f726993e4a7bf7da2347f3743bf8b4.

        Mr. Davis. Thank you. Dr. Brummer.

            STATEMENT OF CHRIS BRUMMER, Ph.D., J.D., CHIEF
              EXECUTIVE OFFICER, BLUPRYNT; AGNES WILLIAMS
                SESQUICENTENNIAL PROFESSOR OF FINANCIAL
    TECHNOLOGY, GEORGETOWN UNIVERSITY LAW CENTER; FACULTY DIRECTOR,
                      INSTITUTE OF INTERNATIONAL
                     ECONOMIC LAW, WASHINGTON, D.C.

        Dr. Brummer. Chairman Johnson, Ranking Member Davis, and
    Members of the Committee, I have always loved this Committee,
    not just because I am from the great State of Arkansas, and was
    pleased to hear about the--there, but because of the bipartisan
    nature of this Committee. It is a real pleasure.
        I am a Professor over at Georgetown where I teach courses
    on financial regulation, crypto assets and the law, securities
    law, and international financial regulation, among other
    subjects. I am also a founder of--and CEO of--Bluprynt, a
    startup that leverages AI and blockchain technology to reinvent
    and enable regulatory market and consumer disclosures, and
    communications for companies and governments around the world.
        As both an academic and as an entrepreneur, I have come to
    appreciate that building a novel business, especially one
    rooted in emerging technologies, requires more than innovation
    for innovation's sake. It demands a merger of manufacturing and
    disclosure. Entrepreneurs today must not only develop
    compelling products and services, but also must communicate
    clearly and accessibly about the complex infrastructures
    powering them. In essence, creation and explanation now go hand
    in hand.
        Now, Bluprynt was born of this idea that making things and
    disclosing things need not be separate endeavors. They are two
    sides of the same coin. And today, a little more than a year
    later, Bluprynt is on track to count as customers issuers,
    central banks, and blockchain builders, again, from around the
    world.
        When I started my career as a securities law professor, the
    logic of disclosure was built on and premised on the prevailing
    regulatory technology of the time; pieces of paper, and the
    U.S. mailing system. Fast forward, and new channels have arisen
    for communications; hyperlinks to Webpages and even social
    media tweets have been recognized as a means through which
    builders can fulfil and create regulatory expectations. But
    when it comes to the latter, perhaps no other technology is
    more interesting and creates more potential than blockchains.
    They are programmable, immutable, and transparent. The perfect
    compliance technology.
        Startups, of course, have to be snipers, even when they see
    big objectives and opportunities, and identify friction points
    and build from there. So for Bluprynt, our first product,
    thinking through disclosures and compliance, and it will be the
    one that I will focus on today, was Europe, and focusing on
    Europe's new regulations, MiCA, which took a step forward of
    doing that which the SEC at that point could not, which was
    tailoring a disclosure regime for crypto assets based upon the
    production of something that they call white papers, sort of
    like S1s, of a sense, for issuers of crypto assets.
        But there were still plenty of questions even within MiCA.
    The legislation was filled with undefined terms left open to
    interpretation, such as the basics, conflict of interest, what
    exactly are certain kinds of digital asset features, and
    compliance really wasn't cheap. Hiring lawyers to draft a white
    paper even in the EU can cost tens of thousands of Euros, and
    can take weeks to complete.
        So my team of lawyers and engineers, and lawyer engineers,
    yes, they exist, created a solution enabling companies to
    effectively turbotax white papers based on a range of consumer
    data and inputs. Part of the process involves collaborating
    with L1s, L2s, in this particular instance the European
    community, national central banks, and more, and navigating
    Europe's first MiCA pilot here from the United States. And we
    worked on bespoke legal wrappers for new data sources and
    providers. But we didn't stop there. Recognizing the
    programmable nature of blockchains, we also built tools for
    developers enabling them to embed regulatory metadata on-chain.
    And we started with various L1s, first starting with MiCA-
    related metadata, and now we have started to do the same here
    in the United States.
        Now, Bluprynt's first-use cases were born in financial
    services, but we are thinking big about the digital economy as
    a disclosure economy, whatever its guise. So we are not just
    building a business, but we are building systems applicable
    beyond financial markets.
        So here, for the cases of today, we have seen interesting
    questions about cattle, but what happens, of course, when you
    are thinking about cattle that aren't just tagged, but are also
    bought and sold. And here for Bluprynt, we think about
    infrastructure to put in place to make that happen. When
    farmers and ranchers want to hedge against different kinds of
    fluctuations, how can you do that--embed that process--on-
    chain. Similarly, Bluprynt thinks about companies like GEODNET,
    explain and publish who is validating the data, and how can
    entrepreneurs build efficiently on that data.
        Effectively, building high-quality digital infrastructure
    isn't easy. We do need your help. We need clear rules of the
    road so that people can know how to build compliance
    technologies, and the rulebook itself needs updating. As I have
    said before, even if technology moves and the rules remain the
    same, something can go wrong, especially if weaknesses arise,
    creating risk or creating challenges for innovators who can't
    build, or both.
        I look forward to having a further conversation with all of
    you today, and thank you for the invitation.
        [The prepared statement of Dr. Brummer follows:]

       Prepared Statement of Chris Brummer, Ph.D., J.D., Chief Executive
        Officer, Bluprynt; Agnes Williams Sesquicentennial Professor of
                                   Financial
        Technology, Georgetown University Law Center; Faculty Director,
           Institute of International Economic Law, Washington, D.C.
    A Bluprynt for Upgrading On- and Off-Chain Transparency
        Chairman Johnson, Ranking Member Davis, and Members of the
    Committee:

        Thank you for inviting me to testify at this hearing. My name is
    Chris Brummer. I am the Agnes Williams Sesquicentennial Professor of
    Financial Technology at Georgetown University Law Center, where I teach
    courses on financial regulation, cryptoassets and the law, and
    international financial regulation, among other subjects. I am also the
    founder and CEO of Bluprynt, a startup that leverages AI and blockchain
    technology to reinvent and enable regulatory, market, and consumer
    disclosures and communications for companies around the world.
        As both an academic and entrepreneur, I've come to appreciate that
    building a novel business--especially one rooted in emerging
    technologies--requires more than innovation for innovation's sake. It
    demands a merger of manufacturing and disclosure. Entrepreneurs today
    must not only develop compelling products and services, but also
    communicate clearly and accessibly about the complex infrastructures
    powering them. In essence, creation and explanation now go hand in
    hand.
        Bluprynt was born of this idea--that making things and disclosing
    things need not be separate endeavors; they are two sides of the same
    (digital) coin. While novel in application, it's a timeless proposition
    that has, we believe, come of age. And today, a little more than a year
    after founding the company, Bluprynt is on track to count as customers
    issuers, central banks, and blockchain builders from around the world.
    Why Regulators (and Consumers and Investors) Should Love Blockchains
        Our company is founded on the belief that blockchains--as
    distributed, verifiable databases--offer new tools for enabling new
    categories of transparency fit for purpose in a digital marketplace.
    I'd like to share with you a bit about our journey, and what this
    intuition means even beyond financial markets, but I do think given the
    purview of this Committee, some initial remarks about financial markets
    are a logical place to start.
        When I started my career as a securities law professor, the logic
    of disclosure, and disclosure obligations, was built and premised on
    the prevailing regulatory technology of the time--pieces of paper, and
    the U.S. mail system.\1\
    ---------------------------------------------------------------------------
        \1\ For a sample of my work thinking about what technology means
    for disclosure see, Chris Brummer, Disclosure, Dapps and DeFi, Stanford
    Journal of Blockchain Law & Policy, Jun. 29, 2022, https://stanford-
    jblp.pubpub.org/pub/disclosure-dapps-defi/release/1; Chris Brummer, A
    Developer Theory of Disclosure, SSRN Electronic Journal (2025). See
    also my edited book,*
        * Editor's note: the above footnote cuts off. It has been
    reproduced herein as submitted.
    ---------------------------------------------------------------------------
        Fast forward, and new channels have arisen for communications;
    hyperlinks to webpages and even social media tweets have been
    recognized as the means through which builders can fulfill and create
    regulatory expectations. But when it comes to the latter, perhaps no
    other technology is more interesting, or creates more potential, than
    blockchains.
        I've always taught my students that rules are only as effective as
    the world they operate in. And as the world goes digital, pieces of
    paper are not exactly fit for purpose. On the other hand, when you look
    at them objectively, blockchains have features that make them, or at
    least should make them, very attractive to regulators. The national
    security community was perhaps the first on the beat here. They
    recognized that blockchains provide tamper proof information about how
    transactions are consummated and how and where money is directed. And
    as tools for builders, they can be programmed with controls and smart
    contract configurations that require verification before assets can be
    held or transferred--ensuring that participants meet baseline
    regulatory standards. Smart contracts can enforce additional compliance
    rules--such as transaction limits, geographic restrictions, or
    blacklisting of sanctioned addresses--before allowing asset transfers.
        But as I've told market participants and regulators, it's really
    the tip of the iceberg. Blockchains have a lot to offer companies and
    their stakeholders from the standpoint of both capital formation and
    consumer and investor protection, even at the protocol level.\2\
    Because smart contracts are deployed on blockchains, and not on a
    specific server, their code, execution logs and function are
    distributed, fully transparent, and irreversible. Public blockchains by
    definition house information and data available to anyone, enabling
    third parties to verify and evaluate how underlying systems operate,
    and how participants behave.\3\ When harnessed effectively, this kind
    of radical transparency can help investors, consumers and even third
    party developers better understand the risks and advantages of the
    technology they are engaging with.\4\ Indeed, virtually anyone can view
    and audit the code powering a protocol or smart contract, and begin to
    evaluate its robustness against varying cybersecurity threats including
    market attacks, front running and reentrancy, and whether it is secure
    for handling and transacting large sums of crypto assets.
    ---------------------------------------------------------------------------
        \2\ The Stellar blockchain, for example, which has integrated
    Bluprynt technology, natively incorporates investor protection
    mechanisms at the protocol level, notably through its Asset Clawback
    feature. Introduced with Protocol 17 in June 2021, this feature allows
    asset issuers to revoke tokens under specific conditions, facilitating
    compliance with regulatory requirements and enhancing investor
    safeguards.
        \3\ See Lily Francus, Block by Block: Assessing Risk in
    Decentralized Finance, Moody's Analytics: Credit Where Due Blog Series
    (Jan. 2022), https://www.moodysanalytics.com/articles/2021/
    block_by_block_assessing_risk_in_decentralized_finance.
        \4\ See Chris Brummer, A Developer Theory of Disclosure (noting
    that thinking about disclosure from the standpoint of the ``reasonable
    developer'' not only improves upon standards exclusively fixated on the
    ``reasonable investor,'' but it also recognizes other long-term
    stakeholders of value).
    ---------------------------------------------------------------------------
        In short, digitalization--currently taking shape in the form of
    tokenization and on-chain finance--enables and creates the conditions
    whereby transparency, accountability, and integrity are not merely
    regulatory add-ons, but can be leveraged as essential, built-in
    components of the marketplace. While regulatory uncertainty has limited
    the exploration of such use cases, mission driven reforms could unlock
    ``transformative cost-saving and operational efficiency benefits . . .
    and innovation-led growth, broader market access . . . when operating
    at scale.'' \5\
    ---------------------------------------------------------------------------
        \5\ Global Financial Markets Association, Impact of Distributed
    Ledger Technology in Global Capital Markets (May 2023), https://
    www.gfma.org/wp-content/uploads/2023/05/impact-of-dlt-on-global-
    capital-markets-full-report.pdf.
    ---------------------------------------------------------------------------
    The Bluprynt Journey
        I founded Bluprynt after more than half a decade of research
    focused on what kind of information investors or holders of crypto
    assets need before making investment decisions. Crypto markets had
    problems with fraud, poorly understood technology, and misleading
    claims. And yet there was enormous potential in the technology.
    Figuring out how to direct capital to its best uses in the ecosystem
    seemed like a no-brainer. So during this period, I led a global survey
    in collaboration with Broadridge, asking investors what they considered
    crucial to know before holding a crypto asset.\6\ This survey was part
    of a broader series of studies examining the current disclosure
    requirements for regulated assets and comparing them with the
    technological opportunities and risks that on-chain finance presents.
    In a nutshell, my conclusions from these various projects were rather
    simple:
    ---------------------------------------------------------------------------
        \6\ Broadridge Financial Solutions, Crypto Asset Disclosure Study:
    Insights on Holders and How They Analyze Their Holdings (2023), https:/
    /www.broadridge.com/_assets/pdf/broadridge-crypto-asset-disclosure-
    study-report.pdf.

       The existing backdrop on rules relating to disclosure were
    ---------------------------------------------------------------------------
            outdated;

       The very definition of ``disclosure'' needed an upgrade; and

       The existing disclosure system had evolved into one where
            information was meant to be filed, but not read--and useful for
            investment banking lawyers and litigators, but not end-users.

        In the course of my research, I asked the SEC on many occasions to
    rethink and modernize its approach, like many of you today. And I hoped
    and waited for the CFTC to be empowered legislatively to do what it
    does best--to innovate. But the SEC's leadership had no interest, and
    the CFTC was left wanting for basic powers over spot markets to be able
    to deliver on its end.
        So I did what entrepreneurs have done for over 2 centuries in this
    country. I started up a company to solve the problem myself.
        Startups have to be snipers and identify friction points and build
    from there. So our first product--and the only one I will talk about
    today because we have a lot coming out soon--was found in Europe.
    Europe's new regulations, MiCA, took the step of doing what the SEC at
    that point would not, and tailoring a disclosure regime for crypto
    assets based upon the production of ``white papers'' by issuers of
    crypto assets.\7\ Still, there were plenty of questions. The
    legislation is littered with undefined terms left open to
    interpretation (some as basic as ``conflict of interest'') And the
    compliance isn't cheap; hiring lawyers to draft a white paper, even in
    the EU, can cost tens of thousands of euros, and take weeks to
    complete.
    ---------------------------------------------------------------------------
        \7\ Regulation (EU) 2023/1114 of the European Parliament and of the
    Council of 31 May 2023 on Markets in Crypto-assets, and amending
    Regulations (EU) No 1093/2010 and (EU) No 1095/2010 and Directives
    2013/36/EU and (EU) 2019/1937, 2023 O.J. (L 150) 40, art. 6-8.
    ---------------------------------------------------------------------------
        So my team of lawyers, engineers and lawyer-engineers (yes they
    exist) created a solution enabling companies to effectively turbotax
    white papers based on a range of customer data and inputs. Part of the
    process involved collaborating with L1s, L2s, the European Community,
    national central banks and more, navigating the first MiCA pilot. We
    then worked on bespoke legal wrappers for new data sources and
    providers. And we put together a unique solution that was not only fit
    for the market, but also delivered software solutions for the European
    regulators to consider and build upon.
        But we didn't stop there. Recognizing the programmable nature of
    blockchains, we also built tools for developers--enabling them to embed
    metadata on-chain. We started with Avalanche, one of the fastest layer
    one blockchains, to introduce regulatory metadata and compliance on-
    chain.\8\ We then shifted our sights back to the United States, working
    with Aptos, a leading blockchain specializing in enterprise solutions,
    to enable doing the same with our first Reg D document, a compliance
    feature for issuers of real world assets.\9\ And we have more
    announcements to come.
    ---------------------------------------------------------------------------
        \8\ Bluprynt Partners with Avalanche Foundation to Revolutionize
    MiCA White Paper Requirement Through On-Chain Regulatory Metadata
    Integration, https://www.cfodive.com/press-release/20250117-bluprynt-
    partners-with-avalanche-foundation-to-revolutionize-mica-white-pap.
        \9\ Bluprynt Partners with Aptos Foundation to Bring U.S.
    Securities Law Documents On-Chain and Advance Tokenized Real-World
    Asset Solutions, https://www.bluprynt.com/post/bluprynt-partners-with-
    aptos-foundation.
    ---------------------------------------------------------------------------
        We're only a little more than a year old, but we already have our
    first cohorts of customers based in the United States and Europe. We're
    integrating into networks and block explorers. And we're being
    approached by regulators, officials at central banks and others.
    Enabling Real World Use Cases
        Beyond just positive use cases, this panel has a particular
    interest in real world ones. Not gimmicks. But the kind that enable
    building businesses. And here I think it's worth highlighting what it
    means, in my opinion, to be a modern disclosure company.
        Bluprynt's use cases were born in financial markets, but we're
    thinking big about the digital economy as the disclosure economy,
    whatever it's guise. So we're not just building a business, we're
    building systems applicable beyond financial markets. So just for the
    purpose of this testimony, I'll reference today this Committee's other
    wonderful witnesses as to what a company like ours means.
        As we see today, Cattle[P]roof tracks real-world data about
    cattle--who owns them, their health, and where they've been--using
    blockchain to make that data trustworthy. But in the real world, cattle
    aren't just tagged, they're bought and sold. And given fluctuations in
    the global economy, commerce needs tools to hedge and protect farmers
    and ranchers. And here we can help; if someone wants to turn cattle
    into a financial product, like a futures contract (an agreement to buy
    or sell cattle at a future date), regulators need more than just proof
    of ownership or health. They need clear, legally structured information
    about how the contract works.
        Bluprynt has the infrastructure in place to help make that happen
    on and off chain. So while Cattle[P]roof proves the cattle are real, we
    help those same end-users grow their businesses.
        Similarly, Bluprynt can help companies like [GEODNET] explain and
    publish who is validating the data, what the system rules are, and how
    changes happen--in a way that regulators, customers, and users can
    understand and trust. [GEODNET] can stay focused on building the
    world's best geospatial network. Bluprynt can help make sure it's
    understood, trusted, and compliant--so it can work with governments,
    big companies, or financial markets that require clear, reliable
    information about how the network operates.
    Looking Forward
        Building high quality digital infrastructure is not easy. The
    technology is there. But it is as much a regulatory build as it is a
    technological one. And this means that in order for us to work
    optimally to embed and promote transparency we need help from Congress
    in two critical ways.
        First, we need clear rules. People building products don't know
    where the underlying tokens fit in the regulatory dashboard, if at all.
    And even if they do, there's no clear way to identify compliance in
    ways native to their businesses.
        Second, the rulebook itself needs updating. As I have said before,
    if technology moves, and the rules remain the same, something is going
    to go wrong. Either weaknesses arise, creating risks, or innovators
    can't build. Or both.
        I think we will get there. I was pleased to see my friend Brian
    Quintenz nominated as CFTC Chair, and the CFTC has been lucky to have
    over its tenure a succession of leaders, including Chairs Tim Massad,
    Chris Giancarlo, and Rostin Behnam, deeply interested in technology and
    how to leverage it for our markets.
        But make no mistake, merging technologies present a unique
    opportunity to rethink our policy frameworks--not through the lens of
    scarcity and protectionism, but instead, to coin a popular phrase, to
    pursue outcomes of ``abundance'' and openness.
        This means focusing on capacity-building rather than mere
    constraint-setting. Instead of defaulting to enforcing old rules
    designed for markets of the past out of a false sense of security, we
    should focus on enabling modern rules that work--and vigorously
    ensuring compliance with them. Rules that expand opportunities for
    builders while advancing our core regulatory goals and protections. The
    best policy outcomes will require regular review and vigilance designed
    to rethink outdated rules and update them for new risks, technologies,
    and markets.
        Failing to act comes at a cost--and not just for frontier-pushing
    startups. It punishes the companies trying to do things right, like
    ours, by making it harder to deliver better, more trustworthy
    information to the market. Just as technical debt builds up when
    engineers delay essential fixes, regulatory debt accumulates when
    policymakers sidestep the hard conversations. Over time, that inaction
    weighs down the system. Risks multiply. Innovation slows. And when the
    inevitable reckoning comes, the cleanup is far more disruptive than
    thoughtful, incremental reform would have been.
        We've seen that debt balloon in recent years--especially in crypto,
    where sometimes the absence of a single new rule or proposal has left
    an entire sector navigating in the dark. That silence hasn't yielded
    certainty or stronger protections. It's created a vacuum.
        And the reality is that innovation doesn't wait. Whether it's on-
    chain--where protocols are automating trust and transforming markets--
    or off-chain, where infrastructure is being rebuilt from the ground up,
    builders are moving forward. The question is whether our regulatory
    frameworks will move with them.
        Because in the end, it's not innovation that creates risk--it's the
    refusal to meet it with clarity, creativity, and courage.
        I look forward to this Congress helping to close the gap before the
    future gets too far ahead.

        The Chairman. We need clear rules of road, yes, indeed. Dr.
    Brummer, well said.
        Mr. Garrison, it is your 5 minutes.

        STATEMENT OF COY GARRISON, J.D., PARTNER, STEPTOE LLP,
                             ARLINGTON, VA

        Mr. Garrison. Thank you, Chairman Johnson, Ranking Member
    Davis, and Members of the Subcommittee for inviting this
    securities lawyer and grandson of a dairy farmer to testify
    here today. My name is Coy Garrison, I am a partner in
    Steptoe's blockchain and cryptocurrency practice, where I
    advise clients on securities and derivatives of all matters.
    Prior to Steptoe, I was an attorney at the SEC for nearly 9
    years, where I had the honor of serving as counsel to current
    Commissioner Hester Peirce. I am testifying today on my own
    behalf, and not on behalf of the firm or any client of the
    firm.
        My message is rather straightforward; it is that passing
    digital asset market structure legislation is essential to
    promoting American innovation in blockchain technology. The
    promising cases presented to you here today, along with all
    projects built on blockchain technology, rely on digital assets
    being easily transferable. People that hold digital assets,
    people that want to participate in the protocols, and people
    that want to express a view on the price of a digital asset,
    all meet on spot market exchanges. Robust digital asset
    markets, therefore, serve a vital function facilitating price
    discovery for digital assets.
        However, there are two main problems with the status quo.
    First, exchanges lack any Federal regulatory oversight to
    promote market integrity, to monitor against fraud and
    manipulation, or to impose requirements to safeguard customer
    assets. While there are a number of responsible platforms, the
    lack of a Federal regulator leaves open the door to another
    FTX-like failure.
        Second, entrepreneurs face an unnecessary stumbling block
    of regulatory uncertainty in the U.S. Specifically, the SEC
    under Gary Gensler initiated litigation against a number of
    digital asset trading platforms, alleging that such entities
    were operating as unregistered securities exchanges, broker
    dealers, and clearing agencies. While the SEC asserted
    jurisdiction through enforcement actions, the agency declined
    to provide a pathway to registration. Perhaps most troubling,
    the SEC failed to articulate a cogent and consistent analysis
    for the fundamental legal issue at hand; being how secondary
    trading of digital assets involved the sale of investment
    contracts or securities. Faced with such legal uncertainty,
    entrepreneurs looking to build a decentralized network in the
    U.S. often choose not only to build and launch offshore, but to
    exclude or limit the participation of U.S. persons. This
    outcome hurts U.S. competitiveness, and it encourages
    entrepreneurs and capital to flow to other jurisdictions.
    Fortunately, new leadership at the SEC and CFTC are already
    beginning to reverse the failed crypto policies of the last 4
    years. For example, the SEC Crypto Taskforce, led by
    Commissioner Pierce, has issued clear statements scoping
    outside of the securities law certain transactions, and is
    actively soliciting public input. There are limitations,
    however, to what the SEC and CFTC can achieve, absent direction
    from Congress. One significant regulatory gap is that neither
    agency has clear statutory authority to regulate spot market
    trading of digital assets.
        Congress and this Administration, therefore, have a
    tremendous opportunity to work together to bring sensible
    regulation to the digital asset industry by enacting market
    structure legislation.
        Last week, Chairman Thompson published six principles for
    this market structure legislation, which I believe provide
    sensible guideposts upon which a framework can be built. I
    respectfully offer a few observations for this Subcommittee in
    assessing these principles.
        Principle number one is that legislation must promote
    innovation. If a digital asset itself is labeled a security
    under the legislation, then each transaction in that digital
    asset, even outside of a digital asset exchange, would be
    subject to the securities laws. This would severely restrict
    the ability for that digital asset to be used as intended on
    its network. That could drive the development of the network
    and capital flows offshore. The legislation should focus on
    regulatory the spot market trading of digital assets, not
    regulating their intended use within the relevant network.
        For principle number two, that legislation must provide
    clarity for the classification of assets, in developing any
    test to divide jurisdiction between the CFTC and SEC, I propose
    that the Subcommittee weigh the following factors. First,
    whether the test will upend current practice and bifurcate spot
    digital asset markets, and if so, whether there is a compelling
    customer protection or market integrity justification for doing
    so. Second, whether the benefits of simplicity and
    administration of the test for both regulators and industry
    participants should be prioritized. Third, whether there are
    difficulties of coordinating between the SEC and CFTC in
    creating and maintaining separate rulebooks. And fourth,
    whether any agency has the capability to fully perform all
    market oversight functions on their own.
        In conclusion, the timing is right for Congress and this
    Administration to work together to implement a much-needed
    regulatory framework.
        Thank you for your leadership on this important topic, and
    I look forward to your questions.
        [The prepared statement of Mr. Garrison follows:]

        Prepared Statement of Coy Garrison, J.D., Partner, Steptoe LLP,
                                 Arlington, VA
        Thank you, Chairman Johnson, Ranking Member Davis, and Members of
    the Subcommittee for inviting me to testify today on American
    innovation and the future of digital asset regulation.
        My name is Coy Garrison. I am a partner in the Washington, D.C.,
    office of Steptoe LLP. For nearly 3 years my practice has focused on
    advising clients how to navigate challenging legal and regulatory
    issues related to blockchain technology. Prior to private practice, I
    was an attorney for the U.S. Securities and Exchange Commission
    (``SEC'' or the ``Commission''), including serving as counsel to
    Commissioner Hester M. Peirce from 2019-2022 and in multiple roles with
    the Division of Corporation Finance from 2013-2019. My testimony today
    is informed by both my private and public sector experience, but I
    appear before you on my own behalf and not on behalf of Steptoe LLP or
    any client of the firm.
        My message to you today is straightforward: passing digital asset
    market structure legislation is essential to promote American
    innovation in blockchain technology. The status quo is unacceptable:
    there is no Federal market regulator overseeing centralized spot market
    exchanges and there is a lack of regulatory clarity that only Congress
    can fully address. Fortunately, the 119th Congress and the Trump
    Administration have a unique opportunity to work together to establish
    sensible regulation and encourage innovation in the U.S. I provide some
    thoughts below to aid in this Subcommittee's consideration of the six
    principles for market structure legislation recently published by
    Chairman Thompson.\1\
    ---------------------------------------------------------------------------
        \1\ Chairman G.T. Thompson & Chairman French Hill, A Blueprint for
    Digital Assets in America (Apr. 4, 2025), https://
    agriculture.house.gov/news/documentsingle.aspx?DocumentID=7875.
    ---------------------------------------------------------------------------
    1. Robust Digital Asset Markets Are Vital to Blockchain Technology
            Innovation, But Lack a Federal Market Regulator
        Blockchain technology plays an important role in society today and
    holds significant promise in a world of growing distrust in
    institutions. In 2008, the Bitcoin whitepaper seeded the idea that a
    peer-to-peer electronic payment system could be based on cryptographic
    proof instead of a trusted third party.\2\ Bitcoin soon thereafter
    became the world's first permission-less, decentralized, peer-to-peer
    payments technology, and served as catalyst for others to build upon
    the concept. Since then, developers have built blockchains and
    blockchain-based software seeking to provide decentralized networks for
    everything from payments, lending, and trading, to livestock
    verification, agricultural equipment financing, and mapping tools, to
    file storage, social media, and artificial intelligence model
    development.
    ---------------------------------------------------------------------------
        \2\ Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash
    System (Oct. 31, 2008), https://bitcoin.org/bitcoin.pdf.
    ---------------------------------------------------------------------------
        Decentralized networks and applications built upon them need an
    incentive structure to drive participation in the security and
    operation of the network. Digital assets native to these networks are
    therefore distributed either programmatically or by a centralized
    entity in a number of ways, including through capital raising
    transactions, airdrops, rewards linked to a consensus mechanism, and
    developer grants, to name a few. Digital asset spot markets exist to
    facilitate the trading of digital assets by holders, persons wanting to
    participate in or use the network, and persons desiring to express a
    view on the price of the digital asset. Centralized spot market
    exchanges therefore serve a vital function of facilitating price
    discovery for digital assets.
        However, these exchanges lack any Federal regulatory oversight to
    promote market integrity, monitor against fraud and manipulation, or
    impose requirements to safeguard customer assets. While there are a
    number of responsible trading platforms, the lack of a Federal
    regulator leaves open the door to another FTX-like failure in the
    future. Moreover, Federal oversight of these exchanges will likely
    encourage more participation in these markets from entities hesitant to
    jump in absent such regulation, and in turn, encourage more innovation
    in the blockchain industry.
    2. The Lack of Regulatory Clarity Persists and Can Only Be Solved by
            Congress
        Entrepreneurs looking to build decentralized networks in the U.S.
    often choose not only to build and launch offshore, but to exclude or
    limit the participation of U.S. persons. Typically they do so because
    of uncertainty as to whether the securities laws apply, and if they did
    apply, there is no clear pathway to compliance. Such an outcome hurts
    U.S. competitiveness and lets entrepreneurs and capital flow to
    jurisdictions willing to provide regulatory certainty for the industry.
        A closer look at the securities law analysis reveals how difficult
    it is for the SEC to bring clarity on whether it has authority to
    regulate digital asset spot market transactions, absent direction from
    Congress. The legal analysis of whether any particular digital asset is
    sold pursuant to an ``investment contract,'' and therefore subject to
    the securities laws, requires a facts-and-circumstances consideration
    of the economic realities of the transaction. That analysis is guided
    by case law, anchored by the Supreme Court's Howey test of whether
    there is a ``contract, transaction, or scheme whereby a person invests
    his money in a common enterprise and is led to expect profits solely
    from the efforts of the promoter or a third party.'' \3\
    ---------------------------------------------------------------------------
        \3\ SEC v. W.J. Howey Co., 328 U.S. 293 (1946).
    ---------------------------------------------------------------------------
        The SEC under Gary Gensler adopted a broad and shifting
    interpretation suggesting that a digital asset embodies an ``investment
    contract'' in secondary market transactions and went so far as to coin
    the term ``crypto asset security'' in court filings alleging that major
    centralized spot market exchanges were operating as unregistered
    securities exchanges, broker-dealers, and clearing agencies. Multiple
    district courts reprimanded the agency for its legal imprecision, with
    one court describing the label ``unclear at best and confusing at
    worst,'' \4\ and another court explaining how the approach is
    inconsistent with the statute and Howey:
    ---------------------------------------------------------------------------
        \4\ SEC v. Payward Inc., et al., No. 23 Civ. 06003 (WHO), ECF No.
    90 (N.D. Cal. Aug. 23, 2024) at 19.

              Insisting that an asset that was the subject of an alleged
            investment contract is itself a ``security'' as it moves
            forward in commerce and is bought and sold by private
            individuals on any number of exchanges, and is used in any
            number of ways over an indefinite period of time, marks a
            departure from the Howey framework that leaves the Court, the
            industry, and future buyers and sellers with no clear
            differentiating principle between tokens in the marketplace
            that are securities and tokens that aren't. It is not a
            principle the Court feels comfortable endorsing or applying
            based on the allegations in the complaint, particularly since
            the only term among the approximately twenty options included
            in the statutory definition of ``security'' that is being
            relied upon in this case is ``investment contract.'' \5\
    ---------------------------------------------------------------------------
        \5\ SEC v. Binance Holdings Ltd, et al., No. 23 Civ. 1599, ECF No.
    248 (D.D.C. June 28, 2024 at 42-43.

        SEC Acting Chairman Mark Uyeda and Commissioner Peirce have rightly
    begun to reverse course, dismissing many of the cases against the
    centralized spot market exchanges. Accordingly, Federal appellate
    courts will not have the opportunity to weigh in with their views on
    the scope of Howey as applied to digital assets for the foreseeable
    future.
        The SEC Crypto Task Force, led by Commissioner Peirce, is engaged
    in a commendable and fruitful effort to right the ship at the SEC and
    provide regulatory clarity. In recent weeks, the Task Force issued
    clear statements scoping outside the securities laws certain
    transactions in stablecoins, proof of work mining, and memecoins.\6\
    The Task Force also hosted a roundtable last month focused on defining
    security status for digital assets.\7\
    ---------------------------------------------------------------------------
        \6\ See SEC Staff Statement on Meme Coins (Feb. 27, 2025), https://
    www.sec.gov/newsroom/speeches-statements/staff-statement-meme-coins;
    SEC Staff Statement on Certain Proof-of-Work Mining Activities (Mar.
    20, 2025), https://www.sec.gov/newsroom/speeches-statements/statement-
    certain-proof-work-mining-activities-032025; SEC Staff Statement on
    Stablecoins (Apr. 4, 2025), https://www.sec.gov/newsroom/speeches-
    statements/statementstablecoins-040425.
        \7\ SEC Roundtable, How We Got Here and How We Get out--Defining
    Security Status (Mar. 21, 2025), https://www.sec.gov/newsroom/meetings-
    events/how-we-got-here-how-we-get-out-defining-security-status.
    ---------------------------------------------------------------------------
        U.S. Commodity Futures Trading Commission (``CFTC'') Acting
    Chairman Caroline Pham is similarly pushing forward for regulatory
    clarity on digital assets. The CFTC recently held its first Crypto CEO
    Forum, withdrew staff guidance on clearing of digital assets so as to
    not apply unequal treatment on digital asset derivatives, and is
    exploring a potential digital assets markets pilot program for
    tokenized non-cash collateral.\8\
    ---------------------------------------------------------------------------
        \8\ CFTC Announces Crypto CEO Forum to Launch Digital Asset Markets
    Pilot (Feb. 7, 2025), https://www.cftc.gov/PressRoom/PressReleases/
    9049-25; CFTC Staff Withdraws Advisory on Review of Risks Related to
    Clearing Digital Assets (Mar. 28, 2025), https://www.cftc.gov/
    PressRoom/PressReleases/9060-25.
    ---------------------------------------------------------------------------
        There are limitations to what the SEC and CFTC can achieve absent
    direction from Congress, however. One significant regulatory gap is
    that neither the SEC or CFTC have clear statutory authority to regulate
    spot market trading of digital assets. The CFTC does not have
    regulatory oversight authority over spot trading of commodities. While
    the SEC has clear authority to regulate the primary issuance of a
    digital asset sold pursuant to an investment contract, there is
    significant doubt that the secondary trading of digital assets
    constitute investment contract transactions within the SEC's
    jurisdiction.
    3. Considerations for Market Structure Legislation
        Last week, House Committee on Agriculture Chairman G.T. Thompson
    and House Committee on Financial Services Chairman French Hill
    published six principles for market structure legislation. I
    respectfully offer high-level considerations for this Subcommittee in
    assessing each principle.

      a.  Legislation must promote innovation. We seek to protect
                opportunities for innovators to create and utilize digital
                assets, while ensuring users can lawfully transact with one
                another.

        If a digital asset native to a decentralized network were to be
    labeled as a security under the terms of the legislation, then each
    transaction in that digital asset, even outside of a centralized spot
    market exchange, would be subject to the securities laws. This would
    severely restrict the ability for that digital asset to be used as
    intended on the network and could drive the development of that network
    offshore. Legislation should focus on regulating the spot market
    trading of digital assets, not their use as intended within the
    relevant network.

      b.  Legislation must provide clarity for the classification of
                assets. Users of digital assets should clearly understand
                the nature of their holdings, including whether they
                qualify as securities or non-securities.

        This is the most challenging aspect of market structure given the
    complexities of the Howey analysis. Any test used to divide
    jurisdiction between the CFTC and SEC based on the classification of
    the digital asset should consider the following factors:

       The extent to which the test will upend current practice and
            bifurcate spot digital asset markets;

       Whether there is a compelling customer protection or market
            integrity reason for bifurcating spot digital asset markets;

       The benefits of simplicity in administration of the test for
            regulators and industry participants;

       The difficulties of coordination between the SEC and CFTC in
            creating and maintaining separate rules, and the resulting
            burdens on registered entities; and

       The capabilities of either agency to equally perform all
            market oversight functions.

        The SEC Crypto Task Force will be a valuable resource to Congress
    in articulating the SEC's current views on how it intends to evaluate
    digital asset spot market trading, and whether there are specific types
    of assets or transactions with which they believe the SEC has
    jurisdiction over. Ultimately, however, it is for Congress to decide
    where to draw the line between the two agencies.

      c.  Legislation must codify a framework for the issuance of new
                digital assets. The framework should permit issuers to
                raise capital through the sale of new digital assets under
                the jurisdiction of the SEC. It should protect retail
                investors and require developers to disclose relevant
                information to help users understand the unique
                characteristics of digital asset networks.

        This approach would be consistent with the well-established
    position that token offerings conducted to raise capital for a project
    involves the sale of investment contracts and are subject to the
    securities laws. Many token issuers avoid selling to U.S. investors
    because the existing registration and exempt offering framework is a
    poor fit for the realities of the projects they are building.
        Bold reforms to the existing disclosure requirements and
    restrictions on secondary trading under the Regulation A and Regulation
    Crowdfunding exemptions should be considered for token offerings sold
    pursuant to investment contracts. For example, audited financial
    statement requirements appropriately form the cornerstone of the SEC's
    disclosure system for public companies. However, for many development
    teams looking to build a decentralized network, the financial
    information that is relevant to a token holder is likely not the
    financials of the development team, but rather the wallet address(es)
    of the project's treasury and transparency into how and why tokens move
    from that address. A streamlined exemption that leverages the benefits
    of blockchain for transparency and contains disclosure requirements
    that are carefully crafted for token holder protection would be an
    ideal outcome.

      d.  Legislation must establish the regulation of spot market
                exchanges and intermediaries. Centralized, custodial
                exchanges and intermediaries facilitating transactions with
                non-security digital assets should adhere to similar
                requirements as other financial firms.

        Imposing the same type of regulation on digital asset
    intermediaries as CFTC-registered or SEC-registered firms is a
    reasonable approach for regulation. Some modifications to existing CFTC
    or SEC rules may be appropriate to allow spot market exchanges and
    intermediaries, and their customers, to benefit from disintermediated
    trading and real-time settlement of digital assets.

      e.  Legislation must establish best practices for the protection of
                customer assets. Entities registered with the SEC or CFTC
                should be required to segregate customer funds and hold
                them with qualified custodians. Customer funds should also
                be protected during bankruptcy.

        Protection of customer assets is a core function for any
    centralized, custodial spot market exchange and should be prioritized
    in legislation. Preserving flexibility in the type of Federal or state
    regulator that may have oversight over the qualified custodian will be
    an important factor.

      f.  The legislation must protect innovative decentralized projects
                and activities. Congress should ensure that decentralized
                protocols, which pose different risks and benefits, are not
                subject to regulations designed for centralized, custodial
                firms. In safeguarding decentralized activities, Congress
                must also protect an individual's right to self-custody
                their digital assets.

        DeFi is a growing, but nascent industry that raises different
    issues from centralized spot market trading. Truly decentralized
    protocols typically allow disintermediated, peer-to-peer transactions
    and do not exercise control over transactions or a user's assets. They
    therefore don't pose the same risks that centralized spot market
    trading does to market participants. Of course, centralized entities
    that masquerade as decentralized protocols should be regulated in a
    manner that addresses the risk of their actual activities, not of the
    label they use to market themselves. Limiting the legislation to the
    issue at hand: centralized spot market trading of digital assets, is a
    prudent course of action.
    4. Conclusion
        Despite the welcome change in regulatory approach by the SEC and
    CFTC under the Trump Administration, Congressional action is needed to
    implement oversight of spot market digital asset trading because there
    are limits to the regulators' existing authorities. In addition to
    bringing regulatory clarity and customer protection benefits to the
    marketplace, market structure legislation is likely to encourage
    American innovation in blockchain technology. Thank you for your
    leadership on this important topic and I look forward to your
    questions.

        The Chairman. Excellent job, panelists. That is exactly
    what we needed.
        As a reminder perhaps those who arrived after gavel, by UC
    we have reduced time for our questioning for 4 minutes apiece,
    so that we don't injure the people at the end of the dais when
    votes are called.
        In the spirit of bipartisanship, Ranking Member Davis will
    play traffic cop for a bit until the burden irritates him, in
    which case he will revert it back to me. So with that, Ranking
    Member.
        Mr. Davis [presiding.] All right. At this time we recognize
    the gentleman from Tennessee, Mr. Rose.
        Mr. Rose. Thank you, Chairman Johnson and Ranking Member
    Davis, for holding this hearing. I am honored to have been
    appointed to serve as Vice Chair of the Subcommittee on
    Commodity Markets, Digital Assets, and Rural Development for
    the 119th Congress, and I look forward to working with the
    Chairman and Ranking Member to advance U.S. commodity markets
    and digital assets, while also delivering success for rural
    America.
        Let me get right to my questions. Mr. Hughes, as
    agriculture enters this era of digital assets, how can we
    better integrate innovative technologies like MetaMask into
    more production agriculture transactions and increase the usage
    of these tools?
        Mr. Hughes. Well, I think we need to start thinking about
    how these assets can migrate online. I think you heard a little
    testimony earlier about the benefits of putting things like
    cattle, at least an instantiation of cattle, and all the
    information that pertains to a particular head of cattle on-
    chain so you can know the data, and that asset is there to be
    traded in a very streamline manner. Once you do that, an
    interface like MetaMask allows you to control those assets,
    give permission to who can see the data, and what types of
    transactions you are willing to go into. It is about getting
    the real world on-chain, but that requires a regulatory
    framework that allows companies and industries to explore this
    space. And so that is what we hope happens this year.
        Mr. Rose. Sure. Well, thank you, and I share your view of
    what we need to do next.
        Mr. Tague, in your written testimony you mentioned that
    blockchain technologies can increase security and transparency,
    and lead to stronger relationships between buyers and sellers.
    With that in mind, please elaborate on how these technologies
    can strengthen market access for producers, and enhance the
    possibility of producers receiving higher prices.
        Mr. Tague. Absolutely. Thank you for your question. As Mr.
    Hughes said, the blockchain network is central to what we are
    creating. The idea behind our product is trust and
    transparency. Right? We are trying to create trust and
    transparency up and down the chain, no pun intended, so to
    speak, from the producer all the way to the consumer.
        One of the ways we do this is we use USDA process verified
    programs. We started with those programs because to date, those
    are the best ways to identify individual head of cattle. And by
    putting that data on an immutable ledger; that is, you can
    trust that ledger from start to finish, it can't be changed, or
    it can be changed but the recordation of that change will
    occur, so it provides transparency from the birth of that
    animal to the harvest of that animal.
        Mr. Rose. Thank you. And, Mr. Tague, can you further
    explain how integrating blockchain technologies into the beef
    industry can minimize the issues we see with payment methods
    and delays?
        Mr. Tague. Absolutely. Cattle transactions really haven't
    changed in about 150 years. Essentially, today, if we take our
    cattle to market, we sell them at a sale barn, the sale barn
    gets paid their amount, the sale barn takes the check, they
    hold the check, then the check goes to the bank and the bank
    holds the check, and et cetera. So from the day you deliver
    your cattle to the day you get paid for your cattle, there is a
    delay there of days or even weeks. Using blockchain technology
    and smart contracts there, we can absolutely make that almost
    instantaneous, but also ensure that lienholders and other
    people that are in that transaction also get instantly paid,
    with full compliance.
        Mr. Rose. Thank you. And I will end here. Dr. Brummer, it
    is always nice to have a fellow with connections to Vanderbilt
    Law School. I am an alum, and good to have you with us today.
        Tell me in just 10 seconds here, how do we speed up the
    adoption period, from early adopters to late adopters?
        Dr. Brummer. I think certainly having a UX (user
    experience) that enables people to engage the technology from
    its benefits, and not just from a sort of crypto native
    interface, makes it a lot easier for more people to engage with
    the technology, and for people to have a sense of trust in the
    technology, obviously, will do a lot towards mainstreaming that
    technology.
        Mr. Rose. Thank you, Mr. Chairman for your--Ranking Member,
    for your indulgence. I yield back.
        Mr. Davis. Yes. The gentleman's time has expired.
        At this time, we are going to recognize the amazing
    Representative from Illinois, Ms. Budzinski.
        Ms. Budzinski. Thank you, Ranking Member, and thank you to
    our Subcommittee Chairman Johnson, for having this hearing
    today. And I appreciate all of the panelists here for your
    testimony.
        I want to reiterate my thanks to Chairman Johnson for his
    bipartisan work to get FIT21 across the finish line here in the
    House last Congress. I was really proud to work alongside him
    to pass a few of my consumer protection priorities that ended
    up being included in that final bill, which I thought was
    really important.
        I have said this before, it is really whether you like it
    or not, whether we are ready for it or not, blockchain
    technology is here and it is here to stay. So I believe it is
    in our best interest to utilize this technology for positive
    purposes, and I know some of which as panelists you have shared
    some of those positive outcomes with us in your testimony.
        I want to share with you one of those applications going on
    in my district. The University of Illinois Urbana-Champaign is
    in my district. I am a proud alum. They are doing some really
    great work at the U of I, Gies College of Business, which is
    home to a lot of blockchain firsts. In 2022, Gies started the
    first blockchain ever to be created by a business school. We
    call it iBlock. iBlock is a platform that allows Gies faculty
    and students to create accounts and view transactions in a
    classroom setting. It is also used to teach students how to
    build customized blockchain environments for their own use in
    the classroom. Their ultimate goal with iBlock is to expand our
    knowledge of blockchain technology, and what they call a
    scalpable production--scalable, I am sorry, scalable production
    system. They also work jointly with the College of Engineering
    and the College of Law to expand technology and usability, and
    to navigate the regulatory environment. Additionally, in 2023,
    Protocol Labs gave the first ever crypto-funded donation to
    Gies, a donation to be used to research blockchain questions
    and solutions. And this is not to mention the many other gifts
    that have been given to Gies over the years to research uses
    for blockchain technology.
        So in the time that I have, I just have one quick question
    for Dr. Brummer. Given your position as an entrepreneur using
    blockchain, but also as an academic, I imagine you have a
    unique take on these applications. Can you speak to the role
    that higher education, particularly through research, play in
    expanding the uses of blockchain?
        Dr. Brummer. Thank you so much. I have colleagues and
    friends at Urbana-Champaign, not just in the Law School. Great,
    great university.
        Yes, I think universities have a unique gift of both
    students who are much more likely to be involved in the
    technology, and they are also learning. So they are not
    necessarily stuck, and a little bit more open-minded to at
    least explore. And I think universities have a unique position
    because we ask questions, and the best of us don't have
    answers. So when you can approach a new, novel technology with
    fewer priors, but also with an education and skill, you are
    much more likely to be able to kick the tires on that
    technology in a very straightforward way, and I think that is
    what I see in a lot of my students. I ask my students all the
    time, like how many of you have interfaced as law school
    students with blockchain technology. The hands will go up, and
    then I will ask more conventional stuff, and they will ask me
    what that is, and I feel old.
        Ms. Budzinski. That makes a lot of sense.
        Dr. Brummer. Yes.
        Ms. Budzinski. Thank you very much.
        Dr. Brummer. Thank you.
        Ms. Budzinski. And I will yield back.
        Mr. Davis. The gentlelady yields.
        At this time we will recognize the gentleman from Oklahoma,
    Mr. Lucas.
        Mr. Lucas. Thank you.
        Many legislative proposals for a digital asset regulatory
    framework grant the CFTC authority to oversee spot market
    authority for decentralized changes.
        Mr. Garrison, what are your views on how to address the
    spot market gap? Why is it so important to pay attention to
    this issue in our discussions around digital asset market
    structure?
        Mr. Garrison. Thank you. So I think the importance comes
    from the fact that there is no Federal market regulator
    overseeing the spot digital assets right now. So that means all
    participants are subject to the whims of the trading platforms
    and what protections they put in place on their own. Right? So
    things like preserving market integrity, seeking to prevent
    fraud and manipulation, front running, these types of concerns,
    the safeguarding of customer assets. There is no Federal
    standard that is being imposed upon them right now, and I think
    that would rightly be a focus for Congress as it considers
    market structure legislation.
        Mr. Lucas. The United States is unique in that our markets
    are overseen by two different regulators; the SEC and the CFTC.
    And this can present challenges, particularly for hedging
    strategies that involve products in both jurisdictions. For
    example, investors might hedge Treasury holdings in the SEC
    jurisdiction, of course, with Treasury futures in the CFTC
    jurisdiction. This situation will also come up in digital asset
    markets.
        Continuing again with you, Mr. Garrison, how should the
    Committee be thinking about this as we look at market structure
    legislation? Should we allow for digital asset products that
    are naturally hedged and offset to be marginalized together in
    the same portfolio?
        Mr. Garrison. So I think the focus and the cleanest
    approach is to continue to keep clear lines between the CFTC
    that analyzes the risk hedging functions, and the SEC, and to
    also finding the right spot of, does the CFTC and SEC share
    jurisdiction over the spot markets, or do you just assign to
    one or the other. Now, there's obviously a lot of pros and cons
    with either approach, but at the end of the day the SEC and
    CFTC have a long tradition of working together. There certainly
    are challenges that can come along with that, but as we saw in
    2020 when the SEC and CFTC had an open Commission meeting
    together and voted on various rules in connection with each
    other, as long as the leadership of those agencies are working
    hand in glove, then they can achieve regulatory harmonization.
        Mr. Lucas. A theme that I continue to hear in my
    discussions with industry experts is the need for regulatory
    clarity in the digital asset market, to encourage innovation
    and stay competitive globally. That is why my bill, the
    Securing Innovation and Financial Regulation Act (H.R. 9633,
    118th Congress), codifies LabCFTC and the SEC's strategic hub
    for innovation and financial technology. Both of these offices
    would make the Commissions more accessible to market
    participants, and foster fintech innovation.
        Mr. Tague, your product currently helping ranchers in my
    home State of Oklahoma is quite the technological achievement.
    What would it mean for ag producers to have regulatory
    certainty and assistance like that that would be provided
    through my bill?
        Mr. Tague. Thank you, Congressman Lucas. Yes, it would be
    essential. One of the things that we need as entrepreneurs is
    that regulatory certainty for investment. Most investors are
    not going to invest a large sum of money into a product that
    there is not regulatory certainty on. But it also means that
    with that investment, we can provide these type of tools to
    ranchers and farmers too to make sure that they get all the
    benefits of this technology.
        Mr. Lucas. Thank you.
        And I yield back, Ranking Member.
        Mr. Davis. Thank you so much.
        At this time, Mr. Figures from the great State of Alabama,
    4 minutes.
        Mr. Figures. Thank you. And thank you for hosting this
    hearing, Mr. Chairman and Mr. Ranking Member.
        I represent a very rural district geographically. About 80
    percent of my district is relatively rural, some of the most
    rural parts of the State of Alabama, where getting online is a
    challenge. And when we talk about blockchain technology, when
    we talk about being able to leverage the assets and the
    benefits of this technology, that is something that concerns me
    with making sure that our rural communities don't get left
    behind. I am supportive of the benefits of the technology, and
    supportive of innovating in ways that will further positive
    life outcomes and business outcomes, and just overall
    experience for our rural communities.
        So can you guys talk to me a little bit about what we can
    do to ensure that our rural communities are not left out in
    this wave of innovation? And if we can start with you Dr.
    Tague--or Mr. Tague, I am sorry.
        Mr. Tague. Certainly. Yes, I believe that investment in
    rural broadband structure, particularly in the rural areas, is
    vitally important, especially for what I do. Without that, I am
    kind of a nonstarter. Right? But I do also believe that
    blockchain technology is bringing a lot of things to bear that
    will make that investment in rural broadband technology much
    more attractive, because we are actually bringing real-world
    use cases that need a lot of piping, so to speak, to come back
    to the market. So I think it all--a rising tide lifts all
    boats, is essentially what I am saying.
        Mr. Figures. Anybody else want to take a stab at it?
        Mr. Horton. Congressman, yes, these technologies that use
    blockchain called DePIN, or Decentralized Physical
    Infrastructure Networks, are particularly good at bringing
    technology to more rural communities.
        Our first customer in the agricultural space, Deep Sand,
    was stymied by the fact that there was no precise positioning
    network in his southwest corner of Oklahoma that he could
    access, and that is what got him started in looking into us. It
    wasn't interest in crypto or Web3, or anything, it was a
    practical need to be able to build infrastructure and provide
    infrastructure to his customers, which are farmers.
        Mr. Figures. All right, thank you. And I know from a
    securities standpoint, from a cybersecurity standpoint, like
    one of the attractive elements to blockchain technology that
    some people are familiar with are the benefits in being able to
    secure it.
        Can you talk a little bit about the steps that you guys
    take, and how you guys prioritize that cybersecurity to make
    sure that we can deploy this technology in rural areas, these
    are rural farmers, that even if they can take advantage of the
    technology, if something goes wrong, if somebody is attempting
    to manipulate anything, talk about how you guys prioritize
    securing this technology, and how we make sure that farmers in
    Eufaula, Alabama, can feel secure in the investment that they
    are making in these sorts of technologies.
        Mr. Horton. In our case, Congressman, the hardware itself
    has a cryptographic chip in there that is certified by the
    foundation, and that is what allows us to support a
    decentralized deployment of these stations, is that there is
    actually a device in there that is programmed to sign the data,
    and ensure that data is authentic and originated from a real
    GEODNET station. We also leverage the infrastructure and space.
    The different satellite constellations have different data that
    comes down, and our devices get to see--because we have a
    global footprint, we see that data first, and we can use that
    as kind of a code to make sure that people aren't faking the
    data.
        Mr. Figures. All right, and the last thing I will just add,
    just more so of a statement, is you guys are great at breaking
    this down, and as we say in Alabama, putting the hay down where
    the goats can get it. And I think that is necessary in general
    from a messaging standpoint for more Americans to feel
    comfortable in this technology, is hearing these real-world,
    practical explanations at a very base level understanding. So I
    appreciate what you guys are doing, and thank you.
        I yield back.
        Mr. Davis. The gentleman's time has expired.
        At this time we recognize the gentleman, Tracey Mann, from
    Kansas.
        Mr. Mann. All right, thank you. And thank you both for
    hosting this hearing. Thank you all for being here.
        This Committee and Congress, frankly, has really grasped
    with, what does it look like to regulate the cryptocurrencies,
    and there's differing degrees of opinion on that, but I feel
    very strongly, and this panel really exemplifies the fact that
    we have to make sure whatever we do there doesn't hinder new
    technologies from being built on the blockchain. And I think
    just shining a light on what you all are doing is remarkable
    the technologies that you are building, and how it really helps
    our ag producers every day, is amazing.
        I represent the First District of Kansas, which is the
    western \2/3\ of the state. For the most part, we have seen
    production in my district, and around most of the country,
    dramatically increase regularly and pretty constantly over the
    last 150 years. We are now in this season, as we all know,
    where, specifically for our commodity producers, we have very
    input costs and relatively low commodity prices, which has--
    puts a big squeeze on our--some of our best ag producers are
    eating into working capital, and it is a very dire situation on
    the family farm. But appreciate you all being there. I
    appreciate the new technologies that are helping address these
    concerns.
        My first question for you would be for Mr. Horton. As I
    mentioned, it is becoming evermore expensive to farm, margins
    continue to shrink, and I--that a little bit, but how does your
    technology or your service help farmers achieve the benefits in
    a way that can help both small, medium, and large producers
    become more efficient?
        Mr. Horton. Good question, Congressman. Yes, as one of our
    customers always tells me in the ag business, farming is hard
    enough. And the way precise positioning helps farmers is that
    when you farm a field, if you drive the tractor manually you
    will have anywhere from 10 to 20 percent of overlap; like you
    basically drive over the same area multiple times. By having
    centimeter-accurate GPS, you are able to let the machine steer
    itself, and it avoids that overlap. And that translates
    directly into reduced input costs such as fuel and chemicals
    when you are spraying, and that really drops to the bottom
    line.
        Now, traditionally, centralized solutions to this problem
    have either lacked coverage in certain areas, or they have been
    pretty darn expensive. And that has provided a hard time for
    smaller operators to get an ROI with the technology. Through
    this kind of community-based approach that is how this
    blockchain-based GEODNET network works, we have been able to
    bring that cost substantially down and introduced the precision
    agriculture technology to a lot of new farmers.
        Mr. Mann. Tremendous. And then how does that work? So does
    their combine or tractor or sprayer have to be equipped with
    certain, obviously, software and hardware to be able to utilize
    the technology?
        Mr. Horton. Yes, sir. So there are two solutions. One
    solution is to use the technology that is already on the
    equipment, and most modern equipment--or I would say--should
    say all modern equipment being built today by folks like John
    Deere, Case, and AGCO does come equipped ready to connect to a
    network like GEODNET. And then there are solutions for
    retrofitting machines. So you can put on a retrofit kit that
    will actually sort of put a motor on the steering wheel, which
    will let it to automatically steer. And those are also
    extremely popular, and lets you utilize older assets and bring
    value out of them.
        Mr. Mann. Great. Well, thank you for having this hearing.
    As an aside, I will never forget, 20 years ago I was in the
    real estate business, when I called my dad and he--I knew he
    was planting, right, and I said, ``Hey, Dad, what are you
    doing?'', and he said, ``Well, I am sitting on the side of the
    field.'' And I said, ``Why is that?'' And he said, ``Well, my
    satellite is down.''
        Mr. Horton. Yes, sir.
        Mr. Mann. And I remember that moment knowing things are
    never going to be same because he no longer spent the $30,000
    to put markers on the side of the planter, because you don't
    need them, but if your satellite--if the technology doesn't
    work, you are entirely shut down. But I commend you, and all of
    you all, for what you are doing and how it is helping producers
    in the field.
        And thanks for having this hearing. I will yield back.
        Mr. Davis. The gentleman yields back.
        At this time we will recognize our, actual, Vice Ranking
    Member, and that is Mr. Vindman from Virginia.
        Mr. Vindman. Thank you, Mr. Chairman. Thank you, Ranking
    Members--thank you, Ranking Member. I am proud and honored to
    serve as the Vice Ranking Member for the Subcommittee on
    Commodity Markets, Digital Assets, and Rural Development. And I
    have had a career that involved emerging technology and policy
    at the highest levels. My work at the White House National
    Security Council illustrated to me how important it is to get
    the balance right on emerging technology. And so, for instance,
    when we are looking to balance protecting consumers versus not
    stifling technology, it is obviously very critical for emerging
    technology to get that balance right.
        Dr. Brummer, can you please share your perspective on
    FIT21, which passed from the Committee last year, what it did
    well, and the areas where it could be improved?
        Dr. Brummer. Absolutely, Congressman. It is a big question.
    I think that FIT21 did a number of things that were excellent,
    particularly given the context in which the bill was put
    together. I mean it does something that you have heard from all
    of us here today, that it helps to define clear roles for the
    CFTC and the SEC, it helps to modernize your digital asset
    trading platforms, it starts to put us on the journey of
    registration requirements for digital commodity exchanges. I
    think those are real accomplishments, and they cannot be
    overlooked.
        I think that when you create rules, particularly for
    emerging technologies, a couple of things you want to probably
    keep in mind. FIT21 was probably written where it had certain
    kinds of node and validation architectures in mind that were
    more 2020, and I think however you decide to sort of think
    through your regulatory perimeter, it has to be sort of future-
    proofed and flexible enough to engage with however technology
    ends up evolving.
        I think the--there are certain kinds of things you
    certainly always want to see. You want to ask yourself about
    the segregation of customer assets, you want to ask yourself
    and ensure that in bankruptcy there is some kind of defined
    status for customer funds with exchanges. But really, I am here
    to talk about, obviously, disclosure. I think from the
    disclosure standpoint, there was a lot of good work done to
    kind of identify for the SEC certain kinds of disclosures that
    you would need. I think the SEC is going to have its job in
    perhaps even elaborating on that list, bringing in things like
    tokenomics, which I think is really important if you are going
    to be an investor. Was actually quite delighted to see my
    friend, Brian Quintenz, over at the CFTC, and I know he will
    have his own hands full. I think the disclosure issues and what
    needs to be disclosed, even in--with decentralized assets, is
    an interesting question, but it is not something that the CFTC
    has not tackled before. I mean it kind of inheres to the nature
    of commodities. So I think I would like to see a little bit
    more about that.
        Mr. Vindman. Okay, thank you.
        And then I have a question for you, Mr. Horton. I think
    about things as a retired 25 year veteran of the Army in a
    national security context. And you talked about GPS in your
    testimony. Can you elaborate on some of the potential national
    security benefits to blockchain technology?
        Mr. Horton. Yes, sir. I think having a decentralized
    network of these nodes provides a very good way to detect
    things like jamming and spoofing, and localize those things.
    The GPS signal that comes to us from 12,000 miles away from
    space is very weak when it gets here to the planet. And so
    having these nodes out there that are very sensitive receivers,
    that is able to help us identify those types of things. We are
    also working with some of the new low-orbit satellites that are
    being launched, to provide ground infrastructure for those, and
    doing that in a decentralized way, will provide over time
    additional benefits to the sort of reliability and resilience
    of our positioning networks.
        Mr. Vindman. Thank you. I would like to ask the same thing
    from everybody, but I will wait until next time. Thank you.
        Mr. Davis. Time has expired.
        At this time we are recognizing our Subcommittee Chair, Mr.
    Johnson from South Dakota.
        The Chairman [presiding.] Thank you, Mr. Ranking Member.
        I am struck by how thoughtful all of the testimony is, and
    how much agreement there is. And to just kind of underline
    that, I am going to ask three yes-or-no questions. I am not
    attempting to trap anybody. If--after we are done with my three
    yes-or-no questions, if you want to clarify your answer, I will
    give you time, I promise. All right, and so I am just going to
    ask each question and just roll down from you, Mr. Hughes, down
    to Mr. Garrison, and we will just see if we have any agreement
    on these things.
        So first off, over the next few years, gentlemen, will
    blockchain technology enable fantastic new capabilities in
    hundreds of industries?
        Mr. Hughes. Yes.
        Mr. Tague. Yes.
        Mr. Horton. Yes.
        Dr. Brummer. Yes.
        Mr. Garrison. Yes.
        The Chairman. Would it be good for our country if we are
    the home for that innovation?
        Mr. Hughes. Yes.
        Mr. Tague. Yes.
        Mr. Horton. Yes.
        Dr. Brummer. Yes.
        Mr. Garrison. Yes.
        The Chairman. Is a lack of a clear regulatory regime around
    digital assets and blockchain, does that risk reducing
    innovation and investment in this country?
        Mr. Hughes. Yes.
        Mr. Tague. Yes.
        Mr. Horton. Yes.
        Dr. Brummer. Yes.
        Mr. Garrison. Yes.
        The Chairman. Oh, you guys are so good. Some of my
    colleagues on both sides of the aisle will sometimes wonder if
    any of this is real, and I get it. When we imagine going to pay
    for bubblegum with Bitcoin at the point of sale, that maybe
    doesn't seem like a huge step up from the way we can pay with
    our phones today. But what you gentlemen have been talking
    about today is real life. This is about marketing capital. This
    is about precision agriculture. This is, in fact, real. And
    what we know is that if we don't get a regulatory structure in
    place, that our country risks falling behind.
        And so, Mr. Tague, you talked about this transparency and
    some of this power that comes on the cattle side, but we could
    get some of that from other solutions. Couldn't there be some
    centralized solutions, like an eBay or an Amazon that would
    give some of this transparency? Why blockchain?
        Mr. Tague. So we specifically chose blockchain versus a
    central eBay, PayPal type of model because even then, you are
    still having to trust a central authority or a central person
    to trust that data, and there is potential for bias there.
    Blockchain is a distributed letter, there--ledger, there is no
    bias. So we specifically chose that for the trust factor over
    creating just a central eBay, PayPal type.
        The Chairman. And that is--those capabilities, number one,
    they are exquisite today, but also it is hard to imagine what
    innovators like you and others will be able to do over the
    course of the next few years. Is that right?
        Mr. Tague. Oh, that is correct. The technology just is ever
    expanding, and as I have--was having discussions with other
    panel members, you can literally go into the ether, no pun
    intended, when you are talking about blockchain technology and
    what it can do.
        The Chairman. So, Mr. Horton, you explained in your
    testimony GEODNET has its own token, but it doesn't have its
    own blockchain. So help us understand, what is the GEODNET
    protocol, what is GEOD, how does that interact with Solana,
    give us some sense to how they fit together.
        Mr. Horton. Yes, so you can think about the layer one
    blockchain as kind of this distributed operating system that
    projects like GEODNET build on top of. And GEODNET is an
    application that really connects providers of this RTK data to
    users of this RTK data, and the token is able to help those
    buyers and sellers transact and record that data in a
    consistent, transparent way. That also provides an ability for
    you to reward the stations that are providing good coverage and
    good performant data, and incentivize that coverage to grow.
        The Chairman. Yes. Very well said. With that I would yield
    back, and recognize a gentlewoman whose efforts in the last
    Congress strengthened the final FIT21 product, the Ranking
    Member of the full Committee, Ms. Craig.
        Ms. Craig. Thank you so much, Mr. Chairman.
        This question is to Dr. Brummer. We all know that one of
    the key components to customer protection is disclosure, but
    historically, while acknowledging the need for disclosure
    regulations for customers, many in the financial sector
    complain continuously about the cost of current and new
    customer disclosure requirements.
        From your testimony, it sounds like blockchain can offer a
    solution that could help the financial sector meet many of its
    current or potentially new customer disclosure obligations at
    much, much lower cost. Do I have that right, number one,
    because if we can enhance customer disclosures at an affordable
    price, that enhances customer protection too. Am I correct?
        Dr. Brummer. Absolutely. One of the--and this is building
    on another sort of statement that we have all heard,
    blockchains are pretty neat. They allow data to be composable,
    programmable, it is transparent, and that programmability
    enables all kinds of functionality. And there are certain kinds
    of questions, I deal with central banks and regulators, and L1s
    and L2s all around the world. And when we look at different
    regulatory regimes, there is a neat aspect and functionality in
    blockchains that can enable disclosure solutions at a much
    lower cost, faster execution, and really can, frankly, even
    give lawyers a run for their money in terms of the compliance
    services that you can now put on-chain.
        Ms. Craig. Thank you so much.
        I actually have a question for the whole panel, and please
    keep your answers a little short here. Are any of you familiar
    with the approach that foreign governments have taken with
    regulating this technology, and if so, any lessons learned, dos
    or don'ts, that we can take away from their examples?
        Mr. Hughes. I think--yes, I am familiar. I think a lesson
    that they have--that can be taken away is focus on centralized
    intermediaries first, because that is where the majority of the
    economic mass is currently. They have not had--and the second
    lesson is they have not had a heavy hand on regulating the
    technology itself, because that allows innovation and the real-
    world applications, which I think you see as examples at this
    table.
        Mr. Tague. I--that is definitely not my area of expertise,
    but I do think that, as I stated in my testimony that, that our
    regulation, time is of the essence, because I do believe that
    there are other jurisdictions way ahead of us.
        Ms. Craig. Thank you.
        Mr. Horton. Yes. I am not a lawyer, I am an engineer, but
    the same basic answer as Mark. We found that other
    jurisdictions have clear guidelines for what is a digital
    commodity, what is a utility token, and that is helpful, and
    that is why you find the vast, vast majority of projects that
    do have a token have their foundation based offshore.
        Ms. Craig. Thank you. I am not a lawyer either.
        Dr. Brummer. Unfortunately, I am. I deal with lots of
    international folks as well. I think that where most regulators
    sort of get caught up from time to time is that we are taking
    terms of art and we are trying to translate them into a legal
    regime. And I think one of the interesting tasks that all of
    you will have is coming up with something that is elastic
    enough for the future, but concrete enough for people to work
    with and to build on top of. And sometimes internationally,
    regulators and policymakers kind of stumble a little bit on
    that.
        Ms. Craig. Thank you.
        Mr. Garrison. And one last quick observation is, those
    regulators of jurisdictions that have allowed for
    experimentation through some type of sandbox I think have shown
    a great ability to allow industry to try new things, while also
    preserving consumer customer protections.
        Ms. Craig. Thank you, Mr. Garrison. That is fantastic. That
    is a lot of info. in a very short amount of time.
        So with that, Mr. Chairman, I yield back.
        The Chairman. Mr. Nunn, you are recognized.
        Mr. Nunn. Well, thank you, Mr. Chairman. And I would like
    to align myself with a lot of what Representative Craig just
    highlighted here.
        Look, I am from Iowa. We know the CFTC, we know corn and
    pork bellies are commodities, and we know that my bankers on
    Main Street, Des Moines, have stocks and bonds, and those are
    securities. It is a pretty straightforward gig. But serving on
    both Agriculture and Financial Services, we recognize that when
    we enter the digital asset space, it is a lot more confusing,
    not only for the innovator, but certainly for the end-user. As
    we look forward in this, I guess I am challenged by the
    regulatory uncertainty that seems to have occupied this space.
    We will take Ethereum, for example. Look, first, Mr. Chairman,
    it was treated in 2018 as a security, and the SEC officials
    said that it was not. And certainly, as securities have
    changed, then the CFTC then agreed. But then we went to the
    Biden Administration, and under the Biden Administration the
    SEC labeled it as a security, and the CFTC called it a
    commodity. Now we have a conflict. Going forward, I have asked
    both the former chair of the SEC and the CFTC right here in
    this room, the Chairman will recall, to help provide some
    clarity for this issue. And guess what, we walked away more
    confused than where we began. That is not good for American
    investment, that is not great for American innovation, and most
    importantly, this allows our competitors in this space to be
    highly successful when they have some framework and the United
    States is looking at over-regulating something that it clearly
    can't even figure out on its own.
        So with that, Mr. Hughes, you have worked not only in the
    digital asset space, you are a software guy, do you think
    candidly this type of whiplash is hurting American innovators?
        Mr. Hughes. It absolutely is. Our products are used by
    software developers, and over the last several years really the
    work has migrated overseas. I think you are starting to see
    that change now. But when we are talking about a chilling
    element, we are not only talking about apps like MetaMask and
    other apps, you are talking about the chains themselves. Being
    an open-source software computer networking .deb one day, going
    about building a new world computer, and then all of a sudden
    you are served with an SEC subpoena out of the blue, that
    doesn't make for a conducive working environment trying to
    evolve the next era of innovation.
        These people want to work in the United States.
        Mr. Nunn. Right.
        Mr. Hughes. They want to work with U.S. companies, they
    want to found U.S. companies, they want to--their--this is
    where the talent is, this is where the capital is. If we just
    get a coherent regulatory structure that people can actually
    comply with, rather than it being impossible to comply with, we
    are going to see a lot of doors open, and that is going to be a
    very good thing for this industry, but the country as well.
        Mr. Nunn. So I can think of no better way to spend an
    afternoon than having a government official call you in, we are
    from the government, we are here to help you, but I have heard
    real horror stories from folks who have gone in to try and be
    helpful from the private-sector, only to be lambasted by the
    SEC, and then to be fined for the very information they shared
    with the SEC trying to get clarity, to the tune of lawsuits and
    millions of dollars being spent in this.
        Briefly, can you share your thoughts on, between the SEC
    and the CFTC, did anybody offer a roadmap here that we should
    start replicating and given to law here in Congress?
        Mr. Hughes. I--well, unfortunately, no. We were very much
    encouraging both agencies to engage with Congress to come up
    with a coherent regulatory regime. I think the CFTC did a much
    more admirable job with that.
        Mr. Nunn. I would agree with you on that.
        Mr. Hughes. But what we are seeing now is full engagement.
    I think what the SEC is doing now is--should be applauded. I
    think their taskforce is the right way to go about doing it.
    There is a kind of a cart-and-a-horse problem, because we need
    a new legislative regime, and then the SEC has to fill in the
    gaps, as well as the CFTC. But they are doing a great job
    trying to narrow the gap, but really, they are putting a ball
    upon a tee for Congress to kick the field goal, and that is
    what we need to happen.
        Mr. Nunn. My time has expired. I yield back to the chair,
    only to say that made in America starts with keeping our
    innovators right here in the country to begin with. Thank you,
    Mr. Chairman.
        The Chairman. Although she is a freshman, she is certainly
    no stranger to this chamber and how it runs. With that, we
    would recognize the gentlewoman from Maryland, Mrs. McClain
    Delaney.
        Mrs. McClain Delaney. Thank you. And thank you to our
    Chairman and Ranking Member for organizing this and, of course,
    to our incredible panelists.
        I do want to lift up--I believe we need a much-needed
    bipartisan regulatory framework for clarity, to ensure that
    there is transparency, trust, prevention, fraud manipulation,
    and the promotion of innovation and U.S. competitiveness. Very
    key. And I would like to, for the interest of time, for--direct
    questions to Dr. Brummer and Mr. Garrison. And I am a Hoya
    lawyer as well. So, Go Georgetown. But I am also an Idaho
    potato farmer's daughter, and represent the Sixth District of
    western Maryland, and so I am going to be talking about
    applying blockchain technology to agricultural supply chains,
    and in particular some of our dairy farmers.
        A secure food supply chain plays an essential role, as we
    know, in ensuring customer trust and protecting health, and
    blockchain technology is definitely a solution to these
    challenges. But the untraceability and--of solutions, our
    farmers and ranchers and businesses want verifiable
    information, and this technology could really be at the core of
    the next revolution.
        Mr. Tague, your testimony had highlighted the potential
    benefits in recordkeeping and traceability, but Maryland
    farmers have really started to have an interest in blockchain
    technology for traceability. Can you tell me how, like, my
    farmers there and across the country, we can really adopt but
    also build trust in this technology to modernize their
    operations and improve efficiency, and is there any other
    challenges you haven't mentioned which exist to get this
    technology widely deployed?
        Mr. Tague. Excellent question. So, generally, in the ag
    space we are generally price takers, we are not price makers,
    and verifiable data is something that can help us receive a
    premium for our product. For example, cattle are a great
    example. If you put cattle on a commodity market you can't tell
    one from the other, but if you have verifiable data you can
    tell that story of that individual through that, and then get
    paid a premium through that. Obviously, through USDA process
    verified programs, they have great premiums that they can offer
    through those.
        Even in the farming community, for example, also if you can
    verify that a specific crop came from a specific region, and
    you have that verifiable data that shows that you have a
    premium product versus another one, that is a great way for
    farmers and ranchers to receive premiums for products.
        A lot of the challenges that we have that I would say,
    specifically in the ag spaces, blockchain technology and
    crypto, especially to ag producers, can be a little bit scary.
    We have a lot of education to do. That is what--as I mentioned
    in my opening testimony that I really feel like we want to be
    in the background, we don't want to be up at the front, we want
    to be helping these markets operate more efficiently so we can
    help those price takers get a premium versus being in a
    commodity.
        Mrs. McClain Delaney. Sounds good.
        And then this is to all--any of you who want to quickly
    talk about this. I spent--many rural areas don't have the
    required infrastructure, as we discussed, and most of my life--
    much of my life I spent working to bridge the digital divide,
    particularly in rural America. To any of the witnesses, as we
    roll out rural broadband, are there platforms designed for
    farmers to use in low bandwidth environments, or do any of your
    platforms offer offline capabilities, for like the 20 percent
    of farmers in my district that lack high-speed broadband?
        Mr. Tague. We do offer offline capabilities that will catch
    the data and re-upload as you get access.
        Mr. Horton. Our network does rely on having good internet
    connectivity, but I think that these decentralized protocols
    called DePIN networks, these Decentralized Physical
    Infrastructure Networks, really offer an attractive way to
    extend coverage out to rural areas very cost effectively.
        Mrs. McClain Delaney. Thank you.
        I yield back.
        The Chairman. Mr. Jackson, you are recognized. And again, a
    Member who spent a lot of time on the bill last year, and made
    it better with his efforts, you are recognized.
        Mr. Jackson. Thank you, Chairman Johnson. Thank you,
    Ranking Member Davis.
        To Dr. Brummer, a question for you on key elements that you
    would like to see that should be required in this legislation
    regarding digital assets, and what protections would you
    recommend, how best can we help the industry?
        Dr. Brummer. I said this earlier, I think that FIT21 was
    pretty remarkable in terms of how much ground it was able to
    cover. When I look at it from a 10,000 level, there are core
    kinds of protections if you want to mainstream the technology
    and if you want to think about segregating customer assets, I
    think that is an important thing to think about. You want to
    create a mode of regulatory clarity, identifying both the SEC
    and CFTC oversight that is workable and doable, both in theory
    and in practice, and engaging with both the academics, but also
    the industry folks on that, I am sure you have been very
    engaged in.
        From the disclosure standpoint, I would suggest that when
    it comes to the commodities and digital commodities that you
    recognize really the longstanding tradition that the CFTC has
    of creating disclosures in its own way. I think a lot of people
    have said that the CFTC has no experience when it comes to
    disclosures and creating information. Actually, it actually has
    a very longstanding history of being able to do so. It just
    does it in a way that is different from the SEC. And to think
    through, well, what does that look like for the digital
    commodity space, I think is something that either legislatively
    or through the rulemaking process is something that eventually
    people are going to have to grapple with.
        Mr. Jackson. Thank you so much.
        And the second question would be open to anyone on the
    panel regarding the digital ledger platform. Do you see an
    advantage or disadvantage in a public versus a private? Which
    do you prefer?
        Mr. Hughes. I think that time has started to demonstrate
    that open permission-less ledgers are--the economics around
    them are a lot more attractive than private ledgers, and that
    is simply because a private ledger you have to--instead of just
    running a single server, you have to run lots of servers. Wall
    Street has examined private blockchains as a platform to
    improve their own internal services, but also to offer new
    offerings to customers.
        Those efforts have largely wound down. If you are on an
    open permission-less ledger, like Ethereum, what you are
    basically doing is you are plugging into a system which already
    works, so your infrastructure costs are very low, and the
    security and the open architecture is really advantageous for
    you. So I think open permission-less ledgers are things that we
    should be supporting in any future legislation.
        Mr. Jackson. All right, thank you very much.
        And I would like to thank Chairman Thompson for coming back
    to hear my questions. I yield back my time, Mr. Johnson, Mr.
    Davis.
        Mr. Thompson. Thank you, Jonathan.
        The Chairman. With that, the legend of Howard,
    Pennsylvania, Mr. Thompson, you are recognized.
        Mr. Thompson. Yes. Well, my apologies for--I feel like I am
    speed dating this afternoon. A Chairman's work never ends. So--
    but I am so grateful to all the witnesses that are here, and to
    our leadership that we have with the Subcommittee. This is a
    very exciting time. We don't really know everything that is--
    what is over the horizon here, but you have shared some insight
    into that.
        So I will be quick with my 4 minutes, which I am blowing
    through already. Mr. Tague, you are a fourth-generation
    cattleman, and we want to make sure the next four generations
    of your family can carry on the tremendous legacy of your
    ranch. But those in the sector are constantly met with new
    challenges. You said: ``American agriculture is being held back
    by fragmented systems, paper trails, and a lack of
    transparency.'' How do you see blockchain and digital asset
    tools being part of the solution to this problem, and ensuring
    that we see the next four generations of American farmers,
    ranchers, and producers, and do you see these tools encouraging
    younger generations to get into that sector to continue the
    hard work that you and so many others do?
        Mr. Tague. Thank you for the question, Chairman Thompson.
    And, I absolutely believe that solutions like ours are key to
    attracting younger folks into the industry. As most of you
    know, the--kids--there is an app for that, right? They expect
    that in today's world. And if you think about it from, for
    example, I have or my nephews, if they develop a specific type
    of grass-fed beef cattle that can top the market, and they need
    to be able to transfer that data to the public to create that
    trust and transparency to get that premium, we offer that
    solution to do that.
        In today's market, as I had mentioned earlier, we haven't
    changed in 150 years. We have been doing it the same way for a
    long, long time. And it has just become inefficient, and it
    really breaks down trust because when you have a paper trail,
    or if you are relying on paper versus an immutable ledger,
    papers get lost, for example. Right? We have that nightmare
    tale of losing your cabin records in the washing machine
    because you forgot to take your cabin book out. Right?
        So yes, no, I believe it is absolutely essential for--to
    continue.
        Mr. Thompson. Very good. Well, thank you.
        Mr. Horton, not only is GEODNET a solution to farmers and
    others who rely on precision mapping data, but blockchain was
    the solution to creating GEODNET. You said ``It would have cost
    billions of dollars to place antennae around the country.''
    Would this project for precision mapping be possible without
    blockchain technology? And please speak to blockchain's unique
    ability to be part of the solution to this problem.
        Mr. Horton. Yes. I think there is very strong evidence that
    it is not possible, and that the--people have been trying to
    build this kind of network for 20 years, and both centralized
    companies as well as governments have spent a lot of money
    trying to put up stations and create a network, and it just
    hasn't happened. And GEODNET in 2 years has been able to build
    the world's largest network by--in terms of stations by more
    than a factor of 2. And I think at the root of that is the
    underlying blockchain, and the incentive that you can provide
    by having a token.
        We presented the idea first at the Institute of
    Navigation's GNSS+ conference. And it is a very conservative
    community. We thought the idea of introducing using blockchain
    to solve this problem of the reference station network would be
    controversial, we didn't know if people would like it, and in
    turn it won the best presentation award, and immediately
    attracted folks from the industry to help us participate and
    create this network.
        Mr. Thompson. Well, very good. I thank all of you. We thank
    you for telling that story, for all of you sharing the story
    about exciting prospects for the future.
        And with that, Mr. Chairman, my time has expired.
        Mr. Davis [presiding.] All right, thank you so much, Mr.
    Chairman. We appreciate it.
        The capability of blockchain technology feels limitless,
    not only in the crypto-related world, but across all
    industries, as we have been hearing so much of today.
        North Carolina's First Congressional District is extremely
    rural; 22 counties. Matter of fact, I was informed that every
    single county by our state's definition, all 22 are defined as
    rural. As we have heard time and time again in different
    hearings held by the Agriculture Committee, rural communities
    sometimes can feel left out of the process, not quite fully
    understand how they integrate. I hear back home all the time,
    especially when we are talking to farmers, small-town mayors,
    people back home that are just trying to make it.
        So my question, and I am going to try and go at this a
    different way, from Dr. Brunner--Brummer, is, if you can make
    that pitch, we are back in rural North Carolina, rural America,
    what would be the pitch for why blockchain, various
    applications?
        Dr. Brummer. It makes dealing with the government and
    others a lot easier. We have already heard about paper and how
    paper can--isn't always the best technology, especially if you
    are in rural areas. I grew up in an area, and I tell my friends
    here, it is like I actually had to hop down a dirt road to get
    to my mailbox, and then people then ask me what is a mailbox
    here in D.C. sometimes.
        And I understand that challenge. But one of the things--we
    already talked about compliance with the rules, but I have
    always thought about how can you make communication
    understandable, no matter who you are. Disclosure is not just
    for--in a legal sense, but in terms of businesses and
    communications. I think it helps with adoptability,
    adaptability, for people to use the technology.
        You are talking about farmers who are themselves becoming
    proactive participants in transparency, and making that
    information available to people who buy their products. What we
    do at Bluprynt is we just take that data, and then we put legal
    wrappers around it and we automate it so they don't have to
    think about it. But ultimately, you are talking--and you would
    go to those towns and those mayors and say how can we make sure
    that we connect you better to the overall digital economy. And
    the way in which we can do this is in a way where you don't
    have to necessarily even know that you are operating on
    something called a blockchain, but we are going to show you and
    give you certain kinds of tools so that you don't have to pay
    as much, and that you can move and do things a lot faster and
    at scale.
        Mr. Davis. Mr. Tague, I heard you talking earlier, I mean
    we are talking about the farmers, agriculture, and I get the
    question--I hear people ask me all the time what are they doing
    up there. So my question is, you can continue along this
    thought line--this line of questions, but you mentioned earlier
    education. What do you believe is the best strategy and
    approach that we can take to educate Members of Congress,
    educate the constituency, broadly speaking, because, guess
    what, Members are often driven by the constituents. I would
    love to hear.
        Mr. Tague. Yes, sir. Excellent question. Education is going
    to be key in this issue because, well, one of the great things
    about the technology is if we can speed up payments and reduce
    cost, right, that is a game changer for a lot of folks in rural
    areas. Right? But, being able to break down the technology or
    break down the concepts to the simplest levels we can possibly
    make them. For example, our solution where you take a cow, and
    you put a tag in its ear and you identify that cow, and that
    cow--as it travels through the chain you can follow it through
    its lifecycle. People understand that. That is a very easy way
    to give you the concept of a blockchain of why that--you can
    trust that data, because it is an immutable--it is a digital
    notary, essentially, is what it is.
        So I believe that breaking it down to the simplest concepts
    we can possibly can is going to be key to educating most folks.
        Mr. Davis. Thank you to all the witnesses.
        And, Mr. Chair, we yield back.
        The Chairman [presiding.] Mr. Davis, what an experience in
    a town and a time so often fascinated by food fights, there
    were no insults today, no indictments, no political speeches.
    Instead, it was just good, thoughtful people examining an issue
    of critical importance. People asking questions to learn,
    rather than to demonize. And I just--what a great opportunity.
    The panelists were excellent. I think our Members were
    excellent. We are filling out this record as we work together
    to build an even better market structures bill that is going to
    become the law of the land.
        And with that, sir, if you have any closing remarks, we are
    happy to hear them.
        Mr. Davis. Mr. Chairman, those are great words to end on.
        The Chairman. Under the rules of--by the way, thank you for
    the UC. There were three Members who got to ask questions
    because of our flexibility, that wouldn't have otherwise gotten
    to ask them before votes, which have been called. So again, a
    good opportunity working together.
        Under the Rules of the Committee, the record of today's
    hearing will remain open for 10 calendar days to receive
    additional material and supplementary written responses from
    the witnesses to any questions posed by the Member.
        And with that, this hearing is adjourned.
        [Whereupon, at 3:38 p.m., the Subcommittee was adjourned.]

              AMERICAN INNOVATION AND THE FUTURE OF DIGITAL ASSETS

                   (FROM BLUEPRINT TO A FUNCTIONAL FRAMEWORK)

                                  ----------

                            WEDNESDAY, JUNE 4, 2025

                      House of Representatives,
                                      Committee on Agriculture,
                                                       Washington, D.C.
        The Committee met, pursuant to call, at 10:00 a.m., in Room
    1300, Longworth House Office Building, Hon. Glenn Thompson
    [Chairman of the Committee] presiding.
        Members present: Representatives Thompson, Lucas, Austin
    Scott of Georgia, Crawford, LaMalfa, Rouzer, Kelly, Bacon,
    Bost, Johnson, Baird, Mann, Feenstra, Miller of Illinois,
    Moore, Cammack, Finstad, Rose, Jackson of Texas, De La Cruz,
    Nunn, Van Orden, Newhouse, Wied, Bresnahan, Messmer, Harris,
    Taylor, Craig, David Scott of Georgia, Costa, McGovern, Adams,
    Brown, Davids of Kansas, Salinas, Davis of North Carolina,
    Tokuda, Budzinski, Sorensen, Vasquez, Jackson of Illinois,
    Thanedar, McDonald Rivet, Figures, Vindman, Riley, Mannion,
    McClain Delaney, and Carbajal.
        Staff present: Paul Balzano, Josh Beale, John Busovsky,
    Austin DeBerry, Wick Dudley, Luke Franklin, Sofia Jones, Kyle
    Upton, John Konya, Suzie Cavalier, Kate Fink, Joshua Lobert,
    Clark Ogilvie, Emily Pliscott, and Jackson Blodgett.

     OPENING STATEMENT OF HON. GLENN THOMPSON, A REPRESENTATIVE IN
                       CONGRESS FROM PENNSYLVANIA

        The Chairman. The Committee will come to order.
        We welcome and thank you for joining today's hearing
    entitled, American Innovation and the Future of Digital Assets:
    From Blueprint to a Functional Framework. After brief opening
    remarks, Members will receive testimony from our witnesses
    today, and then the hearing will be open to questions. I will
    proceed with my opening statement.
        Good morning, everyone, and welcome again to our full
    Committee hearing on the future of digital assets. Thank you to
    our esteemed panel of witnesses for making the time to be with
    us here today. This is an important and rare opportunity to
    discuss this Committee's work to create lasting change and
    cement America as the global leader in innovation.
        For almost a decade, Congress has debated the treatment of
    digital assets through hearings, bills, and meetings. The House
    Committee on Agriculture has played a critical role in this
    work. Since our first hearing in 2018, our guiding principles
    have not changed: foster American innovation and bring needed
    customer protections to digital asset-related activities and
    intermediaries, but we are not working alone. I want to thank
    Financial Services Chairman Hill for his leadership and the
    entire Financial Services Committee for their work with our
    Committee. We have engaged in a remarkable partnership to
    examine these issues and propose solutions on a cross-committee
    bipartisan basis.
        Chairman Dusty Johnson has been a tremendous leader in this
    effort, and I want to thank him for everything he has done. In
    April, Chairman Johnson and Ranking Member Davis held a hearing
    that examined the promise digital assets hold for everyday
    Americans, but they also learned that the promise of digital
    assets depends on getting the right market structure
    legislation across the finish line. Last month, Chairman
    Johnson and Subcommittee Chairman Bryan Steil of Financial
    Services held a joint roundtable to examine digital assets with
    both of our committees working together. That roundtable made
    it clear that current Federal laws and regulations do not
    provide adequate rules of the road for those who want to engage
    with these emerging technologies. That is why last week, ten
    bipartisan Members of the House Agriculture and Financial
    Services Committees introduced H.R. 3633, Digital Asset Market
    Clarity Act of 2025, or CLARITY Act of 2025. The CLARITY Act of
    2025 is a product of years of vigorous debate, stakeholder
    feedback, and technical assistance.
        I want to thank Chairman Hill for leading our effort and
    Ranking Member Craig and Ranking Member Davis for joining
    Chairman Johnson, me, and other colleagues on both sides of the
    aisle in introducing the CLARITY Act. I am pleased to see the
    Committee's longstanding tradition of leading together in a
    bipartisan manner continue. It is incumbent on us to embrace
    this opportunity and finally bring certainty to the users and
    developers of this technology. The United States is the beating
    heart of global finance and innovation. Let me thank the Trump
    Administration for elevating this issue and recognizing the
    urgency of action in the digital asset space, and the agencies
    who offered technical assistance.
        Years ago, other nations put pen to paper and created and
    enacted frameworks seeking to establish themselves as hubs for
    the development of the digital asset ecosystem. It is time that
    we do our work here in the United States, too, and implement a
    framework for trusted, reliable, and useful markets for digital
    assets. I look forward to the work ahead in getting the CLARITY
    Act signed into law. Again, thanks to each of our witnesses for
    their willingness to participate in today's hearing, and I look
    forward to our discussion.
        [The prepared statement of Mr. Thompson follows:]

    Prepared Statement of Hon. Glenn Thompson, a Representative in Congress
                               from Pennsylvania
        Good morning, and welcome to our full Committee hearing on the
    future of digital assets. Thank you to our esteemed panel of witnesses
    for making the time to be with us today. This is an important and rare
    opportunity to discuss this Committee's work to create lasting change
    and cement America as the global leader in innovation.
        For almost a decade, Congress has debated the treatment of digital
    assets through hearings, bills, and meetings. The House Committee on
    Agriculture has played a critical role in this work.
        Since our first hearing in 2018, our guiding principles have not
    changed: foster American innovation and bring needed customer
    protections to digital asset-related activities and intermediaries. But
    we are not working alone.
        I want to thank Financial Services Chairman Hill for his leadership
    and the entire Financial Services Committee for their work with our
    Committee. We've engaged in a remarkable partnership to examine these
    issues and proposed solutions on a cross-committee, bipartisan basis.
        Chairman Dusty Johnson has been a tremendous leader in this effort.
    I want to thank him for everything he has done. In April, Chairman
    Johnson and Ranking Member Davis held a hearing that examined the
    promise digital assets hold for everyday Americans.
        But they also learned that the promise of digital assets depends on
    getting the right market structure legislation across the finish line.
    Last month, Chairman Johnson and Subcommittee Chairman Brian Steil of
    Financial Services held a joint roundtable to examine digital assets
    with both of our committees working together. That roundtable made it
    clear that current Federal laws and regulations do not provide adequate
    rules of the road for those who want to engage with these emerging
    technologies.
        That is why last week ten bipartisan Members of the House
    Agriculture and Financial Services Committees introduced the Digital
    Asset Market Clarity Act, or CLARITY Act. The CLARITY Act is a product
    of years of vigorous debate, stakeholder feedback, and technical
    assistance.
        I want to thank Chairman Hill for leading our effort and Ranking
    Member Craig, and Ranking Member Davis, for joining Chairman Johnson,
    me, and other colleagues on both sides of the aisle in introducing the
    CLARITY Act. I am pleased to see the Committee's longstanding tradition
    of leading together in a bipartisan manner continue.
        It is incumbent on us to embrace this opportunity and finally bring
    certainty to the users and developers of this technology. The United
    States is the beating heart of global finance and innovation.
        Let me thank the Trump Administration for elevating this issue and
    recognizing the urgency of action in the digital asset space, and the
    agencies who offered technical assistance.
        Years ago, other nations put pen to paper and created and enacted
    frameworks, seeking to establish themselves as hubs for the development
    of the digital asset ecosystem.
        It is time that we do our work here in the United States too, and
    implement a framework for trusted, reliable, and useful markets for
    digital assets.
        I look forward to the work ahead in getting the CLARITY Act signed
    into law. Again, thank you to each of our witnesses for their
    willingness to participate in today's hearing. I look forward to our
    discussion.

        The Chairman. And with that, I would now like to welcome
    the distinguished Ranking Member, the gentlewoman from
    Minnesota, Ms. Craig, for any opening remarks you would like to
    give.

      OPENING STATEMENT OF HON. ANGIE CRAIG, A REPRESENTATIVE IN
                        CONGRESS FROM MINNESOTA

        Ms. Craig. Well, thank you so much, Mr. Chairman. I want to
    first thank the witnesses for coming to Capitol Hill to share
    your perspectives with us here this morning. The CLARITY Act is
    not a perfect bill, and there are improvements that I hope
    still can be made. However, I was pleased to join with the
    Chairman and others on this Committee to put forth the
    legislation because, at the end of the day, we need to bring
    consumer protection and a market structure to digital assets in
    our financial system.
        Digital assets, including cryptocurrencies, are no longer a
    novel financial product. They have become and will continue to
    be integrated with and, in some instances, completely change
    our financial architecture. I believe it is critical that
    Congress establish clear protections for consumers and retail
    investors, as well as rules of the road for businesses dealing
    in digital assets. There are common-sense regulations that the
    industry currently lacks, like requiring the sequestration of
    consumer funds for broker exchanges, ensuring consumer deposits
    are not misused, and that retail investors are not left holding
    the bag when bad actors commit fraud. I hope that these are all
    things that this body can agree on. If Congress does its job
    well with this legislation, we will hear more stories of
    innovation and success, legitimate enterprises will innovate
    and thrive, and consumers will be able to engage with their
    services and products without undue financial risk. This
    technology in these markets is growing rapidly, and Americans
    are engaging at a rapid pace. We have a responsibility to be
    part of the solution and to protect them.
        But I do want to add that we cannot ignore the fact that
    the President of the United States is making this debate a lot
    more difficult. Under current law, Members of Congress, judges
    and their respective staffs, and other Federal employees may
    not use nonpublic information to trade in markets overseen by
    the CFTC or share nonpublic information with others so they can
    trade. This bill rightly adds digital commodities to those
    prohibitions, yet these limits, which apply to us, do not apply
    to the President, and when we have a President hawking meme
    coins and his family, that is a very difficult situation for
    this body.
        Our work here is critical to getting this right for retail
    investors, and I am glad we are here today. I again want to
    thank the Chairman for holding this hearing and for working
    with us over the course of the last week to help improve the
    CLARITY Act. I hope we can build upon this success as the bill
    moves through the legislative process. Thank you again to our
    witnesses, and I yield back.
        [The prepared statement of Ms. Craig follows:]

     Prepared Statement of Hon. Angie Craig, a Representative in Congress
                                 from Minnesota
        I want to thank the witnesses for coming to Capitol Hill to share
    their perspectives with us.
        The CLARITY Act is not a perfect bill. And there are improvements
    that I hope can still be made. However, I was pleased to join with the
    Chairman and others on this Committee to put forth the legislation
    because, at the end of the day, we need to bring consumer protection
    and a market structure to digital assets in our financial system.
        Digital assets, including cryptocurrencies, are no longer a novel
    financial product. They have become and will continue to be integrated
    with and, in some instances, completely change our financial
    architecture. I believe it is critical that Congress establish clear
    protections for consumers and retail investors as well as rules of the
    road for businesses dealing in digital assets.
        There are common sense regulations that the industry currently
    lacks, like requiring the sequestration of consumer funds for broker
    exchanges. Ensuring consumer deposits are not misused, and that retail
    investors are not left holding the bag when bad actors commit fraud. I
    hope these are all things we can agree on.
        If Congress does its job well with this legislation, we will hear
    more stories of innovation and success. Legitimate enterprises will
    innovate and thrive, and consumers will be able to engage with their
    services and products without undue financial risk.
        This technology and these markets are growing rapidly, and
    Americans are engaging at a rapid pace. We have a responsibility to be
    part of the solution and to protect them.
        But I do want to add that we cannot ignore the fact that the
    President of the United States is making this debate more difficult.
        Under current law, Members of Congress, judges, their respective
    staffs and other Federal employees may not use non-public information
    to trade in markets overseen by the CFTC or share non-public
    information with others so they can trade. This bill rightly adds
    digital commodities to those prohibitions.
        Yet, these limits, which apply to us, do not apply to the
    President.
        Our work here is critical to getting this right for retail
    investors. And I'm glad we are here today.
        I want to again thank the Chairman for holding this hearing and for
    working with us to help improve the CLARITY Act. I hope we can build
    upon this success as the bill moves through the legislative process.
        Thank you again to our witnesses, and I yield back.

        The Chairman. I thank the gentlelady. The chair requests
    that other Members submit their opening statements for the
    record so the witnesses may begin their testimony to ensure
    that there is adequate and ample time for questions.
        Our first witness today is Dr. Avery Ching, the CEO and Co-
    Founder of Aptos Labs. Our next witness is the Honorable
    Michael Piwowar, who is currently the Executive Vice President
    of the Milken Institute. He is also a former Commissioner and
    was the acting Chairman of the Securities and Exchange
    Commission. Our third witness today is Ms. Chelsea Pizzola, a
    partner at Willkie Farr & Gallagher LLP, and our fourth and
    final witness today is Mr. Ryne Miller, a partner at Lowenstein
    Sadler LLP. He also chairs the Commodities, Future, and
    Derivatives Group, and is the co-chair of the Lowenstein
    Crypto.
        Thank you all for joining us today, and we now look forward
    to your testimony. You will each have 5 minutes. The timer in
    front of you will count down to zero, at which point your time
    has expired. Dr. Ching, please begin when you are ready.

     STATEMENT OF AVERY CHING, Ph.D., CHIEF EXECUTIVE OFFICER AND
                 CO-FOUNDER, APTOS LABS, PALO ALTO, CA

        Dr. Ching. Chairman Thompson, Ranking Member Craig, Members
    of the Committee, thank you for the opportunity to testify
    today. My name is Avery Ching, and I am the CEO and Co-Founder
    of Aptos Labs, the team behind the Aptos blockchain. I hold a
    Ph.D. in supercomputing, and I have spent my career scaling
    technology at Yahoo, Facebook, and now Aptos. In 2021, I co-
    founded Aptos Labs to advance the next era of the internet,
    starting with a global scale and highly-secure blockchain
    capable of transforming payments, commerce, digital identity,
    and beyond. Aptos Labs was established and is headquartered in
    the U.S. We are proud to contribute to American innovation and
    job creation. Aptos is a high-performance, permission-less,
    proof-of-stake, Layer 1 blockchain designed to support
    internet-scale applications and their billions of users. Like
    the internet, it is open infrastructure that enables anyone to
    build applications on top of it. Unlike centralized systems,
    Aptos is maintained by a distributed network of participants,
    validators, developers and users.
        Digital assets or tokens are essential for these
    decentralized systems to function. They provide incentive,
    security, and governance mechanisms that keep the network
    running. For example, APT is the native token of Aptos and is
    essential to the network's operation and to access the network.
    It plays three key roles. First, the token is used to secure
    the network. In order to record transactions on the blockchain,
    validators are selected based on the amount of APT tokens they
    stake or lock up as collateral. This mechanism uses APT to
    secure the network by preventing attacks from malicious actors.
    The token is also used to programmatically reward validators
    for truthfully recording transactions, commonly known as
    staking. Second, APT holders can propose and vote on protocol
    operates, ensuring decentralized decision-making. Third, APT is
    used to pay transaction fees. These fees, averaging fractions
    of a cent, are required for submitting active activities to the
    blockchain. Even though they are small, these fees serve as a
    protective measure against spam and denial-of-service attacks,
    ensuring the network remains secure and efficient.
        Security, decentralization, and utility are what make
    blockchains like Aptos capable of supporting real-world
    applications at scale. Today these applications are no longer
    theoretical. More than 1,000 developers are building on Aptos,
    and hundreds of live projects are delivering value across
    industries like finance, commerce, entertainment, and
    infrastructure. Some of the world's largest financial
    institutions, including BlackRock, Franklin Templeton, and
    Apollo, have launched regulated tokenized money markets and
    other funds on Aptos. Doing so increases transparency, enables
    real-time peer-to-peer transfers, and boosts operational
    efficiency. The PACT protocol is a blockchain-based platform
    for licensed lenders in emerging markets. The platform allows
    these lenders to originate and service loans on the blockchain,
    offering transparency and efficiency to lenders and borrowers
    alike. Over $1 billion in loans have been issued through PACT,
    helping small businesses access faster capital, enabling them
    to buy equipment, open shops, or invest in clean energy.
        Aptos also powers new forms of engagement in entertainment
    and commerce. Projects use Aptos to issue tokenized tickets,
    cutting out intermediaries, reducing costs, and offering
    collectible digital ticket stubs that drive loyalty and fan
    engagement. Aptos has a multiyear collaboration with
    NBCUniversal to reimagine the fan experience through
    blockchain-enabled, real-world experiences, loyalty programs,
    and interactive games. Brands like Jelly Bean use Aptos to link
    physical products with blockchain-verified records, enabling
    immersive customer experiences and greater consumer trust
    through traceable authenticated products and supply chain data.
        The use cases we see on Aptos today are only the first step
    of a sweeping transformation. Just as the internet rewired
    everyday life, decentralized networks will form the core
    infrastructure of the coming digital economy, delivering
    systems that are transparent, interoperable, and designed for
    innovation, and will define how we engage with the world around
    us. Tokens serve a vital role in every application built on a
    blockchain. For blockchain innovation to grow responsibly in
    the U.S., developers need clear regulatory guidance around
    token issuance and distributions. We are ready to help realize
    that mission, and we are grateful for this Committee's
    leadership in making it possible.
        Market structure legislation and well defined, consistent
    rules around token issuance and distribution will ensure that
    networks like Aptos can function as designed, U.S. builders can
    innovate while staying compliant and competitive, and
    regulators can enforce meaningful consumer protections. The
    infrastructure is ready. Regulatory clarity will ensure U.S.
    leadership in the next era of the internet. We stand ready to
    work with the Committee in this regard, and I am grateful for
    the Committee's leadership. I look forward to answering your
    questions.
        [The prepared statement of Dr. Ching follows:]

     Prepared Statement of Avery Ching, Ph.D., Chief Executive Officer and
                     Co-Founder, Aptos Labs, Palo Alto, CA
        Chairman Thompson, Ranking Member Craig, distinguished Members of
    the Committee:

        Thank you for the opportunity to appear before you today. My name
    is Avery Ching and I am the CEO and co-founder of Aptos Labs, the core
    development team that helped launch the Aptos blockchain. I hold a
    Ph.D. in high-performance computing and distributed systems and have
    spent my career scaling emerging technologies at large internet
    platforms like Yahoo, Facebook, and now Aptos.
        In 2021, I co-founded Aptos Labs to advance the next era of the
    internet-starting with a global-scale, highly secure blockchain,
    capable of transforming payments, commerce, digital identity, and more.
    Aptos Labs was established and is headquartered in the U.S. and we're
    proud to contribute to American innovation and job creation.
    About Aptos
        Aptos is a high-performance, permission-less, proof-of-stake Layer
    1 blockchain designed to support internet-scale applications and their
    billions of users. Layer 1 blockchains like Aptos are the base-layer
    infrastructure for all blockchain-based applications, and at their
    core, are decentralized networks. Like the internet, they allow anyone
    to build applications on top of them. Layer 1 blockchains are distinct
    from other networks in that they are decentralized, meaning there is no
    single entity recording transactions.
        Blockchains and the decentralized applications built on top of them
    have digital assets or tokens associated with them. These tokens are
    necessary utilities for decentralized systems to operate.
    Token Utility on Aptos
        APT is the native token of the Aptos network and is essential to
    operate and access the blockchain, serving three core functions. First,
    the token is used to secure the network. Aptos uses a proof-of-stake
    consensus mechanism, meaning that in order to record transactions on
    the blockchain, validators are selected based on the amount of APT
    tokens they ``stake'' or lock up as collateral. This mechanism uses APT
    to help secure the network by preventing attacks by malicious actors.
    It also allows small token holders to play a role in securing the
    network. The token is also used by the network to programmatically
    reward validators for truthfully recording transactions. Second, APT is
    central to the blockchain's governance and upgradeability. Token
    holders can propose and vote on improvements or changes to the
    blockchain itself. Third, APT is used to pay transaction fees. These
    fees, averaging fractions of a cent on Aptos, are required for
    submitting activity to the blockchain. Even though they are small,
    these fees serve as a protective measure against spam and denial-of-
    service attacks, ensuring the network remains secure and efficient.
    Notable Use Cases on Aptos
        Security, decentralization, and utility make blockchains like Aptos
    capable of supporting real-world applications at scale. Today, those
    applications are no longer theoretical. More than a thousand developers
    are building on Aptos and there are hundreds of projects currently
    delivering value across industries like finance, commerce, and
    entertainment.
        Some of the world's largest regulated financial institutions,
    including BlackRock, Franklin Templeton, and Apollo have launched
    tokenized money-market and other types of regulated funds on Aptos.
    Deploying these funds onto Aptos increases transparency, enables real-
    time peer-to-peer transfers, and improves operational efficiency for
    issuers.
        The PACT protocol is a blockchain-based platform for licensed
    lenders. The platform allows these lenders to originate and service
    loans on the blockchain, offering transparency and efficiency to
    lenders and borrowers alike. Over $1 billion in on-chain assets have
    been issued through PACT, with a major focus on emerging markets. Small
    business owners can access capital in days, not weeks--enabling them to
    buy equipment, open shops, or invest in clean energy.
        The Aptos blockchain is also being leveraged to create new types of
    interactive and programmable experiences across entertainment, gaming,
    and commerce. Several projects on Aptos are using the blockchain to
    sell tokenized event tickets, removing costly ticketing intermediaries,
    lowering prices for fans, and giving them digital collectibles that
    commemorate their experiences. These digital ticket stubs can also be
    used for loyalty programs and deeper engagement between artists and
    their audiences. Aptos Labs recently announced a multi-year
    collaboration with NBCUniversal to reimagine fan engagement through
    blockchain-enabled real-world experiences, loyalty programs, rewards,
    and interactive games. This collaboration has the potential to
    transform how fans connect with their favorite content, using the Aptos
    network to power immersive programs and experiences that go far beyond
    traditional engagement.
        Aptos also powers new ways for brands to connect physical products
    with blockchain-based digital records. JellyBean uses the Aptos
    blockchain to help brands provide more immersive experiences for fans,
    comply more easily with regulatory requirements, and increase consumer
    confidence by embedding physical objects with an immutable record of
    manufacturing details, supply chain information, and other
    authenticated product data.
        The use cases we see on Aptos today are only the first step in a
    sweeping transformation. Just as the internet rewired everyday life,
    decentralized networks will form the core infrastructure of the coming
    digital economy-delivering systems that are transparent, interoperable,
    designed for innovation, and will redefine how we engage with the world
    around us.
    Potential Impact of Market Structure Legislation
        Tokens serve a vital role in every application built on a
    blockchain. For blockchain innovation to expand responsibly in the
    U.S., developers need clear regulatory guidance around token issuance
    and distributions. We're ready to help realize that mission, and we're
    grateful for the Committee's leadership in making it possible.
        Market structure legislation and well-defined, consistent rules
    around token issuance and distribution will ensure that networks like
    Aptos can function as designed, U.S. builders can innovate while
    staying compliant and competitive, and regulators can enforce
    meaningful consumer protections.
        The infrastructure is ready. Regulatory clarity will ensure U.S.
    leadership in the next era of the internet. We stand ready to work with
    the Committee in this regard.
        I look forward to answering your questions.

        The Chairman. Thank you, sir. Dr. Piwowar, please begin
    when you are ready.

       STATEMENT OF HON. MICHAEL PIWOWAR, Ph.D., EXECUTIVE VICE
        PRESIDENT, FINANCE PILLAR, MILKEN INSTITUTE; PRESIDENT,
                  ECONOMIC MOBILITY ALLIANCE, MILKEN
               INSTITUTE; FORMER COMMISSIONER AND ACTING
     CHAIRMAN, U.S. SECURITIES AND EXCHANGE COMMISSION, FAIRFAX, VA

        Dr. Piwowar. Good morning, Chairman Thompson, Ranking
    Member Craig, and Members of the Committee. Thank you for
    inviting me to testify today. My name is Mike Piwowar, and I am
    the Executive Vice President of the Milken Institute's Finance
    Pillar and the President of our newly-announced Economic
    Mobility Alliance. The Milken Institute is committed to
    supporting legislation that will establish a workable framework
    to bring clarity to the digital asset market. My colleagues and
    I believe the CLARITY Act crafts a framework that addresses
    regulatory gaps, jurisdictional boundaries, and pathways for
    responsible innovation. It reinforces the U.S. financial
    system's growth, competitiveness, and resilience. As you
    consider next steps in the legislative process, we look forward
    to continuing to work on this bipartisan issue with this
    Committee and the House Financial Services Committee.
        Prior to joining the Institute, I served as Commissioner
    and acting Chairman of the Securities and Exchange Commission.
    In those roles, I saw firsthand how the U.S. capital markets
    are the envy of the world. They are the world's deepest, most
    liquid, and most transparent. They are the most efficient at
    allocating capital from investors seeking lifetime financial
    security to job-creating entrepreneurs, like Avery. I saw how
    the historical success of our capital markets has led to jobs,
    economic growth and competitiveness, and increased standard of
    living for everyday Americans. And I saw how much of that
    success can be attributed to the SEC's long history of focusing
    on its threefold mission: protecting investors; maintaining
    fair, orderly and efficient markets; and promoting capital
    formation. During my tenure, I have worked to incorporate
    dozens of rulemakings required by the Dodd-Frank Act (Pub. L.
    111-203, Dodd-Frank Wall Street Reform and Consumer Protection
    Act) and the JOBS Act (Pub. L. 112-106, Jumpstart Our Business
    Startups Act) into that mission. As we look to future
    innovations in capital-raising activities in digital asset
    markets, the critical role played by the SEC will become even
    more important for the United States to maintain our economic
    competitiveness.
        My written testimony focuses on the critical role that the
    SEC plays in regulating our capital markets and how that
    expertise can be applied to digital asset markets. I provide
    examples of how the SEC is already applying their existing
    authorities to do so. I also discuss how key provisions of the
    CLARITY Act grant new authorities to the SEC that aligns its
    mission with the functional application to the digital asset
    markets. Finally, I offer a few recommendations as you consider
    next steps in the legislative process.
        Chairman Thompson, Ranking Member Craig, and Members of the
    Committee, thank you for your leadership in finding bipartisan
    and cross-committee solutions and for building bicameral
    consensus to create a clear and workable regulatory framework
    for digital assets in the United States. And thank you for the
    opportunity to testify on the critical role that the SEC,
    working with the CFTC, will provide in promulgating,
    administering, and enforcing regulations that align with its
    mission and promote innovation. I am happy to answer any
    questions you may have.
        [The prepared statement of Dr. Piwowar follows:]

       Prepared Statement of Hon. Michael Piwowar, Ph.D., Executive Vice
       President, Finance Pillar, Milken Institute; President, Economic
      Mobility Alliance, Milken Institute; Former Commissioner and Acting
         Chairman, U.S. Securities and Exchange Commission, Fairfax, VA
        Good morning. Thank you, Chairman Thompson, Ranking Member Craig,
    and Members of the Committee, for inviting me to testify today.
        My name is Mike Piwowar, and I am the Executive Vice President of
    the Milken Institute's Finance Pillar and President of our newly
    announced Economic Mobility Alliance.\1\ The Milken Institute is
    committed to supporting legislation that will build a workable
    regulatory framework to bring clarity and confidence to the digital
    assets market. The Digital Asset Market Clarity Act of 2025 (``CLARITY
    Act'') crafts a framework that addresses market structure gaps,
    jurisdictional boundaries, and pathways for responsible innovation,
    thereby reinforcing the U.S. financial system's growth,
    competitiveness, and resilience. As you consider next steps in the
    legislative process, we look forward to continuing to work on this
    bipartisan issue with this Committee and the U.S. House Committee on
    Financial Services.
    ---------------------------------------------------------------------------
        \1\ The Milken Institute is a nonprofit, nonpartisan think tank
    that promotes evidence-based research that serves as a platform for
    policymakers, industry practitioners, and community members to come
    together in catalyzing practical solutions to challenges we face both
    here in the U.S. and globally. The Milken Institute's Finance Pillar
    conducts research and constructs programs designed to facilitate the
    smooth and efficient operation of financial markets--to help ensure
    that they are fair and available to those who need them when they need
    them. The Milken Institute's Economic Ability Alliance aims to foster
    greater collaboration and maximize our impact, increasing economic
    mobility for individuals of all backgrounds throughout every stage of
    their financial lives.
    ---------------------------------------------------------------------------
        Today, my testimony will focus on the critical role that the U.S.
    Securities and Exchange Commission (``SEC'') plays in the regulation of
    our capital markets and how that expertise can be applied to digital
    asset markets. I have had the pleasure of serving as a visiting
    academic scholar, senior financial economist, commissioner, and acting
    Chairman of the SEC. I am testifying today on my own behalf.
              * * * * *
        The U.S. capital markets are the envy of the world. Well-regulated
    competition among stock exchanges, alternative trading systems, and
    market makers has led to the best market quality environment for
    publicly traded securities in history. Transaction costs are low,
    market depth is high, and execution speeds are fast. Well-regulated
    competition among investment professionals--broker-dealers and
    investment advisers--has led to the highest standards for investor
    protections and the lowest costs for trading, diversification, advice,
    and professional management in history. Companies that issue securities
    benefit from the liquidity provided by the U.S. public capital markets
    at a low cost of capital.
        The SEC's role in fostering the historical success of our capital
    markets and the resulting positive effects on jobs, economic growth,
    and the lives of everyday Americans cannot be overstated. As we look to
    future innovations and capital-raising activities in digital asset
    markets, the critical role played by the SEC will become even more
    important for the United States to maintain its economic
    competitiveness.
        I commend all the Members of this Committee, working with the U.S.
    House Committee on Financial Services, as you continue to find
    bipartisan solutions and build bicameral consensus with the Senate to
    create a clear and workable regulatory framework for digital assets.
        The remainder of my testimony is organized into three sections:

      I.  The SEC's Mission

      II.  Applying the SEC's Mission to Digital Asset Markets

      III.  Key Provisions of the CLARITY Act and Additional
                Recommendations
    I. The SEC's Mission
        The SEC's threefold mission is to protect investors; maintain fair,
    orderly, and efficient markets; and promote capital formation. In
    accordance with the explicit authorities granted by Congress, the SEC
    accomplishes its mission by promulgating regulations under the Federal
    securities laws, monitoring compliance with the laws and regulations,
    and enforcing securities law and regulation violations.
    Protecting Investors
        The Federal securities laws and regulations administered by the SEC
    contain several provisions to protect investors. Statutory and
    regulatory language, by their nature, are highly legalistic, but they
    basically boil down to this simple phrase, ``Don't lie, don't cheat,
    don't steal.''
    Don't Lie
        The backbone of the SEC's investor protection mandate is
    disclosure. The SEC requires public companies and key market
    participants such as brokers, dealers, investment advisers, and
    investment companies to disclose meaningful, accurate, and timely
    information to the public. Access to this information provides
    investors with a common pool of basic facts that allows them to
    determine whether to buy, sell, or hold securities and how to vote
    their shares.
        Unlike merit-based regimes where regulators have the power to deem
    securities offerings ``too risky'' or ``unsuitable'' to be approved,
    our disclosure system comports well with American traditions of self-
    reliance, pioneering spirit, and rugged individualism. As former
    Supreme Court Justice Louis Brandeis famously wrote, ``sunlight is said
    to be the best of disinfectants; electric light the most efficient
    policeman.'' \2\ By arming investors with information, they can
    evaluate and make informed investment decisions that support more
    accurate securities valuations and a more efficient allocation of
    capital.
    ---------------------------------------------------------------------------
        \2\ Louis D. Brandeis, ``What Publicity Can Do,'' Harper's Weekly,
    Dec. 20, 1913, reprinted in Louis D. Brandeis, Other People's Money and
    How the Bankers Use It, (Frederick A. Stokes Co., 1914).
    ---------------------------------------------------------------------------
    Don't Cheat
        The SEC requires market participants to deal fairly with their
    customers. For example, brokers must comply with a best-interest
    standard when they provide recommendations to Main Street investors.
    This standard requires brokers to act in the best interest of their
    customers and not place their own interests ahead of the customer's.
        Similarly, investment advisers owe a fiduciary duty to their
    customers when providing investment advice. This duty is comprised of
    both a duty of care and a duty of loyalty. The duty of care requires an
    investment adviser to provide investment advice in the best interest of
    its client, based on the client's objectives, and to provide advice and
    monitoring over the course of the relationship. The duty of loyalty
    requires an investment adviser to disclose or address all conflicts of
    interest between the adviser and its client.
        When executing customer orders to buy or sell securities, the SEC
    allows brokers to choose which trading venue to direct the orders. The
    broker may direct the order to the exchange where the stock is listed,
    a different exchange, an alternative trading system, or a market maker.
        The SEC also allows brokers to enter into payment for order flow
    arrangements. Market makers may pay brokers for routing orders to them
    so long as they fulfill their best execution obligations. A broker must
    consider multiple factors when seeking the best execution of customers'
    orders, including the opportunity to get a better price than what is
    currently quoted (price improvement), the speed of execution, and the
    likelihood that the trade will be executed.\3\
    ---------------------------------------------------------------------------
        \3\ See Fast Answers--Best Execution, (May 9, 2011), available at
    https://www.sec.gov/fast-answers/answersbestexhtm.html.
    ---------------------------------------------------------------------------
        Payment for order flow arrangements could represent a conflict of
    interest between their broker and their customer. Brokers may choose to
    route customer orders to the market maker that offers the highest
    payment to the broker rather than to the trading venue that offers the
    best execution for the customer. However, the SEC's best execution
    requirements mitigate this conflict of interest.
    Don't Steal
        The SEC protects customers' property (securities and cash) held at
    broker-dealers from being misappropriated (i.e., stolen) through a
    rigorous financial responsibility framework. Two SEC rules form the
    foundation of this framework. The SEC's customer protection rule (Rule
    15c3-3) is designed to ensure that customer property in the custody of
    broker-dealers is adequately safeguarded and not used by the broker-
    dealer in their business. The SEC's uniform net capital rule (Rule
    15c3-1) requires all broker-dealers to always have sufficient liquid
    resources on hand to satisfy customer and creditor claims promptly in
    the event the firm fails.
    Maintaining Fair, Orderly, and Efficient Markets
        The SEC's regulatory framework for the U.S. equity markets is
    complicated. It reflects a complex system of legal and regulatory
    decisions made over decades, and the markets have evolved within this
    framework into a highly interconnected system.
        I like to say that the underlying U.S. equity market structure
    represents the gears that turn the clock of the capital markets.\4\
    From the moment we get up in the morning until the moment we turn out
    the lights at night, we rely on clocks to order our days. Yet most
    people will never open a clock to inspect the gears that make it work,
    much less comprehend the operation of the complex and interrelated
    system sitting behind it. In the same way, most Main Street investors
    and business owners who rely on the capital markets will never dig into
    the details of market structure. They may never understand the way that
    SEC regulations on things like tick sizes, the order protection rule,
    or maker-taker pricing function. But they rely on them every day to
    raise capital, invest in securities, and save for retirement.
    ---------------------------------------------------------------------------
        \4\ See Remarks at FINRA and Columbia University Market Structure
    Conference, Speech by Commissioner Michael S. Piwowar (Oct. 26, 2017),
    available at https://www.sec.gov/newsroom/speeches-statements/speech-
    piwowar-2017-10-26.
    ---------------------------------------------------------------------------
        Thus, the details of market structure matter, not just because
    industry participants, regulators, and academics like to debate them,
    but because they ensure the fair and orderly operation of our complex
    financial markets. Ultimately, the efficiency of these markets is what
    allows our capital markets to drive the economy in ways that benefit
    all Americans. The SEC recognizes that the appropriate market structure
    for equity markets is not the same as it is for the markets of other
    securities they oversee, such as corporate bonds, municipal bonds, and
    security-based swaps.
        The SEC also recognizes that changes to existing market structure
    policy always involve tradeoffs. When the SEC operates at its best, it
    makes use of two tools to evaluate whether, and if so, how to make
    changes as the markets evolve.
        The first is economic analysis. The lens of economic analysis is
    well-suited for evaluating tradeoffs. In 2012, the Commission
    recognized the importance of going beyond statutory obligations and
    mere quantitative exercises to incorporate comprehensive economic
    analysis in the rulemaking process by adopting ``Current Guidance on
    Economic Analysis in SEC Rulemaking'' (``Current Guidance'').\5\
    ---------------------------------------------------------------------------
        \5\ Current Guidance on Economic Analysis in SEC Rulemaking, (Mar.
    16, 2012), available at http://www.sec.gov/divisions/riskfin/
    rsfi_guidance_econ_analy_secrulemaking.pdf.
    ---------------------------------------------------------------------------
        The second is retrospective reviews of existing rules. The only
    constant in financial markets is change. Markets and technologies are
    continually evolving. The SEC recognizes that if we want our capital
    markets to remain the envy of the world, our regulatory framework needs
    to evolve with them. Retrospective reviews of market structure and
    rules by the SEC ensure that they are not outdated, obsolete, or overly
    burdensome.
    Promoting Capital Formation
        The oft-forgotten third part of the SEC's mission is to promote
    capital formation. The Securities Act of 1933, the Securities Exchange
    Act of 1934, and the Investment Company Act of 1940 require the SEC to
    ``consider, in addition to the protection of investors, whether the
    action will promote efficiency, competition, and capital formation''
    when it is engaged in rulemaking.\6\
    ---------------------------------------------------------------------------
        \6\ See, e.g., 15 U.S.C.  77b(b); 15 U.S.C.  78c(f); 15 U.S.C.
    80a-3(c)(1)(B) (emphasis added).
    ---------------------------------------------------------------------------
        Just as the disclosure of meaningful, accurate, and timely
    information to the public protects investors, it also improves capital
    formation. False and misleading information not only can cost
    investors' money ex post, but it also impedes capital formation by
    discouraging investment ex ante. It contributes to increased volatility
    in the markets and leads to the inefficient distribution of capital.
        However, the SEC must guard against requiring too much information
    that is burdensome for public companies to provide. Thankfully, the
    Supreme Court has provided guidance on the legal standard of
    materiality. Former Supreme Court Justice Thurgood Marshall, writing
    for a unanimous Supreme Court in the seminal case of TSC Industries v.
    Northway, stated, ``[t]he question of materiality, it is universally
    agreed, is an objective one, involving the significance of an omitted
    or misrepresented fact to a reasonable investor.'' \7\ Justice Marshall
    expressed his concern that an unnecessarily low standard of materiality
    and the resulting fear of exposure to substantial liability might cause
    issuers to ``simply bury the shareholders in an avalanche of trivial
    information--a result that is hardly conducive to informed decision
    making.'' \8\
    ---------------------------------------------------------------------------
        \7\ 426 U.S. 438, 445 (1976).
        \8\ Ibid, at 448-49.
    ---------------------------------------------------------------------------
    II. Applying the SEC's Mission to Digital Asset Markets
        The SEC's traditional mission of protecting investors, maintaining
    fair, orderly, and efficient markets, and promoting capital formation
    for the capital markets is easily applied to digital asset markets. The
    CLARITY Act provides the foundational authority for a regulatory
    framework that aligns the mission with the functional application to
    these markets.
    Protecting Investors
        Digital asset investors should have the same investor protections
    as securities investors. For too long, U.S. investors in digital assets
    have not had adequate protections under the Federal securities laws.
    The SEC's investor protection framework of ``Don't lie, don't cheat,
    don't steal'' fits perfectly with digital asset markets.
        The SEC's disclosure regime can be effectively tailored to digital
    assets, as it already has been tailored for a diverse range of
    securities offerings that have evolved over time, such as public
    companies, open-end mutual funds, closed-end funds, money market funds,
    exchange traded funds, business development companies, security-based
    swaps, etc. I am pleased to see the CLARITY Act directs the SEC to
    provide disclosure of specific information unique to digital assets.
        The SEC's fair dealing requirements should be applied to digital
    asset markets, where appropriate. Brokers and investment advisers
    should be subject to the same best interest standards and fiduciary
    duties when providing recommendations or advice or facilitating
    customer orders for digital assets as they do for securities. In other
    words, digital asset investors working with intermediaries expect to
    have the same protections.
        The SEC's rigorous financial responsibility framework should be
    applied and adapted to protect customers' digital assets held at
    broker-dealers. The SEC's customer protection rule and uniform net
    capital rule can easily be amended to safeguard digital assets held in
    custody and protect customer claims in the event of the firm's failure.
    Maintaining Fair, Orderly, and Efficient Markets
        The appropriate regulatory framework for digital asset market
    structure will require the SEC to use economic analysis to determine
    the costs and benefits of various alternatives. The SEC's experience
    overseeing markets for a diverse set of securities--equities, corporate
    bonds, municipal bonds, and security-based swaps--will serve it well as
    it establishes a regulatory framework for the trading of digital
    assets.
        As the digital asset markets evolve, the SEC must keep pace with
    changes in market conditions and technologies and conduct retrospective
    reviews of existing rules to determine any necessary changes in
    regulatory policy.
        The CLARITY Act restricts insider sales of digital assets following
    a primary offering to protect retail investors, in a manner similar to
    the SEC's insider lockup periods following an initial public offering
    (IPO). A lockup period helps stabilize the market price following a
    public offering by preventing a flood of additional sales in the early
    days of trading.
    Promoting Capital Formation
        The SEC's experience striking the right balance of disclosures for
    investors, giving them just what they need--not too much, not too
    little--to make informed investment decisions to buy, sell, or hold
    securities, is exactly what is needed in the digital asset markets. A
    similar consideration for striking the right balance for issuers of
    securities--not too burdensome, not too sparse--is also what is needed
    for capital-raising issuers of digital assets that fall under the SEC's
    jurisdiction.
        The CLARITY Act establishes a critical role for the SEC to provide
    transparency for new digital commodity issuances. Like primary
    offerings of public companies, the SEC will ensure that investors have
    helpful information about primary offerings of digital assets to make
    informed decisions. The CLARITY Act also recognizes that meaningful
    information about the digital commodity issuer changes over the
    maturation of the blockchain system. It provides for a ratcheting down
    of disclosure requirements as the digital commodity issuer is no longer
    in control of the blockchain system and eventually no longer a
    meaningful part of the development process.
    Recent SEC Actions Involving Digital Assets
        The day after being designated as Acting Chairman of the SEC on
    January 20, 2025, Commissioner Mark Uyeda created the SEC's Crypto Task
    Force, dedicated to developing a comprehensive and clear regulatory
    framework for crypto assets, and designated Commissioner Hester Peirce
    to lead it.\9\ The Task Force has been busy over the past 4 months.
    Here are a few examples of their public-facing activities:
    ---------------------------------------------------------------------------
        \9\ See https://www.sec.gov/newsroom/press-releases/2025-30.

       Hosting four public roundtables on the topics of defining
            security status, tailoring SEC regulation for crypto trading,
            key considerations for crypto custody, and the intersection of
            traditional finance (``TradFi'') and decentralized finance
            (``DeFi'').\10\ The Task Force will hold their fifth public
            roundtable next week on the topic of DeFi and the American
            Spirit.
    ---------------------------------------------------------------------------
        \10\ See https://www.sec.gov/about/crypto-task-force/crypto-task-
    force-roundtables.

       Inviting public comment on 48 detailed questions to help the
            Task Force work through several crypto regulatory questions on
            topics such as security status, public offerings, safe harbors
            from registration, trading, custody, crypto lending, crypto
            exchange-traded products (ETPs), tokenized securities, and
            cross-border challenges.\11\
    ---------------------------------------------------------------------------
        \11\ See https://www.sec.gov/newsroom/speeches-statements/peirce-
    statement-rfi-022125.

       Meeting with more than 100 organizations and firms involved
            with digital assets.\12\
    ---------------------------------------------------------------------------
        \12\ See https://www.sec.gov/about/crypto-task-force/crypto-task-
    force-meetings.

        The SEC's Crypto Task Force has also been coordinating with other
    SEC Divisions and Offices, resulting in several notable public
    ---------------------------------------------------------------------------
    releases, including:

       Acting Chairman Mark Uyeda announced the creation of a new
            Cyber and Emerging Technologies Unit, consisting of 30 fraud
            specialists and attorneys, to focus on combating cyber- and
            crypto-related misconduct and to protect retail investors from
            bad actors.\13\
    ---------------------------------------------------------------------------
        \13\ See https://www.sec.gov/newsroom/press-releases/2025-42.

       The Office of Investor Education and Advocacy has published
            several online resources for retail investors considering
            investments involving crypto assets.\14\
    ---------------------------------------------------------------------------
        \14\ See https://www.investor.gov/additional-resources/spotlight/
    crypto-assets.

       The Division of Corporation Finance issued staff statements
            on Meme Coins, Proof-of-Work Mining Activities, Stablecoins,
            Offerings and Registrations of Securities in the Crypto Asset
            Markets, and Proof-of-State Protocol Staking Activities.\15\
    ---------------------------------------------------------------------------
        \15\ See https://www.sec.gov/newsroom/speeches-statements/staff-
    statement-meme-coins, https://www.sec.gov/newsroom/speeches-statements/
    statement-certain-proof-work-mining-activities-032025, https://
    www.sec.gov/newsroom/speeches-statements/statement-stablecoins-040425,
    https://www.sec.gov/newsroom/speeches-statements/cf-crypto-securities-
    041025, https://www.sec.gov/newsroom/speeches-statements/statement-
    certain-protocol-staking-activities-052925.

       The Division of Trading and Markets issued a list of
            frequently asked questions (FAQs) relating to crypto asset
            activities and distributed ledger technology.\16\
    ---------------------------------------------------------------------------
        \16\ See https://www.sec.gov/rules-regulations/staff-guidance/
    trading-markets-frequently-asked-questions/frequently-asked-questions-
    relating-crypto-asset-activities-distributed-ledger-technology.

       The Office of the Chief Accountant rescinded Staff
            Accounting Bulletin 121 (``SAB 121'').\17\
    ---------------------------------------------------------------------------
        \17\ See https://www.sec.gov/rules-regulations/staff-guidance/
    staff-accounting-bulletins/staff-accounting-bulletin-122.
    ---------------------------------------------------------------------------
    III. Key Provisions of the CLARITY Act and Additional Recommendations
        The recently introduced CLARITY Act represents a comprehensive,
    clear, and commonsense approach to establish a regulatory framework for
    digital assets in the United States. I commend the Members of this
    Committee and your staff for your diligent work and your engagement
    with the public.\18\
    ---------------------------------------------------------------------------
        \18\ I want to specifically thank you for your responsiveness to
    the comment letter that my colleagues Nicole Valentine and Max
    DeGregorio and I submitted on the Discussion Draft. See https://
    milkeninstitute.org/content-hub/government-affairs/comment-letters/
    2025-digital-assets-market-structure-discussion-draft.
    ---------------------------------------------------------------------------
        The CLARITY Act contains several provisions that authorize the SEC
    to do its part in establishing the U.S. digital asset markets as the
    best in the world. These include the following:

       Providing clear guidelines to digital commodity issuers and
            the SEC on which activities fall under SEC jurisdiction.

       Requiring the SEC (and CFTC) to coordinate with foreign
            regulators to promote consistent international standards for
            digital asset market regulations and permitting them to enter
            into information-sharing arrangements to protect investors.

       Prohibiting certain sales by project insiders that would
            harm retail investors.

       Providing the SEC with anti-fraud enforcement authority over
            SEC-registered entities involving transactions with stablecoins
            and digital commodities.

       Providing the SEC with anti-fraud and anti-manipulation
            enforcement authorities over exempted decentralized finance
            activities.

       Modernizing books and records requirements for broker-
            dealers and exchanges by allowing them to use blockchain
            technology.

       Providing additional flexibility for the SEC to use its
            exemptive authority.

       Adding ``innovation'' to the SEC's mission and establishing
            offices of innovation within each division of the SEC.

       Requiring the SEC, CFTC, and GAO to conduct studies on
            decentralized finance, nonfungible tokens (NFTs), market
            infrastructure improvements needed to facilitate the
            development of tokenized securities and derivatives, and
            improving financial literacy for digital asset investors.

        As this Committee, working with the U.S. House Committee on
    Financial Services, considers next steps in the legislative process, I
    would like to offer a few recommendations to consider.
    Continue to Rely on SEC and CFTC Member and Staff Expertise
        The CLARITY Act is appropriately detailed and technical. It is
    clear to me that you have incorporated feedback from the highly capable
    Members and staff experts at the SEC and CFTC. As you consider next
    steps in the legislative process, I urge you to continue to rely on
    their expertise.
        The SEC's Crypto Task Force is an all-star team of incredibly smart
    people, some of whom I know personally and others by reputation.\19\
    They are increasing their already high level of expertise on digital
    asset markets by engaging with members of the public through meetings,
    information requests, and roundtable discussions.\20\
    ---------------------------------------------------------------------------
        \19\ While I am not as familiar with many of the CFTC staff working
    on these issues, I have always been impressed with their expertise on
    issues under their jurisdiction.
        \20\ See https://www.sec.gov/about/crypto-task-force.
    ---------------------------------------------------------------------------
        The Crypto Task Force is led by Commissioner Hester Peirce. I can
    think of no better person to lead this august group. A few years ago,
    Commissioner Peirce was nicknamed ``Crypto Mom'' by the crypto
    community due to her dedication to providing clarity on the application
    of the Federal securities laws to digital asset markets and for
    adopting practical and workable policies to protect investors and
    foster innovation.
        I will offer one cautionary example of what happens when SEC staff
    expertise is not incorporated into highly technical legislation that
    grants authorities and requires rulemakings under their jurisdiction.
    Title VII of the 2010 Dodd-Frank Act created a new regulatory framework
    for over-the-counter derivatives and divided jurisdiction between the
    CFTC (for ``swaps'') and the SEC (for ``security-based swaps'').\21\
    The legislative language, which was written with substantial input from
    then-CFTC Chairman Gary Gensler, did not incorporate any feedback from
    the SEC. As a result, SEC rulemakings were unnecessarily delayed for
    years, and limited SEC resources were diverted from their core mission
    to fix problems that could have easily been avoided.
    ---------------------------------------------------------------------------
        \21\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
    Pub. L. No. 111-203 (2010).
    ---------------------------------------------------------------------------
    Maximize Self-Effectuating Statutes and Minimize Joint Rulemaking
        As a former Senate staffer who worked on legislative text and a
    former regulator who had to implement complex legislation, I think
    there is both a ``science'' and an ``art'' to drafting legislation. The
    science involves getting the technical definitions and legal language
    correct, addressing conforming amendments to existing legislation, etc.
    The art of legislation involves identifying alternative language that
    makes implementation more efficient and effective.
        The use of self-effectuating statutes that do not require any
    rulemaking is a great tool. Wherever possible, I urge the Committee to
    consider using self-effectuating statutory language. For example, if
    the Committee decides that the SEC should use its exemptive authority
    on a particular issue, one way to draft the language is to say, ``The
    SEC shall exempt XYZ . . .'' But that would require the SEC to act--
    i.e., issue a rule, regulation, or order--and use scarce resources that
    could be better deployed elsewhere. A better way to draft the language
    would be to say, ``XYZ is exempt . . .'' The language would be
    effective upon enactment, and the SEC would not need to do any
    additional work.
        Title I of the Jumpstart Our Business Startups Act (``JOBS Act'')
    of 2012 provides an excellent example of self-effectuating
    language.\22\ Title I created a new ``emerging growth company''
    (``EGC'') designation for smaller companies going public and provided
    them with temporary scaled disclosures (a regulatory ``on-ramp'') and
    other benefits. It directly amended the Securities Act of 1933 and the
    Securities Exchange Act of 1934 and did not require any SEC rulemaking.
    Academic research finds that Title I immediately increased IPO
    volumes.\23\
    ---------------------------------------------------------------------------
        \22\ Jumpstart Our Business Startups Act, Pub. L. No. 112-106
    (2012).
        \23\ See, e.g., The JOBS Act and IPO Volume: Evidence that
    Disclosure Costs Affect the IPO Decision, Michael Dambra, Laura Field,
    and Matthew Gustafson, Journal of Financial Economics, Vol. 116, No. 1
    (2015).
    ---------------------------------------------------------------------------
    Provide New Statutory Clarity on Investment Contracts
        The CLARITY Act creates a new definition of ``investment contract
    assets'' to exclude digital commodities sold pursuant to an investment
    contract from being considered investment contracts themselves. I
    believe this is a clever way to provide much-needed clarity in the
    context of digital commodities.
        The bill carefully excludes only specific types of investment
    contracts from the definition of ``digital commodity,'' recognizing
    that the definition of ``investment contract'' in the Securities Act of
    1933 and the Securities Exchange Act of 1934 is very broad.\24\ I
    suggest this Committee work with the U.S. House Committee on Financial
    Services to go one step further and narrow the statutory definition of
    ``investment contract'' itself.
    ---------------------------------------------------------------------------
        \24\ See 15 U.S.C.  77b-77c.
    ---------------------------------------------------------------------------
        When the SEC has been faced with the determination of whether an
    investment contract exists under certain facts and circumstances, it
    has had to rely on prior Court cases. The most well-known example is
    the ``Howey Test'' from the 1946 Supreme Court case SEC v. W.J. Howey
    Co.\25\ The Supreme Court's opinion states that the Howey Test embodies
    a ``flexible rather than a static principle.'' \26\ While a flexible
    approach has the benefit of being adaptable to new situations, decades
    of regulatory experience and several subsequent court cases show that
    it would be helpful if Congress could narrow the statutory definition
    of investment contract.
    ---------------------------------------------------------------------------
        \25\ 328 U.S. 293, 301 (1946).
        \26\ 328 U.S. at 299 (emphasis added).
    ---------------------------------------------------------------------------
              * * * * *
        Thank you for moving forward on the critical issue of providing a
    clear and workable regulatory framework for digital asset markets in
    the United States. And thank you for the opportunity to testify on the
    critical role that the SEC, working with the CFTC, will provide in
    promulgating, administering, and enforcing regulations that protect
    investors, establish and maintain market integrity, and foster
    responsible innovation. I am happy to answer any questions you may
    have.

        The Chairman. Dr. Piwowar, thank you so much. Mr. Miller,
    please begin when you are ready.

      STATEMENT OF RYNE MILLER, J.D., PARTNER, LOWENSTEIN SANDLER
    LLP; CHAIR, LOWENSTEIN CRYPTO; CO-CHAIR, COMMODITIES, FUTURES,
                    DERIVATIVES GROUP, NEW YORK, NY

        Mr. Miller. Thank you. Chairman Thompson, Ranking Member
    Craig, and Members of the Committee, it is a privilege and
    honor to have been invited to appear at this hearing. Thank
    you. My name is Ryne Miller, and while I grew up in Oklahoma, I
    have been a financial markets lawyer in New York City for the
    past 15 years. I am here to offer my voice, my support on a
    single message: the time to act on digital asset market
    structure legislation is now. I do think that the time has
    come, and we cannot afford further delay. My perspective on
    this comes from my experience in the financial markets, and I
    want to share some of that with the Committee.
        I have spent my career at the intersection of market
    regulation, innovation, and risk. I was fortunate to have
    worked at the CFTC during the Dodd-Frank rule-writing years,
    which is familiar to many on this Committee, and since then, I
    have advised financial institutions, exchanges, and crypto
    firms on financial market regulation. As many of you might
    know, I also lived through the collapse of the FTX Global
    Cryptocurrency Exchange. I was the FTX U.S. General Counsel for
    a little more than 1 year.
        I want to start with a few observations about my FTX
    experience. The failure of FTX is often talked about as a run
    on the bank or a liquidity crisis, and this Committee knows
    well that is not what happened. FTX was not a bank. It was a
    cryptocurrency exchange charged with protecting customer
    assets. The FTX failure was the result of a concealed fraud
    performed by the most senior members of the FTX founding team.
    As my written statement reflects in greater detail, I first
    learned in early November 2022 that approximately $8 billion in
    customer assets on the FTX global platform were simply gone. A
    small group of insiders at the global FTX entity had
    misappropriated billions of dollars in customer funds for
    personal use. That is not okay, and part of the goal of the
    legislation we are considering now is to address this issue.
    After learning of the revelation and the customer asset
    shortfall, I and a few others worked around the clock for 4
    days to stop the ongoing fraud, to mitigate the bleeding, to
    preserve critical records, and ultimately prepare for
    insolvency filings.
        The critical point of this story is this: had proper
    Federal market structure regulation been in place, the kind
    contemplated in the bill before you, offshore companies would
    have come to the United States and centered their businesses
    here. FTX's story could have ended very differently. Customer
    asset segregation, regular examination, governance requirements
    and auditing would have been in place, and they would have
    provided guardrails to prevent the fraud. And that is why I am
    here today, not just to tell the FTX story and to recount the
    past, but to support your work to shape the future. Again, I do
    not think we can afford more delay.
        The Committee's draft legislation, the CLARITY Act, is
    thoughtful, it is balanced, it is functional, and, importantly,
    it is ready. It creates a path for registration, it draws a
    sensible line between the SEC and the CFTC, and it prompts
    coordination where appropriate. It protects investors while
    enabling responsible innovation, and it gives regulators--and
    this is important--the tools they need to move from enforcement
    to proactive supervision and regulation. Critically, it also
    ends the state-by-state regulatory patchwork that is pushing
    innovators offshore. A Federal framework will restore
    confidence and competitiveness in the U.S. digital asset
    markets. Regulation enables innovation, and when market
    structure works, it creates the foundation of trust that has
    allowed the frequent statement to be made about America having
    the most deep, liquid, and resilient capital markets in the
    world. Crypto is capital, and if we want the digital asset
    markets to grow here, adopting legislation is a must-do.
        Thank you again for the opportunity to appear today. I
    appreciate the work this Committee has done, and I stand ready
    to answer any questions.
        [The prepared statement of Mr. Miller follows:]

     Prepared Statement of Ryne Miller, J.D., Partner, Lowenstein Sandler
        LLP; Chair, Lowenstein Crypto; Co-Chair, Commodities, Futures,
                        Derivatives Group, New York, NY
        Chairman Thompson, Ranking Member Craig, and Members of the
    Committee:

        Thank you for the opportunity to testify today. It is a privilege
    to appear before you to discuss the future of digital assets in the
    United States. Adopting Federal market structure legislation for
    digital assets is critical to enabling responsible innovation and
    economic growth in the United States, and I commend this Committee for
    its leadership and continued diligence in addressing one of the most
    consequential markets policy questions of our time--how to regulate a
    newly emerged asset class that is poised to revolutionize the
    operations and functions of financial markets, globally. I look forward
    to using my voice, developed over a career as a financial markets and
    exchange professional, to support the swift adoption of Federal market
    structure legislation for digital asset markets.
        I have seen the damage and fallout that can occur when market
    structure regulation is non-existent or incomplete, and in contrast, I
    have also seen how innovation and markets can flourish when regulators
    have a clear legislative mandate to implement a properly calibrated and
    principles-based markets regulatory program.
        The perspective I seek to offer the Committee is shaped by a career
    of direct experience at the intersection of technology, regulation, and
    market infrastructure. Many on the Committee know that I previously
    served as General Counsel of FTX US, the U.S. based digital asset and
    derivatives exchange that was an affiliated entity of the global FTX
    group. I was in this role for the U.S. business for just over a year,
    an intense time period that included a hyper growth phase, a shocking
    discovery of fraud perpetrated by the FTX international founders, and
    the much discussed fallout and subsequent insolvency filing of the
    global FTX group. Both before and after that experience, I have been a
    long-time commodities and derivatives partner at leading law firms
    advising clients on financial markets regulation. Early in my career, I
    had the privilege of serving at the U.S. Commodity Futures Trading
    Commission in Washington D.C. throughout the pivotal Dodd-Frank rule
    writing years, first as a staff attorney in the CFTC's Division of
    Market Oversight and then as counsel to the then CFTC Chairman.\1\ My
    testimony today draws on all of these experiences, and the views I
    express are my own.
    ---------------------------------------------------------------------------
        \1\ I want to take this moment to also specifically thank a few of
    my CFTC mentors, each of whom expended material effort to introduce me
    to and educate me early in my career under the U.S. commodities and
    derivatives laws. To name a few CFTC alumni, each dedicated public
    servants: David Van Wagner, Don Heitman, Susan Nathan, and Ken Raisler.
    ---------------------------------------------------------------------------
    The FTX Story--What Happened
        Let me first share my perspective on the FTX story. I will be
    brief, clear, and direct, but I do believe it is important for me to
    address this topic, for this Committee, in the context of this hearing.
        Due to a series of fraudulent schemes and actions undertaken by the
    FTX international founding team, through which they improperly accessed
    and used customer assets (a series of misconduct which was concealed
    from and first learned about by myself and other key employees during
    the week starting November 7, 2022), the global FTX group filed for
    bankruptcy on Friday, November 11, 2022. Assets then on hand were
    insufficient, by an amount of approximately $8 billion, to meet the
    withdrawal requests of customers who wanted their assets back. The
    shortfall, and the fraud behind it, was a shocking revelation to me, to
    customers and investors, to employees, and to regulators.
        To add some color from my lived experience--on Monday evening
    November 7, 2022, I received a phone call from Sam Bankman-Fried's
    father, Professor Joseph Bankman (a close and frequent advisor of the
    company), and I also received a series of subsequent messages over the
    course of that evening from Sam himself. Through those communications,
    I was informed that the FTX international business was meaningfully
    short of customer assets. Professor Bankman and Sam were reaching out
    to me given my U.S. market presence and background. I was ostensibly
    being invited into an emergency fundraising effort to identify backers
    to ``fill the hole''--a fundraising effort that ultimately became
    hopeless given that the underlying shortfall was affiliated with the
    clear wrongdoing of the founding team, as I would soon learn.
        By the next morning, after a never-ending night during which more
    detailed information became available and I was briefed further into
    the situation by other members of the global FTX business, the facts
    surrounding the wrongdoing behind the shortfall and its approximately
    $8 billion size started becoming clearer. And so, for the 4 sleepless
    days and nights that followed, I, along with several other devoted and
    talented remaining FTX employees, did exactly what you would expect
    trained professionals to do in the face of discovering an unraveling
    and quickly worsening crisis. The remaining engaged core worked to
    implement a ``crisis management 101'' playbook, working to swiftly
    prepare for entering into insolvency proceedings and to prompt a series
    of actions to end the active fraud and pave the way for the
    preservation of critical records and the eventual recovery of the
    billions of dollars in value now being returned to customers.
        What I have said is what happened, and I am deeply proud of the
    rapid thinking work done by a dedicated group of then-remaining
    employees to institute basic risk management practices, in the face of
    a crisis, that stopped the bleeding and paved the way for a path to
    what now appears to be a meaningful recovery (``meaningful''
    particularly when compared to the perceived possibility of a $0
    recovery outcome that presented itself during that week in November
    2022).
        In some commentary that followed the insolvency filings, there was
    a tendency to describe the FTX international fallout as a ``run on the
    bank'' or a ``temporal liquidity crisis.'' Unfortunately, and this
    cannot be overstated, FTX was NOT a bank, and FTX had no legal or
    operational basis that justified the occurrence of a customer asset
    driven liquidity crisis. The crisis occurred because customer assets
    were stolen by the founding team and used for personal trading,
    expenditures, and investments. As a consequence, customer assets were
    unavailable to satisfy customer withdrawal requests. It was not a run
    on the bank, and it was not a liquidity crisis. The assets were gone,
    and it was insolvency due to clear and deceptive wrongdoing perpetrated
    by a small group of actors.
        The courts have now done their job to consider and determine the
    consequences of the illegal conduct that led to this outcome, and the
    bankruptcy process has done its job to pick up the pieces and bring
    back for the benefit of customers the value that could be identified,
    preserved, and reclaimed. Regardless of the final economic outcome,
    this fraud was an egregious breach of trust, a significant moral lapse,
    and it came at the expense of massive amounts of pain and stress for
    the customers of FTX, amongst many others.
        And so now we come back to the role of this Committee, ``what could
    have been done'', and ``what can be done to avoid a next time.'' And I
    look very much forward to having that discussion today.
    Moving Forward; Time to Act
        Had the regulatory structure provided for in the bill currently
    being considered by this Committee and ultimately Congress applied to
    FTX, the story I just told would almost certainly have a much different
    ending. Examinations, governance requirements, audits, reporting,
    recordkeeping, and customer asset segregation requirements directly
    address the shortfalls that have allowed various digital asset industry
    failures and thefts to occur. And yet we are now at least a decade into
    the meaningful emergence of trading activity around the new global
    asset class of digital assets, and still the U.S. has made essentially
    no black-ink progress in bringing real protections to digital asset
    markets under an appropriately calibrated Federal market structure
    regime. To be clear, regulators have not been idle. There is an
    abundance of thoughtful and diligent writings from regulators that
    evaluate these markets, and Congress has now considered a multitude of
    draft texts for new laws to apply to these markets. Now we have reached
    the time to act, and I again commend this Committee in its efforts to
    see the swift adoption of this legislation.
        The remainder of this written statement further underscores the
    important value that legislation and regulation brings to digital asset
    markets, and it continues to encourage the adoption of digital asset
    market structure legislation as soon as is practicable.\2\
    ---------------------------------------------------------------------------
        \2\ There are of course important existing tools that both the CFTC
    and SEC can and perhaps should begin to use to address market structure
    regulation for digital asset markets. The tools that could be wielded
    by an innovative and focused regulator include exemptive authorities,
    guidance, and inter-agency cooperation, amongst others. In fact, in the
    absence of legislation these tools will become increasingly important
    and necessary to use. However, only legislation can bring about the
    clear and unambiguous mandate of authority that is needed to achieve
    consistent and durable progress.
    ---------------------------------------------------------------------------
    Market Regulation as the Foundation of Trust
        When market structure regulation works, investors transact
    confidently with the knowledge that pricing is fair and transparent and
    that trading venues and intermediaries are subject to compliance
    obligations, examinations, and clear standards to ensure asset security
    and market integrity. But when market structure regulation fails (or
    worse, never arrives), markets lose confidence and customers,
    investors, and other constituents lose much more.
        In crypto, we have now lived through at least a few cycles of the
    emergence and hope of real technological innovation followed by the
    intense collapse of several poorly governed entities. I believe it is
    essential for lawmakers and regulators to end the unsustainable silence
    of the legislative pen on these matters and to act quickly to pass
    market structure legislation. If my testimony holds value today, it
    will be because it is heard as a forceful call for prompt action. As a
    reminder, market structure legislation is the requisite first step,
    before the accompanying regulations and agency guidance that follows
    can begin as its own body of important and critical work. On the
    legislative side, I am confident in suggesting to this Committee that
    the Digital Asset Market Clarity (CLARITY) Act is good to go; it is
    ready. A decade of legislative inaction in pursuit of perfection has
    already wrought its damage. We have the present opportunity to take the
    bold step of adopting legislative text, starting the timeline for the
    next phase of work for our regulatory agencies to interpret and apply
    these new laws, learning from markets and market participants as they
    go. The alternative, which is to continue watching and waiting and
    engaging in unending and valueless re-writing exercises, will only
    further embolden the riskiest and least honest acting founders to
    continue targeting and attracting U.S. users looking to access these
    globally emergent financial markets.
        In my experience, the CFTC's principles-based approach to market
    oversight, which is designed for derivatives markets but readily
    transferable to spot markets, has proven resilient in enabling
    innovation while protecting market integrity, and I again commend this
    Committee for seeking to allocate to the CFTC a primary and principal
    role in digital asset regulation. In parallel, the SEC is deeply
    experienced in customer protection, capital formation, and disclosure
    based regulatory programs, and in cooperation with the CFTC, I believe
    they offer an equally important body of experience and judgement to
    bring to bear in regulating these markets. Where digital asset
    exchanges and intermediaries operate under U.S. regulatory regimes,
    their conduct and risk management efforts are shaped by an interlocking
    framework: customer asset segregation, audits and examinations,
    conflicts governance, capital and liquidity requirements, disclosure,
    and surveillance of market abuse.
        These obligations are not academic. They are operational,
    continual, and essential. Customer protection begins with fund
    segregation and extends to ongoing solvency, liquidity monitoring, and
    governance of risk exposures. A platform cannot credibly hold customer
    assets or facilitate orderly trading without building around these
    foundations.
        Moreover, these frameworks are not standalone checklists. They
    function as interconnected systems of internal controls, external
    validation, and regulatory supervision that jointly reduce the risk of
    catastrophic failure. In that sense, regulation is not a constraint on
    innovation. It is what makes responsible innovation possible and
    sustainable.
    Regulated Exchanges are Better Exchanges
        Running a crypto exchange in the United States is hard, and it
    should be. Exchanges handle customer funds, supervise risk engines,
    respond to market volatility, monitor for potential fraud, and manage
    cross-border cybersecurity threats. All of this while under the
    scrutiny of auditors, regulators, and the public.
        Regulatory expectations shape daily operations: onboarding
    procedures, surveillance protocols, compliance operations, capital
    adequacy planning, governance of hot and cold wallets, operational risk
    reviews, independent audits. The process is demanding, continuous, and
    at times inflexible, but it is necessary.
        When done properly, regulation acts as a guard rail and guide. It
    forces the kind of institutional maturity that market forces alone may
    not demand, especially in high-growth environments. It also creates an
    ecosystem where trustworthy players can distinguish themselves.
    Why This Bill Matters
        The draft legislation under discussion offers a thoughtful and
    coherent framework for digital asset markets. It recognizes that
    digital assets are not monolithic, and it seeks to allocate regulatory
    jurisdiction between the CFTC and SEC in a manner that reflects how
    these markets actually operate.
        Importantly, it would:

       Establish baseline registration and compliance requirements
            for digital asset trading platforms,

       Create clarity for the classification of digital assets,

       Preserve investor protection while accommodating
            technological differences, and

       Empower the CFTC to oversee spot digital commodities markets
            and, in certain instances, oversee multi-asset class markets in
            coordination with the SEC.

        For the first time, market participants would have a pathway to
    registration that fits the structure of digital asset trading. This is
    critical because forcing crypto markets into legacy frameworks built
    for other asset classes risks both over-regulation and under-
    enforcement.
        This bill instead takes a functional approach. It preserves core
    principles, including customer protection, fair dealing, and
    transparency, while tailoring implementation to the nature of
    decentralized technology and blockchain-based assets. That balance is
    hard to strike, and the drafters deserve credit for engaging directly
    with market realities.
        Adopting this bill will answer many of the foundational questions
    that have thus far remained unaddressed. It will allow regulators to
    move from enforcement-first policymaking to proactive rulemaking. It
    will give responsible actors a path forward. And it will create the
    legal infrastructure to support U.S. leadership in tokenized markets.
    Endorsing Coordination Between the CFTC and SEC
        The line between commodities and transactions that implicate the
    securities laws in crypto markets is not always bright. But regulatory
    coordination should not require metaphysical certainty. Market
    participants need workable rules. Investors need protection. And the
    public needs confidence that regulators are rowing in the same
    direction.
        This bill contemplates joint rulemaking, coordinated oversight, and
    clear lines of accountability. That is not only a legal necessity, but
    also a practical one. Neither agency can oversee the entirety of this
    space alone. But together, they can offer a credible framework that
    addresses market risks while enabling innovation.
        Importantly however, coordination does not mean duplication. It
    means defining roles based on asset function and market behavior. I
    want to encourage each of the CFTC and the SEC to actively coordinate
    to ensure that markets are regulated in a clear, predictable and not
    unnecessarily redundant way. This bill recognizes that complexity and
    gives agencies the tools to manage it. As longtime industry observers,
    we can all acknowledge the friction that can occur when directing two
    Federal agencies to ``coordinate and harmonize'' when done without
    including reasonably observable boundaries and instructions for that
    coordination. I encourage the Committee to finalize a bill that
    provides this clear instruction to the agencies and that includes
    meaningful oversight mechanisms to permit the Committee to monitor
    (and, if needed, prompt) that regulatory coordination throughout the
    implementation process.
    Federal Preemption and the Need for National Consistency
        In the absence of Federal action, states have filled the vacuum for
    digital asset markets. The result is a fragmented patchwork of
    licensing regimes that are difficult to navigate and nearly impossible
    to harmonize. The status quo favors incumbents, punishes compliance,
    and undermines U.S. competitiveness.
        The burden of navigating dozens of separate licensing frameworks,
    with overlapping and occasionally contradictory requirements, falls
    heaviest on early-stage projects and smaller intermediaries. These are
    precisely the actors we should be encouraging to build domestically and
    not driving offshore.
        A Federal framework, especially one that preempts duplicative state
    regulation, would level the playing field and bring clarity to
    innovators and investors alike. It would allow regulators to
    concentrate expertise and resources where they are most needed. And it
    would send a signal that the United States intends to lead in the next
    generation of financial infrastructure.
    Why Digital Assets Matter
        For all the noise and speculation, I want to conclude my written
    statement by affirmatively acknowledging that there is real substance
    in this space. I am a markets lawyer and professional, and I know that
    markets exist when there is a market. Digital assets represent
    trillions of dollars in real value, hundreds of billions of dollars in
    monthly transaction volumes (between spot and derivative markets), and
    millions of users. Studies have demonstrated that approximately 55
    million U.S. persons hold cryptocurrencies. Developers are building
    decentralized financial systems with the potential to expand access to
    capital, reduce transaction costs, and create programmable financial
    products. Enterprises are exploring tokenized treasuries, real-time
    settlement systems, and on-chain asset management. These are not
    hypothetical ideas; each statement reflects live market experiments,
    and they are happening now.
        And they are happening globally. Other jurisdictions (e.g.,
    Singapore, Dubai, Abu Dhabi, the UK, the EU) are implementing
    comprehensive digital asset frameworks. The U.S. cannot afford to
    remain on the sidelines. Leadership in financial infrastructure has
    long been a pillar of American economic strength. This is the next
    front.
        But innovation alone is not enough. It must be channeled through a
    framework that promotes fairness, transparency, and market integrity.
    That is what this legislation begins to do.
    Conclusion: A Clear Call to Action
        I appreciate the work that this Committee has done to complete the
    difficult task of translating complex market dynamics into a functional
    regulatory framework, learning from the lessons of this market's
    history and failings and also carrying over the best of our collective
    experiences in regulating existing markets. This was not easy work, but
    it was essential. In digital assets, as in every market, regulation
    matters. The next step is Federal market structure legislation, and I
    again suggest that it is ready to be adopted, now.
        Thank you for the opportunity to testify. I look forward to your
    questions.

        The Chairman. Well, thank you, Mr. Miller. Ms. Pizzola,
    please proceed when you are ready.

      STATEMENT OF CHELSEA PIZZOLA, J.D., PARTNER, WILLKIE FARR &
                      GALLAGHER LLP, CHARLOTTE, NC

        Ms. Pizzola. Thank you, Mr. Chairman. Chairman Thompson,
    Ranking Member Craig, Members of the Committee, it is an honor
    to testify before you today. Thank you for the opportunity to
    discuss the current draft of the CLARITY Act of 2025.
        I previously served as the CFTC's Deputy Chief of Staff and
    Counsel to former Chairman Heath Tarbert. I have also served as
    head regulatory counsel to Cumberland DRW, a large participant
    in digital asset, spot, and derivatives markets. Currently, as
    a partner at the law firm, Willkie Farr & Gallagher, I advise
    clients on CFTC and SEC regulatory matters, including matters
    involving digital assets. In these roles, I have seen firsthand
    the confusion, misallocation of resources, and barriers to
    innovation and competition caused by the lack of jurisdictional
    clarity regarding digital assets in the United States.
    Legislation is needed to remove permanently any jurisdictional
    ambiguity. As Mr. Miller said, the CLARITY Act's allocation of
    jurisdiction between the SEC and the CFTC along the line
    between primary and secondary markets is appropriately tailored
    to each agency's specialized expertise, experience, and
    statutory remit.
        The SEC is well suited to regulate primary market
    transactions in digital assets, which are often viewed as
    similar to capital raises involving traditional securities that
    have long been under the SEC's remit. Equally, the CFTC is the
    natural regulator for secondary market digital asset
    transactions, which are widely viewed, including by multiple
    Federal courts, as transactions in commodities. Although the
    CFTC currently does not have plenary regulatory authority over
    spot commodity markets, it has antifraud and anti-manipulation
    authority, and the Commission intently monitors and surveils
    spot commodity markets, given the close relationship between
    derivatives contracts and their underlying commodities. In
    short, the CFTC has spent the past 50 years dedicated to
    understanding and improving commodities markets and markets for
    commercial risk transfer, including in the exercise of its
    exclusive regulatory authority over options on futures and
    swaps referencing commodities.
        The CFTC has also had an extensive history of engagement
    with digital asset markets through the authorities that I have
    just described. Since 2015, it has aggressively and
    successfully pursued fraud and manipulation in spot and
    derivatives markets, as well as failure-to-register cases
    involving digital asset derivatives. It worked closely with
    exchanges and their clearinghouses to prepare for the first
    Bitcoin futures listings in 2017, and it did the same with
    Ether futures listings in 2019. Today these markets are deep,
    liquid, and transparent, and are well policed by the CFTC for
    fraud, manipulation, and trade practice violations. This record
    on digital assets is consistent with the CFTC's 50 year tenure
    as a preeminent markets regulator. Today, a total of
    approximately 40 million futures contracts are traded on
    average each day on CME Group and ICE derivatives exchanges
    alone, and in the OTC derivatives market, total U.S.-reported
    notional traded in interest rate swaps alone was approximately
    $112.7 trillion during the third quarter of 2024.
        CFTC-regulated markets and market utilities have steadily
    performed their risk transfer and shock absorption functions
    through periods of extreme volatility, such as negative oil
    pricing and other shocks, at the onset of the COVID-19
    pandemic. Finally, the CFTC is also well suited for its
    responsibilities under the CLARITY Act by virtue of its
    statutory core principles-based regulatory framework for
    exchanges and its self-certification process for new product
    listings, which were specifically designed to promote
    responsible innovation and fair competition. The statutory core
    principles are outcomes-based requirements, and exchanges are
    given reasonable discretion in determining how to comply. This
    has prevented the kind of rigid one-size-fits-all regulatory
    environment that previously stifled innovation and competition
    in CFTC-regulated markets prior to the Commodity Futures
    Modernization Act of 2000 (Pub. L. 106-554, Making consolidated
    appropriations for the fiscal year ending September 30, 2001,
    and for other purposes, Appendix E--H.R. 5660).
        The self-certification listing process has supported
    innovation and competition in CFTC-regulated markets, reducing
    the time to market for new products from years to days. These
    flexible, adaptable regulatory approaches are particularly well
    suited for the novel and constantly-evolving nature of digital
    asset markets. The CLARITY Act appropriately includes these
    features in its regulatory regime for digital commodity
    exchanges, and there is no better agency to implement such a
    regulatory framework in furtherance of responsible innovation
    than the one that has done so for the last 25 years, allowing
    for the markets under its jurisdiction to become the largest
    and the most vibrant and robust of their kind in the world.
        Finally, just returning to allocation of regulatory
    authority between the CFTC and the SEC, de minimis registration
    exemptions in areas of overlapping jurisdiction and interagency
    coordination and deference are valuable tools to reduce
    regulatory burden and promote regulatory efficiency. But beyond
    these limited exemptions and targeted deference, holistic CFTC
    oversight of the secondary digital commodity markets is
    necessary to avoid fragmentation in market regulation,
    monitoring, and surveillance. Yet ultimately, exactly how the
    line is drawn between CFTC and SEC jurisdiction is less
    important than ensuring that a clear, durable line is drawn
    through lasting legislation. We should not allow inaction to
    perpetuate an environment of regulatory uncertainty. Digital
    asset entrepreneurs and the American people deserve better.
    Thank you.
        [The prepared statement of Ms. Pizzola follows:]

     Prepared Statement of Chelsea Pizzola, J.D., Partner, Willkie Farr &
                          Gallagher LLP, Charlotte, NC
        Chairman Thompson, Ranking Member Craig, Members of the Committee:

        It is an honor to testify before you today. Thank you for the
    opportunity to discuss the current draft of the CLARITY Act of 2025 and
    the U.S. Commodity Futures Trading Commission's (``CFTC'') role in
    digital asset regulation.
        I have previously had the privilege of serving as the CFTC's Deputy
    Chief of Staff and Counsel to former CFTC Chairman Heath Tarbert, as
    well as head regulatory counsel to Cumberland DRW, a large participant
    in digital asset spot and derivatives markets. Currently, as a partner
    at the law firm Willkie Farr & Gallagher, I advise clients on CFTC and
    U.S. Securities and Exchange Commission (``SEC'') regulatory matters,
    including matters involving digital assets.\1\
    ---------------------------------------------------------------------------
        \1\ I appear before you today in my personal capacity; the views I
    express here are my own. Thanks are due to Hon. J. Christopher
    Giancarlo and Matthew Goldberg of Willkie Farr & Gallagher for their
    contributions to this statement.
    ---------------------------------------------------------------------------
        In these roles, I have seen firsthand the confusion, misallocation
    of resources, and barriers to innovation and competition caused by the
    lack of jurisdictional clarity with respect to digital assets. Markets
    work best when there are clear rules of the road. In the United States
    today, digital asset market participants cannot even be certain which
    road they are on at any given time. In the race for global
    competitiveness in the digital asset space, we have regrettably lost
    years to regulatory uncertainty and at times outright hostility toward
    digital assets. This environment has largely driven digital asset
    projects and markets offshore and impeded participation by regulated
    institutions.
        A clear demarcation of the boundaries of the SEC's jurisdiction
    over digital asset transactions, and workable rules for transactions
    within those boundaries, are critical to getting the United States back
    on track as a leader in the digital assets arena. Under new agency
    leadership, the SEC's recently formed Crypto Task Force is making
    admirable strides in this direction,\2\ and I understand that
    Commission-level action is in progress.\3\
    ---------------------------------------------------------------------------
        \2\ See, e.g., Hon. Hester M. Peirce, Commissioner, SEC, New
    Paradigm: Remarks at SEC Speaks (May 19, 2025), available at https://
    www.sec.gov/newsroom/speeches-statements/peirce-remarks-sec-speaks-
    051925-new-paradigm-remarks-sec-speaks.
        \3\ See Hon. Paul S. Atkins, Chairman, SEC, Keynote Address at the
    Crypto Task Force Roundtable on Tokenization (May 12, 2025), available
    at https://www.sec.gov/newsroom/speeches-statements/atkins-remarks-
    crypto-roundtable-tokenization-051225.
    ---------------------------------------------------------------------------
        But more is needed. Any SEC action acknowledging the limitations of
    its jurisdiction can be reversed under a future Administration. The
    previous SEC Chair claimed jurisdiction over all transactions in
    ``[e]verything other than Bitcoin'' \4\ and pursued an aggressive
    enforcement and regulatory campaign to make good on that claim. A
    future Chair could do the same. Legislation must remove any
    jurisdictional ambiguity to ensure this cannot happen again.
    ---------------------------------------------------------------------------
        \4\ Ankush Khardori, Can Gary Gensler Survive Crypto Winter?:
    D.C.'s top financial cop on Bankman-Fried blowback, N.Y. Mag. (Feb. 23,
    2023), https://nymag.com/intelligencer/2023/02/gary-gensler-on-meeting-
    with-sbf-and-his-crypto-crackdown.html.
    ---------------------------------------------------------------------------
        In this statement, I will (1) summarize relevant aspects of the
    draft legislation at a high level; (2) explain why I support the bill's
    allocation of regulatory responsibility between the CFTC and the SEC;
    and (3) highlight the importance of such a clear legislative division
    of authority between the agencies and robust coordination in any
    inevitable areas of overlapping authority.
    1. Primary- and Secondary-Market Jurisdiction
        The bill divides jurisdiction between the SEC and the CFTC along
    the line between primary and secondary markets. It implies that the
    offer or sale of a ``digital commodity'' by the issuer may constitute
    the offer or sale of an investment contract subject to the securities
    registration requirements under Section 5 of the Securities Act of
    1933, and it creates a conditional registration exemption under new
    Section 4(a)(8) for such offers and sales. It cuts off the ``investment
    contract'' chain there, however, by providing that (1) a digital
    commodity transferred pursuant to an investment contract is not itself
    an investment contract, and (2) offers and sales of a digital commodity
    by a person other than the issuer (or an agent or underwriter thereof)
    likewise are not offers or sales of investment contracts.
        Thus, generally, primary-market sales of a digital commodity could
    fall under the securities laws, while secondary-market sales would not.
    A trading facility for spot digital commodity transactions would be
    required to register with the CFTC as a digital commodity exchange
    (``DCE'') and subject to enumerated core principles and listing
    standards. Under Section 202 of the bill, an intermediary in an issuer
    offer or sale conducted in reliance on Section 4(a)(8) must register
    with the SEC as a broker-dealer, whereas a broker or dealer engaged in
    secondary-market digital commodity transactions and certain related
    activities must register with the CFTC as a digital commodity broker
    (``DCB'') or digital commodity dealer (``DCD'' and, together with DCEs
    and DCBs, ``Digital Commodity Entities''), respectively.
        This jurisdictional division of digital asset transactions provides
    much-needed regulatory stability and certainty. Provision (1) above
    codifies existing case law distinguishing digital assets themselves
    from the manner in which they are offered and sold,\5\ while provision
    (2) resolves vexing conflicts in case law related to secondary-market
    transactions \6\ in a manner consistent with the best reading \7\ of
    the term ``investment contract'' as interpreted under SEC v. W.J. Howey
    Co.\8\ and its progeny.
    ---------------------------------------------------------------------------
        \5\ Every court to consider the issue has ruled that natively
    digital assets are not in and of themselves ``investment contracts''
    and that the relevant inquiry is whether the facts and circumstances of
    a particular digital asset transaction satisfy the ``investment
    contract'' definition. See, e.g., SEC v. Binance Holdings, 1:23-cv-
    01599, Doc. 248, at *19-21 (June 28, 2024) (collecting cases).
        \6\ See, e.g., SEC v. Coinbase Inc., Case 1:23-cv-04738 (KPF), Doc.
    175 (S.D.N.Y. Jan. 7, 2025) (order granting motion to certify ruling
    for interlocutory appeal). This order acknowledges a split in authority
    between judicial districts, and even between judges of the same
    district, on the question of whether secondary-market transactions in
    digital assets can constitute the offer or sale of ``investment
    contracts.''
        \7\ See, e.g., SEC v. Ripple Labs, 682 F. Supp. 3d. 308, 328
    (S.D.N.Y. 2023); Binance, 1:23-cv-01599, Doc. 248, at *37-43; see also
    Letter from Cumberland DRW LLC to SEC Crypto Task Force (Mar. 16, 2025)
    (explaining why secondary-market transactions generally do not satisfy
    the ``common enterprise'' and ``reasonable expectation of profits from
    the efforts of others'' prongs of the Howey test). While SEC v.
    Terraform Labs declined to distinguish primary from secondary markets
    and held that the SEC had plausibly alleged horizontal commonality,
    there the court was required to credit the SEC's allegations that the
    defendant, who was the token's issuer, pooled the proceeds from token
    sales and represented that such proceeds would be used to benefit all
    purchasers. See 684 F. Supp. 3d 170, 195-96 (S.D.N.Y. 2023). The court
    in SEC v. Coinbase followed Terraform in ruling on a motion for
    judgment on the pleadings. SEC v. Coinbase, Case 1:23-cv-04738 (KPF),
    Doc. 105 (S.D.N.Y. Mar. 27, 2024).
        \8\ 328 U.S. 293 (1946).
    ---------------------------------------------------------------------------
        Of equal importance, the role the bill allocates to each agency
    generally is appropriately tailored to that agency's specialized
    expertise, experience, and statutory remit.
        Initial sales of digital assets by an identifiable issuer are often
    viewed as similar to ``capital raises'' involving issuance of
    traditional debt and equity securities, in that the proceeds of the
    sale are expected to go to the issuer or a related promoter to finance
    its development of an enterprise. The SEC has been administering a
    fulsome disclosure regime for capital-raising issuances, to the benefit
    of American investors, since its creation in 1934. Though there are
    inherent differences between traditional securities offerings and most
    initial sales of natively digital assets, the SEC nevertheless is well-
    suited for the role the bill assigns to it in regulating what are
    essentially capital-forming issuer sales.
        Equally, the CFTC is the natural regulator for exchanges, brokers,
    and dealers executing digital asset transactions not involving the
    issuer. Interpreting current law, multiple--albeit not all--Federal
    court rulings on the issue have held that such transactions are not
    offers or sales of investment contracts.\9\ Rather, these are
    transactions in commodities. The CFTC is best-suited, by dint of
    expertise, experience, and historical statutory framework, to regulate
    digital commodity markets.\10\
    ---------------------------------------------------------------------------
        \9\ See generally note 7, supra. In Ripple, the transactions held
    not to involve investment contracts did involve the issuer; however,
    this was not known to the purchasers because the transactions occurred
    on a blind bid-ask basis.
        \10\ As a technical matter, a security likely would fall within the
    broad definition of a ``commodity'' under Section 1a(9) of the
    Commodity Exchange Act (``CEA''), 7 U.S.C. 1a(9). However, securities
    generally are not treated like other commodities under the CEA; Section
    2 of the CEA, 7 U.S.C. 2, preserves the SEC's jurisdiction over
    securities.
    ---------------------------------------------------------------------------
        Though the CFTC currently does not have plenary regulatory
    authority over spot commodity markets, it has anti-fraud and anti-
    manipulation authority over such markets. And the Commission,
    particularly through its Divisions of Market Oversight and Enforcement,
    intently monitors and surveils these markets given the close
    relationship between derivatives contracts and the underlying
    commodities they reference. The CFTC also has regulatory authority over
    retail foreign exchange dealers \11\ and vigorously polices statutory
    restrictions on certain leveraged retail off-exchange commodity
    transactions.\12\ Moreover, the agency has exclusive regulatory
    authority over futures, options on futures, and swaps referencing
    commodities. In summary, the CFTC has spent the past 50 years dedicated
    to understanding and improving commodities markets and markets for
    commercial risk transfer.
    ---------------------------------------------------------------------------
        \11\ See 7 U.S.C. 2(c)(2)(C)(ii)(III); 17 CFR Part 5.
        \12\ See 7 U.S.C. 2(c)(2)(C), 2(c)(2)(D) (requiring transactions in
    foreign exchange and other commodities with counterparties that are not
    eligible contract participants to be executed on a designated contract
    market, among other things, unless there is ``actual delivery'' of the
    commodity within 2 days (for foreign exchange) or 28 days (for other
    commodities)); see also, e.g., CFTC, Addendum to FY 2024 Enforcement
    Results (Dec. 2024), https://www.cftc.gov/media/11596/
    DOE_ResultsFY24_AddendumA120424/download (noting CFTC enforcement
    actions pursuing leveraged retail off-exchange commodity transactions).
    ---------------------------------------------------------------------------
        The CFTC has an extensive history of engagement with digital asset
    markets via the above-described authorities. After thorough analysis,
    it determined Bitcoin to be a non-security commodity in 2015 \13\ and
    did the same with respect to Ether in 2019.\14\ It has enhanced
    integrity in these markets by aggressively and successfully pursuing
    fraud and manipulation in spot and derivatives instruments--and
    multiple failure-to-register cases involving digital asset
    derivatives--since that time.\15\ It worked closely with designated
    contract markets (``DCM'') and their clearinghouses (derivatives
    clearing organizations, or ``DCO'') ahead of the first Bitcoin futures
    listings in 2017 to ensure appropriate risk management, contract
    resistance to manipulation, and adherence to other DCM core
    principles,\16\ and did the same with Ether futures listings in 2019.
    Today, these markets are deep, liquid, and transparent, and are well-
    policed by the CFTC for fraud, manipulation, and trade practice
    violations. As former CFTC General Counsel Dan Davis recently noted in
    a statement before this Committee, Bitcoin, Ether, and other digital
    assets underlying products trading on CFTC-regulated markets currently
    represent 83% of total digital asset market capitalization.\17\
    ---------------------------------------------------------------------------
        \13\ See In re Coinflip, Inc., 29 Comm. Fut. L. Rep. (CCH)  33,538
    (Sept. 17, 2015).
        \14\ See, e.g., Hon. Heath P. Tarbert, Chairman, CFTC, Yahoo!
    Finance All Markets Summit (Oct. 10, 2019), https://www.cftc.gov/
    PressRoom/PressReleases/8051-19.
        \15\ See, e.g., CFTC v. Samuel Bankman-Fried, Case No. 1:22-cv-
    10503-PKC (S.D.N.Y. Aug. 7, 2024); CFTC v. Changpeng Zhao (Binance
    Holdings), Case No. 1:23-cv-01887 (N.D. Ill. Dec. 14, 2023); see also
    In re Coinbase, Comm. Fut. L. Rep. (CCH)  34,925 (Mar. 19, 2021).
        \16\ See, e.g., Remarks of Hon. J. Christopher Giancarlo, Chairman,
    CFTC, to the ABA Derivatives and Futures Section Conference, Naples,
    Florida (Jan. 19, 2018).
        \17\ See American Innovation and the Future of Digital Assets: A
    Blueprint for the 21st Century: Hearing Before the Subcomm. on
    Commodity Mkts., Dig. Assets, and Rural Dev. of the H. Comm. on Agric.
    and the Subcomm. on Dig. Assets, Fin. Tech., and Artificial
    Intelligence of the H. Comm. on Fin. Servs., 119th Cong. 4 (2025)
    (statement of Dan Davis, Partner, Katten Muchin Rosenman LLP),
    available at https://agriculture.house.gov/uploadedfiles/hhrg-119-ba21-
    wstate-davisd-20250506.pdf.
    ---------------------------------------------------------------------------
        The cumulative effect of this extensive engagement with digital
    asset products and markets recently led the CFTC's Divisions of Market
    Oversight and Clearing and Risk to withdraw a 2018 staff advisory
    providing ``enhanced'' guidance on listing of digital asset
    derivatives, explaining that the advisory is no longer necessary given
    CFTC staff experience gained in this area since that time.\18\
    ---------------------------------------------------------------------------
        \18\ CFTC Staff Letter No. 25-07 (Mar. 27, 2025), available at
    https://www.cftc.gov/PressRoom/PressReleases/9059-25. This letter also
    cites digital asset market growth and maturation over the years in
    support of withdrawal of the prior advisory.
    ---------------------------------------------------------------------------
        The CFTC's oversight of digital asset markets is not only long-
    running, but also battle-tested: in the 2022 failure of digital asset
    exchange operator FTX, while other FTX trading platforms revealed a
    total $8.9 billion shortfall in customer funds and went into
    bankruptcy, FTX's CFTC-regulated DCM, swap execution facility
    (``SEF''), and DCO survived without any loss of customer assets and
    remain in operation today under new ownership.
        This record on digital assets is consistent with the CFTC's 50 year
    tenure as a preeminent markets regulator. Due to its sound regulatory
    framework, not a single CFTC-regulated exchange failed during the 2008
    financial crisis. On average during Q1 2025, a total of approximately
    40 million futures contracts were traded each day on CME Group and
    Intercontinental Exchange (``ICE'') derivatives exchanges alone.\19\
    The CFTC-supervised DCOs for these exchanges are designated by the
    Financial Stability Oversight Council as systemically important
    financial market utilities under Title VIII of the Dodd-Frank Act.\20\
    Neither these DCOs nor any other under CFTC supervision has ever
    defaulted or even resorted to use of its mutualized guaranty fund
    resources.\21\ And in the OTC derivatives market, total U.S. reported
    notional traded in interest-rate swaps alone was approximately $112.7
    trillion during Q3 2024.\22\ These CFTC-regulated markets and market
    utilities have functioned well and steadily performed their risk-
    transfer and shock-absorption roles through periods of extreme
    volatility, such as during instances of negative oil pricing and other
    shocks at the onset of the COVID-19 pandemic.\23\
    ---------------------------------------------------------------------------
        \19\ CME Group International Average Daily Volume Hits Record 8.8
    Million Contracts in Q1 2025, Up 19% Year over Year, CME Group (Apr. 9,
    2025), https://www.cmegroup.com/media-room/press-releases/2025/4/09/
    cme_group_internationalaveragedailyvolumehitsrecord88million
    cont.html; Historical Daily Volume, ICE, https://ir.theice.com/
    investor-resources/supplemental-information/default.aspx (last accessed
    May 27, 2025). Note that ICE figures include foreign boards of trade
    registered with the CFTC in addition to DCM ICE Futures US.
        \20\ See Designated Financial Market Utilities (Jan. 29, 2015),
    Board of Governors of the Fed. Reserve, https://www.federalreserve.gov/
    paymentsystems/designated_fmu_about.htm.
        \21\ See Giancarlo, note 29, infra, at 5-6.
        \22\ International Swaps and Derivatives Association, Interest Rate
    Derivatives Trading Activity Reported in EU, UK, and US Markets: Third
    Quarter of 2024 and Year-to-September 30, 2024 (2024), available at
    https://www.isda.org/a/lqbgE/Interest-Rate-Derivatives-Trading-
    Activity-Reported-in-EU-UK-and-US-Markets-Third-Quarter-of-2024-Year-
    to-September-30-2024.pdf. Note that these figures include only
    interest-rate swaps reported to the Depository Trust & Clearing
    Corporation swap data repository. Not all swap transactions are subject
    to reporting; for example, CFTC staff has granted no-action relief from
    swap data repository reporting requirements for inter-affiliate swaps.
        \23\ See Hon. Heath P. Tarbert, Volatility Ain't What it Used to
    Be, Wall St. J. (Mar. 23, 2020), https://www.wsj.com/articles/
    volatility-aint-what-it-used-to-be-11585004897.
    ---------------------------------------------------------------------------
        Finally, in addition to the above-described experience and
    expertise, the CFTC's statutory framework and mission further bolster
    the case for the CFTC as the appropriate regulator for Digital
    Commodity Entities. Among the key purposes of the CEA are to promote
    ``responsible innovation and fair competition.'' Since they were added
    to the statute by the Commodity Futures Modernization Act of 2000
    (``CFMA''),\24\ the CFTC has regulated with these purposes as guiding
    lights--including in its approach to digital assets.
    ---------------------------------------------------------------------------
        \24\ Public Law 106-554, 114 Stat. 2763 (2000). Since before the
    CFMA was enacted, Section 4(c) of the CEA has authorized the CFTC to
    issue exemptions from statutory requirements ``in order to promote
    responsible economic or financial innovation and fair competition.'' 7
    U.S.C. 6c(a).
    ---------------------------------------------------------------------------
        The CFMA furthered these twin purposes by, inter alia, (1)
    replacing prescriptive requirements with flexible core principles for
    registered entities (e.g., DCMs, DCOs, and now SEFs following enactment
    of the Dodd-Frank Act of 2010) and (2) allowing registered entities to
    list new products for trading without affirmative CFTC approval by
    certifying to the CFTC that the listing complies with the CEA and CFTC
    regulations. These reforms were intended, inter alia, to ``remov[e]
    barriers to financial innovation that [we]re threatening America's
    global competitive position in financial markets.'' \25\
    ---------------------------------------------------------------------------
        \25\ Press Release, House Comm. on Agric., Congress Concludes
    Commodity Futures Modernization Act: House-Senate committee leaders
    craft consensus measure, (Dec. 15, 2000) (quoting House Agriculture
    Committee Chairman Larry Combest), https://agriculture.house.gov/news/
    documentsingle.aspx?DocumentID=2047; see also CFMA  2 (providing that
    ``[t]h]e purposes of [the CFMA] . . . [include] to promote innovation
    for futures and derivatives . . .'').
    ---------------------------------------------------------------------------
        The statutory core principles established for registered entities
    are outcomes-based requirements, and a registered entity has reasonable
    discretion in determining how to comply.\26\ Importantly, ``flexible''
    regulation does not mean ``lax'' or ``light-touch'' regulation. The
    CFTC is authorized to issue (and has issued) interpretations describing
    acceptable practices for compliance with the core principles, which it
    may designate as the exclusive means of compliance.\27\ And the CFTC
    has brought enforcement actions against registered entities for failure
    to comply with applicable core principles and implementing
    regulations.\28\ But the CFTC's post-CFMA history of outcomes-based
    regulation has allowed registered entities to establish compliance
    methods appropriate for their respective businesses, preventing a
    recurrence of the kind of rigid, one-size-fits-all regulatory
    environment that stifled innovation and competition in CFTC-regulated
    markets prior to the CFMA.\29\
    ---------------------------------------------------------------------------
        \26\ See, e.g., 7 U.S.C. 7, 7a-2, 7b-3. The applicable core
    principles differ across the different types of registered entities.
        \27\ 7 U.S.C. 7a-2(a).
        \28\ See, e.g., In re Options Clearing Corporation, Comm. Fut. L.
    Rep. (CCH)  35,225 (Feb. 16, 2023).
        \29\ See The CFTC at 50: Examining the Past and Future of Commodity
    Markets: Hearing Before the H. Comm. on Agric., 119th Cong. (2025)
    (testimony of De'Ana H. Dow, Partner and General Counsel, Capitol
    Counsel LLC), available at https://agriculture.house.gov/uploadedfiles/
    testimony-package_dow_03.25.2025.pdf; see also The CFTC at 50:
    Examining the Past and Future of Commodity Markets: Hearing Before the
    H. Comm. on Agric., 119th Cong. (2025) (testimony of Hon. J.
    Christopher Giancarlo, Senior Counsel, Willkie Farr & Gallagher),
    available at https://docs.house.gov/meetings/AG/AG00/20250325/118038/
    HHRG-119-AG00-Wstate-Gian
    carloJ-20250325-U1.pdf.
    ---------------------------------------------------------------------------
        The self-certification listing process as implemented by the CFTC
    has likewise supported innovation and competition, allowing inventive
    new platform-traded products to flourish by reducing the time to market
    ``from years to days.'' \30\
    ---------------------------------------------------------------------------
        \30\ Hearing on the Commodity Futures Modernization Act of 2000:
    Hearing Before the S. Committee on Banking, Housing and Urban Affairs,
    109th Cong. (2005) (testimony of Terrence A. Duffy, Chairman, Chicago
    Mercantile Exchange Holdings, Inc.), available at https://
    www.banking.senate.gov/imo/media/doc/duffy.pdf. The Commission may stay
    listing of a product during the pendency of Commission proceedings for
    filing a false certification of compliance with the CEA or during the
    pendency of a petition to alter or amend the contract terms and
    conditions under Section 8a(7) of the CEA, 7 U.S.C. 12a(7). 17 CFR
    40.2(c).
    ---------------------------------------------------------------------------
        These changes to the CEA have supported the proliferation of a
    variety of new entrants operating trading platforms, including multiple
    CFTC-regulated platforms specializing in digital asset products today.
        As in the period before enactment of the CFMA, an oppressive
    regulatory environment has again threatened America's global
    competitive position--this time in digital asset markets. The bill
    applies many of the same remedies that cured the problem in 2000,
    including a core principles framework for digital commodity exchanges
    and a self-certification listing process. This flexible, adaptable
    framework is particularly well-suited for the relatively novel and
    constantly evolving nature of digital asset markets. There is no better
    agency to implement such a regulatory framework in furtherance of
    responsible innovation than the one that has done so for the last
    twenty-five years, allowing the markets under its jurisdiction to
    become by far the largest, and the most vibrant and robust, of their
    kind in the world.
    2. Digital Commodity Activity by SEC-Registered Entities
        The bill seeks to strike an appropriate balance allowing for
    efficient, non-duplicative SEC supervision of its registrants engaged
    in digital commodity activity while preserving CFTC authority over
    digital commodity markets that are appropriately under its
    jurisdiction. Regulatory efficiency is a laudable objective. But a
    framework that retains holistic CFTC oversight over the secondary
    digital commodity markets is necessary to avoid fragmentation in market
    regulation, monitoring, and surveillance and to bring to bear the
    CFTC's unique expertise and perspective regarding these markets.
        CFTC registration exemptions for SEC registrants engaged in de
    minimis levels of digital commodity activity may be appropriate
    measures for minimizing regulatory cost and burden and maximizing
    efficient use of regulatory resources. This construct has precedents in
    other areas of overlapping CFTC and SEC jurisdiction.\31\ But beyond
    such limited exemptions, the CFTC should have oversight over digital
    commodity markets as a whole. Carving up the market between two
    regulators could result in a situation in which neither regulator can
    see the forest for the trees and major market disruption, manipulation,
    fraud, or other issues arise without warning.
    ---------------------------------------------------------------------------
        \31\ See, e.g., 17 CFR 4.13(a)(3) (providing an exemption from
    commodity pool operator registration where, inter alia, a pool's
    positions in products under CFTC jurisdiction do not exceed established
    thresholds); 17 CFR 240.18a-10 (allowing a dually registered swap
    dealer and security-based swap dealer to comply with CFTC requirements
    in lieu of certain SEC requirements where, inter alia, the entity's
    security-based swap positions do not exceed established thresholds).
    ---------------------------------------------------------------------------
        Holding multiple registrations with different regulators for
    different activities is commonplace in U.S. financial markets today.
    For example, many entities are simultaneously registered with the CFTC
    as futures commission merchants (``FCM'') or swap dealers and with the
    SEC as broker-dealers or security-based swap dealers. Regulators do and
    should coordinate with and defer to one another where appropriate to
    minimize the cost and burden of such multiple registrations. Forms of
    ``alternative compliance'' or similar deference are provided for in
    certain specific areas, such as in CFTC capital rules incorporating for
    dual registrants elements of SEC net capital rules.\32\ Similarly,
    portfolio margining is available in certain cases for related products
    under different agencies' jurisdiction--e.g., Treasuries under SEC
    jurisdiction and Treasury futures under CFTC jurisdiction--with
    expansion of such margining programs keenly awaited as the SEC's
    Treasury clearing mandate deadline approaches. A comparison of the
    vibrancy of broad-based security index futures markets (under sole CFTC
    jurisdiction) with the past malaise of single-stock and narrow-based
    security futures markets (under an onerous and complex joint regulatory
    regime) should serve as a reminder of the importance of these types of
    measures to minimize regulatory burden in areas of jurisdictional
    overlap.\33\
    ---------------------------------------------------------------------------
        \32\ See, e.g., 17 CFR 23.101(a)(1)(ii); see generally 17 CFR 1.17.
        \33\ Indeed, the SEC seemingly recognized the latter structure's
    negative implications for innovation and competition when it attempted
    to issue an exemption allowing futures contracts on the
    SPIKESTM index to be regulated as futures rather than
    security futures, with the stated goal of facilitating new entrants
    into the market for volatility products. SEC, Order Granting
    Conditional Exemptive Relief, Pursuant to Section 36 of the Securities
    Exchange Act of 1934 With Respect to Futures Contracts on the
    SPIKESTM Index, 85 Fed. Reg. 77297 (Dec. 1, 2020), vacated,
    CBOE Futures Exchanges, LLC v. SEC, No. 21-1038 (D.C. Cir. July 28,
    2023) (vacating exemptive order under the Administrative Procedure Act
    due to order's inadequate explanation and consideration of the issues).
    ---------------------------------------------------------------------------
        But with these tools for regulatory efficiency in our toolkit, we
    should not hesitate to unify all U.S. digital commodity markets and
    market participants of material size under a single ruleset,
    administered by a single agency with the expertise and experience to
    ensure these markets are vibrant, innovative, and well-regulated.
    3. Conclusion
        Ultimately, exactly how the line is drawn between CFTC and SEC
    jurisdiction is less important than ensuring that a clear, durable line
    is drawn through lasting legislation. If we lose this historic
    opportunity to provide enduring regulatory clarity for digital asset
    markets and end-users, we cannot be sure that another will come. And
    the United States may slip further behind in the push for global
    digital asset markets competitiveness. We should not allow inaction to
    perpetuate an environment of regulatory uncertainty. Digital asset
    entrepreneurs and the American people deserve better.
        Thank you, and I look forward to your questions.

        The Chairman. Thank you, Ms. Pizzola. At this time, Members
    will be recognized for questions in order of seniority,
    alternating between Majority and Minority Members, and in order
    of arrival for those who joined us after the hearing convened.
    You will be recognized for 5 minutes, each in order, to allow
    us to get to as many questions as possible, and I recognize
    myself for 5 minutes.
        Ms. Pizzola, in your testimony, you mentioned there is no
    better agency to implement a bill like the CLARITY Act and
    further responsible innovation. Please explain why CFTC is best
    suited and how it is uniquely situated among Federal regulators
    on this front.
        Ms. Pizzola. Thank you for the question, Mr. Chairman. I
    believe the CFTC is best suited to regulate secondary digital
    commodity markets in furtherance of responsible innovation
    because of its experience, its expertise, and its statutory
    remit. It currently monitors and surveils spot commodity
    markets closely, given the close relationship between
    derivatives contracts and their underlying commodities. It has
    engaged in that activity for 50 years, and its predecessor did
    so before the CFTC was established, and it spent the past 10
    years engaging productively with digital asset spot and
    derivatives markets. We saw this through its efforts to promote
    integrity through its very vigorous enforcement program,
    rooting out fraud and manipulation, as I said, in both the spot
    and derivatives markets. We have also seen this in the CFTC's
    oversight of the launch of Bitcoin and Ether futures years ago
    now that have since become vibrant, well-policed markets.
        As Mr. Miller mentioned, in the FTX bankruptcy, we saw that
    the CFTC-regulated entities within the FTX group were the only
    ones that were able to return all customer funds without any
    loss without having to go through the bankruptcy, and that,
    again, as Mr. Miller said, is because of the diligent oversight
    and examinations that CFTC staff had and engaged in regularly
    to prevent the sort of misappropriation of funds that happen
    with other entities within the group.
        So essentially, I would just sum up and say that the CFTC
    has 25 years of experience in implementing the kind of
    flexible, core-principles-based framework and self-
    certification process that, here are key elements of the
    CLARITY Act's regulatory regime for exchanges. And they have
    proven over time to support responsible innovation through
    thousands of product listings, dozens of new market entrants,
    and I really just think this is the right structure for digital
    asset markets, and the CFTC is the right regulator to implement
    that structure given its experience.
        The Chairman. Thank you, ma'am. Mr. Miller, thank you for
    sharing your story. In the FTX collapse, the only FTX entity in
    the United States with Federal regulatory oversight was the FTX
    U.S. derivatives, which is overseen by CFTC. Please describe
    for us how CFTC's oversight of FTX U.S. derivatives spared it
    from getting wrapped up in the activities of the FTX foreign
    entities.
        Mr. Miller. Thank you, Mr. Chairman. Great question. FTX
    U.S. Derivatives was registered with the CFTC, both as a
    designated contract market and a derivatives clearing
    organization. The tools in place were very simple. Customer
    assets were held at a third-party custodian segregated from the
    Treasury and company assets of FTX U.S. Derivatives. Customer
    assets were in separate accounts. They were subject to rule and
    legal structures that protected them as such, and they were not
    able to be accessed either by FTX U.S. Derivatives or the
    broader enterprise. It is not more complicated than putting
    U.S. customer assets in a segregated place and protecting those
    with law.
        The Chairman. Are you concerned something similar to the
    FTX debacle could occur in the United States if digital assets
    market structure legislation is not enacted by Congress, and
    how urgent is it that Congress act?
        Mr. Miller. Another great question. I started my statement
    with urging prompt action, and I believe that sincerely because
    what we have now is a 50 state regulatory program that doesn't
    necessarily impose governance requirements, examinations,
    audits, and the types of standards we see at our Federal
    markets regulators. I think the states do a great job at making
    sure that their standards are followed and that their
    registration requirements are met. However, we have the 25 and
    50 years of experience at our Federal markets regulators to
    bring to bear, and this statute allows that to happen.
        The Chairman. So how would CLARITY prevent an event like
    that from happening?
        Mr. Miller. So the CLARITY Act as drafted, the most
    important point is that it prompts registration. The
    registration brings in examinations, auditing, governance
    requirements, independent directors, and record keeping. That
    tool set allows both regulators and the governance body of any
    entity to ensure that what the entity says is happening is
    taking place. And so the registration provisions and the
    accompanying compliance programs in the Act do clearly what we
    are asking for in this space.
        The Chairman. Thank you sir, and I yield back my time and
    recognize the gentlelady from Minnesota, the Ranking Member,
    Representative Craig, for 5 minutes.
        Ms. Craig. Thank you so much, Mr. Chairman. I want to begin
    with a focus on consumer protection, and a key component of
    that in my mind is educating your customers. The better we can
    increase the financial literacy and risk for retail customers,
    the better prepared they will be to face those risks and the
    opportunities that these new markets present. In addition to
    establishing a regulatory framework for digital commodities
    that includes important basic protections for customers, like
    segregation of funds and disclosures, the CLARITY Act would
    also require the CFTC and the SEC to jointly study how to
    increase financial literacy of retail digital commodity holders
    and improve their coordination on customer education in this
    space.
        For those of you on the panel who have experience working
    at the CFTC or the SEC, can you talk to us a little bit about
    the agencies' respective customer education programs, and do
    you have any suggestions on ways we can help improve customer
    education and outreach surrounding digital commodities?
        Dr. Piwowar. I will go first.
        Ms. Craig. Thank you.
        Dr. Piwowar. So at the Securities and Exchange Commission,
    there is an office dedicated to this. It is called the Office
    of Investor Education and Advocacy, and they engage in a number
    of financial literacy- or financial education-type programs.
    They actually have their own website called Investor.gov,
    separate and apart from the SEC's website, and there are a
    number of different things that they do to try to educate
    folks. There is an entire page dedicated to digital assets and
    investing in those assets. Also, I mentioned in my opening
    testimony that the SEC is already using its existing authority
    in the digital asset space, and one way they are doing that is
    issuing staff statements to let people know various things. So
    for example, they have said meme coins are not securities and
    do not fall under the Federal securities laws, and so,
    therefore, you do not have the protection of the Federal
    securities laws from that, basically, a caveat emptor to
    letting them know those sorts of things. And they have issued a
    number of other statements on other things, proof of work
    staking, proof of other sorts of things that they have done,
    too, so they have a number of different mechanisms for doing
    that.
        Ms. Craig. Thank you. It is a critical moment in time to
    make sure that investors know those are now protected. With
    respect to the CFTC, any comments there?
        Ms. Pizzola. I can start, Ranking Member, and then my
    colleague, Mr. Miller, can jump in. Yes, the CFTC does have,
    like the SEC, as many here may know, a separate office of
    customer education and outreach, and it has been engaged in the
    past, I believe it is almost 10 years now, in educating
    customers regarding digital assets. It put out virtual currency
    primers explaining what is Bitcoin, what is Ether, what are
    virtual currencies, things of that nature, I believe almost 10
    years ago now. And since then, it has sort of had regular
    engagement events, an annual sort of CFTC virtual currency or
    blockchain day. Sometimes that is part of a broader blockchain
    week that is held in Washington, D.C. with different
    universities. But I certainly, Ranking Member, agree that more
    could be done, particularly in the outreach arena, making sure
    that more customers are aware, more customers are sort of
    knowledgeable of the types of fraud and other abuses that can
    take place. There is always more to be done in that arena, but
    I do think the CFTC has engaged in robust efforts in that
    regard.
        Ms. Craig. Let me just ask two more quick questions because
    I am running out of time here. Mr. Miller and Ms. Pizzola, let
    me just ask you, does the CFTC, in your view, have the current
    resources that would be necessary to regulate this space
    appropriately? Mr. Miller, yes or no, and maybe 10 seconds.
        Mr. Miller. Yes, it is an agency where resources are
    critical, and I think it is important to focus on funding the
    agency at the level of resources it has requested.
        Ms. Craig. Thank you. Ms. Pizzola.
        Ms. Pizzola. I agree with that, yes, ma'am.
        Ms. Craig. Great. Excellent. Let me just close with a final
    question to each of you. Obviously, there has been a lot of
    activity from the President and his family in this space. I
    told you what I thought about that, that he should also be
    added as well, as the Vice President, to those folks that are
    included in the legislation. Under current law, Members of
    Congress, judicial officers, legislative, judicial employees,
    et cetera, are all prohibited from using nonpublic information
    that they acquire because of their position to trade in those
    CFTC markets. Current law prohibits the same list from telling
    others, such as nonpublic information, for those trading on
    those markets. The CLARITY Act rightly adds digital commodities
    to these prohibitions. Do you believe these prohibitions should
    apply in the same way for the President? Mr. Miller?
        Mr. Miller. So I think what the Act does is bring about
    transparency and disclosure requirements that apply to all
    participants in these markets, and I think that is appropriate.
        Ms. Craig. Thank you. Ms. Pizzola.
        Ms. Pizzola. I couldn't agree more. I think the disclosure
    requirements of the Act are appropriate, and it is appropriate
    that they are broadly applied.
        Ms. Craig. I am going until Mr. Chairman cuts me off here.
    Any other? Yes? Should those prohibitions apply to the
    President and Vice President?
        Dr. Piwowar. The meme coins are not under the jurisdiction
    of the SEC, so no comment.
        Ms. Craig. Okay. Dr. Ching, just because you are here.
        Dr. Ching. I agree with our colleagues that more disclosure
    and the rules formed by this Commission are going to really
    help with that in the future. Thank you.
        Ms. Craig. Not quite the same as prohibition, but thank
    you, and I yield back.
        The Chairman. The gentlelady's time has expired. I now
    recognize the gentleman from Oklahoma, Mr. Lucas, for 5
    minutes.
        Mr. Lucas. Thank you, Mr. Chairman. Dr. Piwowar, what are
    the challenges posed by the regulation by enforcement approach
    that the last Administration took? In other words, why does
    Congress need to provide a comprehensive regulatory framework
    for digital assets so the SEC is not depending on after-the-
    fact enforcement?
        Dr. Piwowar. Yes, Congressman. I almost want to call you
    Mr. Chairman, but, Congressman, thank you for that question.
    The regulation by enforcement by the last Administration had a
    number of negative effects in the market. So as Mr. Miller
    testified, it forced a lot of folks to go offshore rather than
    having customer assets be protected within the regulatory
    framework. It was not only regulation by enforcement, but there
    was no actual regulation going on in there. There were actually
    firms that were going to the SEC begging them to regulate them.
    Please regulate us. We want to be regulated under the framework
    to protect the customer assets, as they were saying, and so
    there was a lot of innovation that went offshore, less
    protections for consumers.
        And one that I think that is an underrated negative
    consequence was that it wasted SEC resources for 4 years. There
    were dozens of staff members pursuing cases that were not under
    its jurisdiction, they lost multiple times in court, and those
    were resources they could have used to provide clarity in the
    regulatory space. And now they are catching up, but that was 4
    years wasted.
        Mr. Lucas. Dr. Ching, as you and I discussed yesterday, the
    ag and energy industries are often leading the change when it
    comes to innovation and technology advancements. Can you talk
    about some of the challenges our rural producers face when
    regulations fail to keep up with the new technology?
        Dr. Ching. There is a lot of innovation that can happen
    right now inside of rural America and agriculture. Some of the
    examples of that we have seen in the past are in this
    Committee's hearings of encounter tracking, data lineage, and
    more. Blockchain is one of those great equalizing technologies.
    As long as you have internet through a phone or other device,
    you can access the pure power of a decentralized network that
    is globally accessible. We are very excited about the work that
    this Committee is doing to help advance these technologies and
    make them more accessible to developers who can help build
    these technologies in agriculture and rural America.
        Mr. Lucas. And Mr. Miller, by the way, thank you for
    maintaining that Oklahoma tone of voice and logic. Would you
    care to comment as well as a fellow Oklahoma State guy?
        Mr. Miller. Thank you, Congressman. So access to new
    technology is often gated by the providers of the technology
    and the willingness of users to adopt it, and oftentimes that
    is gated by legal and regulatory certainty. And given that we
    have just gone through, as Commissioner Piwowar described, 4
    years of enforcement on every corner of the cryptocurrency and
    blockchain space, there is no certainty to these rural users
    that they are allowed to engage with this technology. The
    CLARITY Act and the work of this Committee will bring that
    clarity and allow more access to take place.
        Mr. Lucas. Ms. Pizzola, can you talk about the necessity of
    addressing the spot market gap? How does the CLARITY Act
    provide regulatory certainty for the spot market trading of
    digital commodities?
        Ms. Pizzola. Thank you for the question, Congressman. Yes,
    I believe that the CLARITY Act does provide very beneficial
    clarity in the spot markets today. We do have, as Commissioner
    Piwowar said, essentially a sort of morass of confusion when it
    comes to whether particular transactions are under SEC's
    jurisdiction or are sort of spot commodity transactions that
    are not regulated other than under the CFTC's antifraud and
    anti-manipulation authority. We did see under the prior
    Administration, case after case, time wasted, resources
    misallocated, and just general confusion. And it really did
    deter market participants and entrepreneurs from participating
    in the space and drove well-meaning firms, both entrepreneurs
    and financial institutions, either offshore or just out of the
    digital asset markets altogether.
        And I think the CLARITY Act really does provide a
    beneficial set of rules of the road that really draw a clear
    line between SEC and CFTC jurisdiction, and has this sort of
    registration, examination, auditing that Mr. Miller referenced,
    as well as customer funds segregation requirements, disclosure
    requirements, other important aspects of a regulatory framework
    that you would need in order to sort of have clear rules of the
    road and ensure that these markets can flourish.
        Mr. Lucas. Thank you very much, and thank you, Mr.
    Chairman. I yield back to balance my time.
        The Chairman. The gentleman yields back. I now recognize
    Ms. Brown from Ohio for 5 minutes.
        Ms. Brown. Thank you, Chairman Thompson and Ranking Member
    Craig, for calling this hearing today, and thank you to our
    witnesses for being here. As the representative for Ohio's 11th
    Congressional District, I am proud to represent a region with a
    legacy of innovation rooted in service to working families.
    From Garrett Morgan revolutionizing traffic signals to Charles
    F. Brush perfecting electric lighting, my district has a
    history of leading innovative technology. That legacy lives on.
    Case Western Reserve University has been collaborating with
    Hyland and Dataswift to develop verified blockchain-anchored
    digital credentials. And just down the road, our world-class
    hospitals are leveraging artificial intelligence and advanced
    learning algorithms to protect patient privacy and improve
    care. This is what innovation looks like, but innovation
    without guardrails invites exploitation.
        Digital assets aren't just about cryptocurrency or
    speculation. They are about the next generation of technology,
    finance, and market participation. From enabling faster
    payments to powering digital identity, the potential is
    enormous, but so are the risks. Today's regulatory framework is
    fragmented, outdated, and insufficient. Consumers don't know
    who is protecting them. Companies operate in a fog of
    uncertainty, and bad actors are exploiting the vacuum. The time
    to act on cryptocurrency and digital asset regulation is long
    overdue. The last few years revealed a systemic failure to
    protect retail investors from fraud, misconduct, and abuse, and
    accountability remains elusive, and the risk isn't behind us.
    It is still unfolding at the highest levels of government.
        President Trump has reportedly profited from meme coins, a
    clear conflict of interest. It should concern every American
    that someone can spend $2 million to get a literal seat at the
    table with the President. Reports indicate that the President
    and his family have increased their net worth by nearly $3
    billion, thanks to crypto investments, and 40 percent of the
    President's net worth is now tied to crypto. This isn't just
    about ethics, it is about oversight. We need clear, consistent,
    and forward-looking regulation not just to protect consumers,
    but to give businesses the certainty they need to innovate and
    grow responsibly.
        Mr. Miller, you had a front row seat to the FTX collapse.
    In your view, are current regulatory frameworks capable of
    protecting retail investors from the kind of misconduct we saw
    there, and what critical protections were missing that allowed
    billions in customer assets to vanish?
        Mr. Miller. Thank you for the question, Congresswoman. I
    think the tools that we want to bring to bear are capital
    requirements, customer asset segregation, examination, and
    audits, and those are the tools baked into the current draft of
    the CLARITY Act. When you bring that set of tools and
    regulatory programs into an entity that is holding customer
    assets, that gives regulators the ability to enforce what the
    law says.
        Ms. Brown. Thank you. Dr. Piwowar, even if agencies, like
    the CFTC or SEC, have rulemaking authority, they may lack tools
    to ensure transparency and consumer redress. Should they, or
    possibly the CFPB or another regulator, be empowered to develop
    a national digital asset consumer protection standard, and if
    so, what should that include: disclosures, recourse mechanisms,
    or real-time fraud monitoring?
        Dr. Piwowar. Yes, thank you for your question. I believe
    that the SEC and the CFTC have the tools and the necessary
    authorities, not only the existing ones, but the ones provided
    in the CLARITY Act. In particular, I note that the CLARITY Act
    exempts digital commodity issuers from traditional securities
    regulation. However, it applies a very tailored approach using
    the SEC's expertise. So the SEC provides disclosures not only
    for public companies, but also for investment companies like
    mutual funds, ETFs, closed-end funds. They have the expertise
    and the tools to apply those that fall under their jurisdiction
    and I have the confidence that the CFTC also has under theirs.
        Ms. Brown. Thank you, and, Ms. Pizzola, if Congress fails
    to act, what do you believe the long-term consequences are for
    low-income and minority consumers who already face deceptive
    marketing and limited financial protections?
        Ms. Pizzola. Thank you for the question, Congresswoman. I
    believe that financial institutions that may otherwise support
    financial inclusion for those types of Americans will continue
    to be deterred from participating in this space, and that,
    again, the types of financial inclusion mechanisms that digital
    assets can provide will continue to be sort of pushed offshore,
    as we have seen for the past several years, due to the
    regulatory fragmentation that you mentioned.
        Ms. Brown. Thank you. Discussion like today's highlight why
    this Committee's work is so important. Through thoughtful
    dialogue, we can finally begin to bring digital assets out of
    the regulatory shadows by ensuring there are rules of the road
    that protect consumers, promote responsible innovation, and
    preserve U.S. competitiveness. I look forward to continuing
    this discussion with my colleagues, and with that, Mr.
    Chairman, I yield back. Thank you.
        The Chairman. The gentlelady's time has expired. I now
    recognize Representative Bost for 5 minutes.
        Mr. Bost. Thank you, Mr. Chairman. Mr. Miller, given your
    background and experience, is it important for market
    participants to proactively know which assets are subject to
    CFTC's oversight and which assets are subject to the SEC's
    oversight, and if so, why?
        Mr. Miller. Thank you for the question. It is important to
    know who your regulator is and who your service provider's
    regulator is because we have longstanding laws that govern how
    those assets are protected and how those assets are treated,
    depending who the regulator is, in the case of insolvency or
    otherwise. And so it is critical that a customer can look at a
    business and understand who its regulator is.
        Mr. Bost. So does it enhance customers' protection to
    provide clear lines so they know exactly where their guardrails
    are and who they are dealing with?
        Mr. Miller. Absolutely.
        Mr. Bost. Ms. Pizzola, you have worked at CFTC as well for
    and on behalf of several firms regulated by the CFTC. Can you
    talk about the agency's principal-based approaches and why that
    would serve as a good fit for digital assets?
        Ms. Pizzola. Congressman, thank you for the question. The
    principles based approach that we have under the Commodity
    Exchange Act, it is really a flexible framework, it establishes
    outcomes-based requirements, and it gives exchanges and other
    registered entities reasonable discretion in determining how to
    comply. And it is expressly designed to promote responsible
    innovation, which we all want to see in the digital asset
    space. And ever since it was enacted 25 years ago, it has
    really allowed exchanges to tailor their compliance efforts to
    their unique business models, and I think that approach works
    very well in the digital asset space because of the constant
    innovation, the evolving nature of the space. I think we have
    seen that it has supported the proliferation of a variety of
    new entrants in the exchange operating space, including
    multiple CFTC-regulated platforms that specialize in digital
    asset products today, and so I think it is a great fit for the
    digital asset industry because of those features.
        Mr. Bost. I just want to say that as we are moving forward
    with this, the first time I heard about any digital--obviously
    it was Bitcoin that everybody talked about
        I was in church, and there was a guy who had a radio show
    program that broadcasted with 30 powerful watts, I am pretty
    sure, and it was amazing to me. He came up and he said you got
    to know about this, and honest to goodness, it has been trying
    to get educated. And so adding to where, early on, Ranking
    Member Craig went, educating people specifically on
    understanding Bitcoin, because you can get online and literally
    blow your head up trying to figure out what digital assets and
    how you work them. And the only thing I can compare it to is
    whenever we went to the paper dollar, and you no longer had
    gold and silver in your hand.
        This is the same type situation, and trying to get a
    wraparound to protect people's, literally, assets that are
    floating out there and try to understand how to use them is
    challenging, but your help is tremendous. Thank you for your
    input and look forward to where we are going with this. Thank
    you, and I yield back.
        The Chairman. The gentleman yields back. Now I am pleased
    to recognize gentlelady from Oregon, Ms. Salinas, for 5
    minutes.
        Ms. Salinas. Thank you, Chairman Thompson and Ranking
    Member Craig, and thank you to our witnesses for being with us
    today.
        Throughout my public service, I have taken consumer and
    investor protection very seriously. Oregonians demand
    accountability for bad actors, and our state has a pretty proud
    history of standing up to companies that engage in practices
    that actually harm consumers. In fact, earlier this year,
    Oregon's Attorney General filed suit against Coinbase for
    selling unvetted, unregistered digital assets to Oregonians and
    Coinbase users across the country. Coinbase cost investors
    billions of dollars, and one of these specious cryptocurrencies
    at issue in the lawsuit dropped in value from $700 to $72
    within 1 month of being launched for public trading on the
    platform, and today the coin is valued at around $5 per share.
    And this question is for the whole panel. How pervasive are
    these kinds of scam coins across large exchanges like Coinbase,
    Crypto.com, and Robinhood, and have these actors or our
    regulating agencies made any progress to rein in their
    proliferation?
        Mr. Miller. Thanks for the question, Congresswoman. I think
    disclosure on the cryptocurrency service providers' websites
    about the products that are made available is critical. I think
    many of the companies you identify do that, and they do it very
    well, and I think the CLARITY Act will encourage more of that
    and will provide a Federal basis for those types of
    disclosures. I think the industry has done a good job in the
    United States of ensuring that customers are aware of what they
    are buying when they go on the websites and they are able to
    read the backgrounds of the projects behind the tokens. I think
    the current lawsuit by the State of Oregon is a bit of a replay
    of the SEC lawsuits that have either been withdrawn or defeated
    in the courts, and so I am hopeful that we don't see a
    continuation of the state of the SEC enforcement path over the
    last 4 years that diverted so many resources from progress.
        Ms. Salinas. Thank you. Would anybody else like to comment?
        Dr. Piwowar. Just to comment that I note in the CLARITY Act
    where it provides for disclosures on the projects up front, and
    then also, coupled with the prohibitions on certain sales by
    insiders, I think is a very good consumer protection. It is
    very consistent with what the SEC requires for initial public
    offerings where there is a lockup period, where insiders who
    have inside information on their companies are not allowed to
    sell into the market until a lockup period expires, and they
    have to disclose that. So I think providing the prohibitions
    along with the disclosures is very helpful.
        Ms. Salinas. Thank you, and in the panel's view, how have
    these kinds of scam coins hurt the investors' perception of
    digital assets as legitimate investment vehicles?
        Ms. Pizzola. I will start with that. Thank you,
    Congresswoman. I think it has deterred participation from
    financial institutions that otherwise would feel or may feel,
    particularly with increasing regulatory clarity through the
    types of SEC staff actions that Commissioner Piwowar mentioned.
    I think they may otherwise be interested in getting into the
    space, but are concerned about scams and frauds and exposing
    their customers to that kind of activity. And then I think in
    general, it just sort of deters market participation, has left
    sort of a vacuum of sort of the kind of professional and well-
    regulated space that we would want to see for crypto assets. I
    think with the kind of disclosure and customer protection,
    customer asset segregation requirements, registration,
    recordkeeping, reporting, things like that that we see under
    the draft CLARITY Act, I think that that would really
    professionalize the space and address many of the concerns that
    you have identified, Congresswoman.
        Ms. Salinas. Thank you. So to the point of everything that
    we have talked about today with the disclosures, the segregated
    funds, transparency audits, last Congress, this Committee heard
    testimony from the CFTC Chairman, Russ Behnam, that indicated
    the agency would need an additional $120 million of additional
    investment over a 3 year period to meet the demands of the
    regulatory framework that was set out under the FIT21, and this
    framework does closely monitor what we are talking about today
    under the CLARITY Act. How can the CFTC and the SEC, for that
    matter, be expected to meet the expectations laid out in this
    legislation without being provided additional resources? And
    what would some of the harmful consequences of setting forth a
    more regulated market structure be that cannot be properly
    enforced?
        Mr. Miller. I will make a short response. Thank you for the
    question. I think funding our market regulators has been a
    great return on investment for the American people, and it has
    been proven over the years, and so if we are going to add
    responsibilities, we have to add resources.
        Ms. Salinas. Thank you.
        Dr. Piwowar. From the SEC side, I note that the new
    Chairman, Paul Atkins, just testified recently to the
    Appropriations Committee on what he believed the level of
    resources are, so defer to him on that. I will say that the SEC
    is already, as I mentioned, redeploying assets from some of
    their enforcement staff that have been doing some of these
    cases that should have been focused on protecting consumers.
    Acting Chairman Uyeda started, I think it was called the Cyber
    and Emerging Threat Unit that specifically focuses on these
    types of things, so I think redeploying resources is one way
    that they can do that.
        Ms. Salinas. Thank you for indulging me, Mr. Chairman. I
    yield back.
        The Chairman. The gentlelady's time has expired. I now
    recognize the gentleman from the Buckeye State, Mr. Taylor, for
    5 minutes.
        Mr. Taylor. Thank you very much, Mr. Chairman and Ranking
    Member Craig, for holding this hearing, and thank you very much
    to the witnesses for their insight, time, and the sacrifices
    you made to be here. As representative of a large swath of
    Appalachian southern Ohio, one of my main priorities is to
    support policies that promote economic development and job
    creation. And while the digital assets industry is still in its
    early stages, many innovators are already using blockchain
    technology to improve the daily lives of Americans every day.
    Dr. Ching, can you describe the value of digital assets today
    and their potential value in the future for small businesses
    and main street Americans beyond trading them on an exchange?
    And what I am trying to get at is why should the people in
    southern Ohio, which is a very Appalachian district, care about
    what we are talking about today?
        Dr. Ching. Thank you for your question, Congressman. We
    have heard today a little bit about how tokens can be used for
    different kinds of purposes. I would like to talk about the
    ones that I think that they are best used for. Tokens are an
    incredibly neutral way to interact on a blockchain. They
    provide governance features, staking features, which is
    security as well as opportunity to do payments, and represent
    digital identity and verification of the digital identity. In
    places in Ohio and across the world, we are starting to see new
    entrepreneurs and new ideas being picked up in these areas to
    support new applications. I think one actually we talked about
    in the past was actually working with Ohio State on some
    programs for digital assets for athletic programs and others
    and games.
        I think that this innovation is very important to support
    Americans bringing those small businesses across all of
    America, as well as it is going to help the global economy to
    make these products accessible from a larger standpoint. So
    overall, we are very excited about this Committee's work to
    help provide much more clarity around token issuance and
    management to making these innovations possible.
        Mr. Taylor. Thank you very much. We heard testimony earlier
    that the one basic requirement for participation in this
    technology is connection to the internet, correct?
        [No response.]
        Mr. Taylor. Okay. My district has an incredibly large part
    of it that has basically no access to the internet, and I am
    not the only person that has a district like that. So by show
    of hands, does anyone on the panel share my concern about the
    fairness of enacting a comprehensive cryptocurrency framework
    using the resources of all Americans before we make it
    accessible to all Americans? Is nobody else concerned about
    that?
        [Hands raised.]
        Mr. Taylor. We all are? Okay. Good. Good, good. Glad to
    hear that. Sorry. I didn't think it was coming to me this fast.
    Mr. Miller, in your testimony, you described how in the absence
    of Federal action, states have filled the vacuum for digital
    asset market regulation, and because we lack a Federal
    framework, innovators are forced to navigate a complex,
    inconsistent patchwork of licensing regimes. As a small
    business owner myself, I know the last thing entrepreneurs want
    to think about is regulations. Every minute you spend thinking
    about regulations is a minute that is not spent improving your
    business. I don't know any business owner that would want to
    spend more time thinking about regulations. So in the current
    regulatory environment, can you describe further the steps that
    a digital asset entrepreneur must take if they want to scale at
    the national level?
        Mr. Miller. Thank you for the question, Congressman. It is
    a great question and one that we get often. There are at least
    40, maybe 45 states that have clear licensing requirements for
    many types of digital asset businesses that involve
    transferring assets between customers. Certain states, it can
    be a multiyear process. The cost estimate, if someone wants a
    50 state program, it can be in the millions of dollars. It is a
    burden that many have faced and decided to not start their
    business in the United States.
        Mr. Taylor. Thank you very much. Just for clarification of
    my previous question, has there been an estimate of the cost
    that goes into the building the rulemaking framework? Is
    anybody familiar? I know that is going to be ultimately our
    job, but is anybody aware of what they estimate that cost to
    be?
        Dr. Piwowar. I have not seen an overall cost, but both
    agencies are required by law when they engage in particular
    rulemakings to look at the cost and benefits of each of the
    particular regulations that they are putting in place, so they
    will be coming out on an individual basis.
        Mr. Taylor. Sure. So the point of my earlier question, in
    case it wasn't clear, is the taxpayer money from everybody is
    going to be used for whatever the cost of these two agencies'
    big framework is going to be, but until we get everybody access
    to the internet, they won't be able to participate in it. Is
    that where we are?
        Mr. Miller. I will engage this way. I think blockchain
    provides an opportunity for inclusion and access to financial
    services, and if that is the promise of it, then we need to
    distribute it and deliver it to those who need to access it.
        Mr. Taylor. So you are in favor of making sure everyone has
    access to the internet before we worry about this framework?
        Mr. Miller. I am exceptionally pro-internet, and I am also
    pro-blockchain legislation.
        [Laughter.]
        Mr. Taylor. Fair enough.
        Dr. Piwowar. At the Milken Institute, we worked on a
    provision of the Bipartisan Infrastructure Bill (Pub. L. 117-
    58, Infrastructure Investment and Jobs Act) that has $2 billion
    at Department of Commerce that rural communities can apply for
    to get broadband.
        Mr. Taylor. Okay. Thank you all very much.
        Dr. Piwowar. So I will be happy to put you in contact with
    them.
        Mr. Taylor. I appreciate it. I yield back, Mr. Chairman.
        The Chairman. The gentleman yields. I now recognize the
    gentleman from Alabama, Mr. Figures, for 5 minutes.
        Mr. Figures. Thank you, Chairman Thompson and Ranking
    Member Craig, and I appreciate everyone's involvement in
    pulling this hearing together, and to the panel. I also want to
    start with a special thanks to all of the Committee staff and
    the Committee Members' staff because this is complex stuff.
    This is not simple. This is tough. It is tough to comprehend.
    It is tough to understand. It is tough to discuss in simple
    terms. It is tough. So I want to give a special shout-out and
    thanks to all staff on both sides of the aisle for really
    diving into this and becoming the experts that we need.
        Congressman Taylor, I was with you back here. You couldn't
    see us, but we had our hands up, too. We agree with that issue.
    I represent a very rural part of Alabama for the most part. I
    have Mobile and Montgomery, but I am pretty sure those are
    probably the only two cities in my district that most of you
    guys have heard of. We have a very significant rural broadband
    access issue, and so I, too, am committed and want to work with
    you, Congressman Taylor, to make sure that, in the context of
    this being a future element, a significant and growing element
    of our economy, that we are not leaving rural America and rural
    Alabama in the dust simply because they don't have the ability
    to be able to plug into the future. That is a real thing. You
    can pull up to McDonald's in my district on any school day and
    see it full of cars with more cars than people are inside the
    restaurant because that is their only access to be able to get
    on the internet to do homework. And so that is a real concern,
    and, Congressman Taylor, I want to work with you on that going
    forward.
        I spoke to the complexities of these issues, and literacy
    is enormously important here because we sit here and we look
    very smart and educated and informed in discussing this
    subject, but I can guarantee you there are probably less than
    20 percent of Members of Congress who can have deeper than a
    surface-level conversation about this issue because it is
    tough. And we have the benefits of staff that can get us up to
    speed on it, but the average person doesn't. And so people in
    Alabama and Mississippi and Ohio, they don't have the luxury of
    having somebody to be able to explain to them what
    cryptocurrency is, and I believe that is what contributes to a
    lot of the fear and misunderstanding and misinformation that is
    out there about the industry. And so, I want to make sure that
    what we are doing here in regulating this is going to
    contribute to enhancing literacy across the spectrum of a
    future, quite possibly, cornerstone of the American economy.
        And so, Dr. Ching, what does this bill do for that in terms
    of financial literacy, particularly to those highly vulnerable
    groups and populations and communities across the country?
        Dr. Ching. Thank you for your question, Congressman, and I
    just want to address, as an industry, on the product side, we
    are working actually really hard to support new types of
    applications where the blockchain can be used without the
    internet. And so you can imagine a world where even without
    internet, using Bluetooth technology or other kind of like just
    person-to-person communication, you can transact in the same
    way and have those transactions then be finalized on a
    blockchain when they do connect with the internet at some point
    in time in the future. This regulation is very helpful to
    actually define, again, the token issuance rules and having
    this innovation come into America.
        A lot of the products we worked with in the past, ourselves
    included, have had trouble understanding these rules and
    regulations and spend considerable resources to try to
    understand them, and, ultimately, delayed our token launches or
    forced us into launching with a lot of uncertainty in the past.
    Other projects don't even have the resources that we have, and
    they have had to struggle with even moving offshore or finding
    other methods of solving this challenge. This clarity will be
    very, very helpful in helping American innovation to happen in
    places in your district and other places in rural America, and
    I think with that ability and definition, it will bring back a
    lot of that entrepreneurial spirit to these areas and then
    drive technology in those areas as well.
        Mr. Figures. Thank you for that. And I am personally a
    believer in innovation and the power of innovation, and believe
    that we need a framework that encourages said innovation and
    continues to put America in the driver's seat in this space.
    But the consumer protection angle of it is obviously something
    that a lot of people are concerned about and something that we
    have to be realistic about in addressing and make sure that the
    framework that we are adopting has sufficient protections and
    means to address scams. I know the industry does not like
    frauds, does not like scams, does not like people abusing it.
    That is not good for business. It is not good for the image of
    the industry. I know many players have called for regulation
    for a long time to root out that sort of malfeasance. And so, I
    guess I will channel this last question to you, Mr. Miller. In
    terms of consumer protection, does this bill do enough, and I
    will give you a softball: why is this bill the best way to go
    right now?
        Mr. Miller. Thank you for the question. By certain
    measures, 55 million Americans own cryptocurrency, so this is a
    real question today. And what the bill does is require
    examinations, customer asset protection and disclosures, and an
    ongoing regulatory supervision by our markets regulators with
    the experience to do it. That is what the CLARITY Act does, and
    it is why I have been supportive.
        Mr. Figures. Thank you. I yield back, Mr. Chairman.
        The Chairman. I thank the gentlemen. I now recognize the
    gentleman from South Dakota, the Chairman of the Subcommittee
    of jurisdiction for CLARITY, Mr. Johnson, for 5 minutes.
        Mr. Johnson. Thank you, Mr. Chairman, and thank you for
    your kind comments at the top of the hearing. Mr. Chairman, as
    you know, the age of digital asset opportunity and innovation
    is here. Blockchain technology is going to improve and empower
    every industry, and a lot sooner than most people realize. The
    only question that is really before us is where is that
    innovation going to happen? The only thing that is standing in
    the way of America being the home for that innovation and that
    investment is our regulatory uncertainty. Most everyone else
    has already figured this out, and so the CLARITY Act, which has
    been a great joint effort between myself, the Chairman, the
    Ranking Member, Don Davis, and our colleagues on Financial
    Services, is an attempt to banish that regulatory uncertainty,
    to unlock this innovation, unlock this investment, and make
    sure that those industries are empowered.
        And so, Dr. Ching, you have spoken quite a little bit today
    already about how the CLARITY Act, our CLARITY Act, is the path
    toward unlocking that innovation. Am I being too hyperbolic in
    my statements?
        Dr. Ching. Thank you for the question, Congressman. No, not
    at all. Thinking about our own journey, we started Aptos Labs
    in 2021, and it took us 10 months to get the launch in 2022. A
    lot of time and resources were spent trying to understand best
    practices in this space, and it was very hard. We ultimately
    end up launching with a lot of uncertainty and still have
    uncertainty still today. Others are not as fortunate in this
    space. They don't have the resources we have, and so for them,
    it has been a very difficult journey to understand what is
    permissible, what is not allowed. Are they following the best
    practices for their particular protocols and their particular
    products? It is very challenging for that to happen.
        Today we have 118 employees in the U.S., and we are very
    much U.S.-based. We still see a lot of projects happening
    overseas. We would love to see a lot of projects happening back
    in the U.S., and we are here to support this Committee and this
    path forward with the CLARITY Act in making that happen.
        Mr. Johnson. Ms. Pizzola, well, let me back up. There are
    some instances today when we have dual registration between the
    CFTC and the SEC, at least a couple instances of which I am
    aware. Are the agencies able to handle that? Stakeholders and
    market participants, does it work?
        Ms. Pizzola. Yes, Congressman, it does work. Today there
    are numerous financial institutions that are dually registered
    with both agencies. You have dual FCMs and broker-dealers, swap
    dealers and security-based swap dealers, and I think the
    agencies, while they could certainly do more in the areas of
    harmonization and deference and coordination, I think there are
    today many mechanisms already in place to try to minimize the
    regulatory burden and cost that comes along with dual
    registration. For example, we have capital requirements that
    the CFTC has that incorporate by reference SEC requirements for
    dual registrants to sort of ease the burden of having to comply
    with both capital regimes. The SEC has a time limited no-action
    position for compliance with its security based-swap reporting
    requirements if an entity complies with CFTC's parallel
    requirements. There is portfolio margining that sort of eases
    the burden for entities that are engaged in offsetting
    positions and related products that are within each agency's
    respective jurisdiction, for example, Treasuries and Treasury
    futures.
        And so there are a lot of tools in the toolkit to try to
    minimize regulatory burden that exists today, and I think the
    agencies certainly could apply similar approaches under a dual
    registration framework under the CLARITY Act.
        Mr. Johnson. Thank you. Mr. Chairman, I would note that it
    seems like it is always easier to do nothing than to do
    something in Washington. It is really only a deadline that
    drives us to achieve something, and I would submit to my
    colleagues that we have a deadline before us. I believe that
    the next 18 months will see more innovation and more
    transformation in the blockchain and in the digital asset space
    than we have seen in the last 18 years. And every other
    developed country in the world has gotten this right. Now is
    our time. We have a deadline before us. If we want to protect
    consumers, if we want to unlock innovation, if we want to be
    the home of the kind of investment that will transform these
    industries, now is the time for us to get this right, and I am
    grateful for my colleagues on both sides of the aisle that have
    put serious effort into this work product. With that, I would
    yield back.
        The Chairman. The gentleman yields back. I now recognize
    the icon of south Chicago, the gentleman from Illinois,
    Representative Jackson, for 5 minutes.
        Mr. Jackson of Illinois. Thank you. Chairman Thompson, once
    again, thank you, and our Ranking Member, Ms. Angie Craig. This
    is such a fascinating topic, and my comments specifically will
    be going to you, Dr. Piwowar. You got a very fascinating and
    storied career. Particularly, I feel as if you have been here
    before, with your great work on the Dodd-Frank Act and other
    good things.
        It seems to me that we are going through a bit of market
    hysteria. Our country says DEI is an inappropriate, illegal
    term. Only one person has said that. It is ill-defined and not
    defined at all. There are no DEI laws, so you can't break a law
    that is not a law. It is an aspiration, diversity: out of many,
    we are one. Equity, equal protection, inclusiveness. You want
    to bring more people in. How can we make sure that there is
    greater market participation, and how can we get to the depth
    and bring people in that are currently in the margins that
    would have a higher barrier to getting access to information to
    these resources, to be a market participant?
        Dr. Piwowar. Yes. Thank you, Congressman, for that
    question, right. So at the Milken Institute, as you know, you
    are very familiar with the Institute--we spend a lot of time
    thinking about how do we improve access to capital for
    underserved populations, financial inclusion for underserved
    populations, and really to what end, and it is really about
    economic mobility. If we can provide financial inclusion for
    people who have not been included into the financial system,
    there is an opportunity for them to move up the economic
    ladder, so that is really what it is all about.
        And so we do that in a number of ways, focusing on
    underserved entrepreneurs, underserved communities, like rural
    communities. We have worked with the Department of Commerce on
    helping to get access to Federal dollars from communities that
    had not been able to do that, and also the providers of the
    capital. We have an HBCU Fellows Program to put people on a
    pathway to careers in asset management and a lifetime financial
    security program looking exactly what you are looking at is,
    how do we get more investment opportunities for folks that
    maybe don't have $100,000 to invest, those small-dollar
    amounts? And that is where a well-regulated system that
    promotes competition is the best way to do that because then
    you get competitors competing for everybody. Whether it is
    offering access to the financial system in a brick-and-mortar
    situation or on the phone, or whatever it is, the more
    competition you get, and we have seen that--the costs have gone
    down and down and down over decades.
        Mr. Jackson of Illinois. Thank you, Dr. Piwowar. Another
    question, probably more technical, but I wish I had you for a
    few hours to talk to you all by myself. But from the capital
    markets perspective, efficiency and liquidity are critical
    drivers of innovation and growth, and we accept that. How do
    you see the current regulatory environment impacting liquidity,
    specifically for the formation of the crypto markets? I am more
    concerned about how they reduce the bid-ask price, how they
    will be the next evolution of innovation in this market.
        Dr. Piwowar. Yes. No, that is a wonderful question. I
    mentioned the threefold mandate, right, and the key here is, as
    you mentioned, liquidity, efficiency, and I would add price
    discovery. So if we can provide a proper framework where people
    feel protected, have the information to make informed decisions
    in terms of buying, selling, holding securities, right, that
    will create more efficient markets. You will have better price
    discovery, better liquidity for the investors, and more
    efficient allocation of resources in terms of capital formation
    for the entrepreneurs like Avery here, and we will get more
    innovation. So it is a virtuous circle.
        Mr. Jackson of Illinois. And the last question I would ask
    because I am very much concerned about you have to grow the
    market, increase liquidity, all the other good drivers in
    there. But considering the historical access, that diversity
    initiative, equities initiative, these things have been
    innovative in bringing this multicultural society together. I
    bring that up because if we let the markets go their way with
    certain access to broadband and other things, it will become
    inefficient. I am trying to figure out how do we keep that as a
    mandate or as a goal, an aspiration, so that it enhances the
    market, it does not detract from the market. So most people
    say, oh, why are you saying diversity, equity, inclusion?
    Because I can, and I think it is very important, and it helps
    the capital markets. Can you respond to that, please?
        Dr. Piwowar. Yes. So one thing that I mentioned when I was
    a Commissioner at the SEC is that we prohibit some investors
    from investing in certain investment opportunities. And the SEC
    has these rules called the accredited investor definition that
    says, look, some things are so complex, so risky that only
    sophisticated investors can invest in them, and how does the
    SEC define sophistication? If you are rich, if you have a high
    net worth, if you have a high net income, you can invest in
    stuff, so the rich get richer and the other folks get left
    behind. So this is one where we can really democratize
    opportunities for investment by looking at the accredited
    investor definition and make sure that it doesn't seep into the
    digital asset regulation as well.
        Mr. Jackson of Illinois. Thank you so much, Mr. Chairman. I
    yield back, and thank you for the extra time.
        The Chairman. The gentleman yields back. I am now pleased
    to recognize the gentleman from the duck and rice capital of
    the country, Mr. Crawford, for 5 minutes.
        Mr. Crawford. I thought LaMalfa might jump in there on that
    one. He might have some issues with that.
        Voice. [Inaudible.]
        Mr. Crawford. Oh, yes. We will talk about that later. For
    the record, though, he got that right. To follow up, Mr.
    Miller, in your testimony you said, ``Running a crypto exchange
    in the U.S. is hard and should be.'' Do you believe the CLARITY
    Act would continue to make it hard to run a crypto exchange
    and, therefore, protect American consumers from something like
    what happened with FTX?
        Mr. Miller. Thank you for the question, Congressman. By
    saying it is hard, I mean there are compliance programs that
    need to be in place, and you need the right level of expertise
    to get it correct, and you need the right level of supervision
    from a regulator to continually ensure that you are getting it
    correct. The CLARITY Act, by bringing registration to these
    businesses, introduces that structure.
        Mr. Crawford. Dr. Ching, forgive me, but I am going to ask
    you to describe the value of digital assets. Assume you are
    talking to somebody that doesn't know what crypto is, like you
    met them in the elevator and they ask you what you are here to
    testify about today, and you say crypto, and they have no clue
    what that is. In an elevator speech, what is crypto?
        Dr. Ching. Thank you for the question, Congressman. It is
    actually hard to tell in an elevator speech. I just want to
    acknowledge that up front. But the way we describe digital
    assets is just a kind of incredibly neutral infrastructure for
    executing functions that are very hard in the traditional
    world, like how do you do governance, how do you do staking,
    how do you support payments in a world that is global and with
    open, accessible, verifiable capabilities? There is no other
    possible technology that can support this kind of use case
    today. And so it is just really about a global utility, public
    utility, like the same way we think about electricity or water
    or roads in which any kind of application can be built on top
    of, really a new age of the internet, and tokens are really the
    lifeblood of that infrastructure.
        Mr. Crawford. So if I heard you right, you are basically
    saying that crypto is an economic or a financial
    infrastructure.
        Dr. Ching. Exactly. It is a way to transfer value between
    any two participants.
        Mr. Crawford. You want to expand on that a little bit
    because I am giving you an extra floor on this elevator ride to
    give me a little bit more time to understand exactly what so
    that the layperson knows what we are dealing with.
        Dr. Ching. Probably the simplest way to describe it, it is
    a utility token in which you can do payments, governance,
    staking, transact, and have identity, all in one, on an
    infrastructure that is trustless as well as globally
    accessible.
        Mr. Crawford. So as a U.S. citizen who is fiercely
    concerned about privacy and stuff like that, how do I feel
    comfortable with those kinds of transactions? Talk about the
    privacy issues, how those are related to this, how you address
    those. Make me feel better about crypto.
        Dr. Ching. That is an excellent question. Today, most
    blockchains support very transparent operations, which means
    that any transaction that occurs is going to be completely
    accessible to everyone to see. It is replayable, and that
    gives, also, a certain type of comfort to know that there is no
    way the system can undo or revert those transactions. At the
    same time, we are very used to having our privacy when we
    purchase a coffee or buy a sandwich. There is also additional
    blockchain functionality that is coming down the pipe, though,
    that will support that level of privacy and confidentiality,
    yet be regulatory compliant. That is things that Aptos Labs and
    other companies are exploring, already have prototypes for.
        So I think there is a world where we have both the benefits
    of transparency where people can replay transactions, but also
    the benefits of privacy, where things remain confidential, can
    be confidential, but yet regulatory compliant.
        Mr. Crawford. And then finally, what underlies a
    cryptocurrency? In other words, what gives it intrinsic value?
    Why is it any different than, I don't know, say, a Pokemon
    card?
        Dr. Ching. In many ways, it might be thought of as a
    Pokemon card. I think it is a good characterization to it, but
    it really depends on the token and what the token is
    representing. As far as APT, which is our kind of native token
    to Aptos, it really is going to be a token that is supporting
    the transaction fees, prevents the down service attacks on the
    network. It supports the staking functionality, which is
    security in the network, making sure it can't be attacked by
    malicious actors. And then it supports the governance features,
    so whenever there is a protocol upgrade, people can vote on
    whether the upgrade wants to happen or not.
        Mr. Crawford. Excellent. Thank you, Mr. Chairman. I will
    yield back.
        The Chairman. The gentleman yields. I am now pleased to
    recognize Representative McClain Delaney for 5 minutes.
        Mrs. McClain Delaney. Thank you, Chairman and Ranking
    Member, for having this hearing, and I was listening to you all
    in my office and found it very illuminating on multiple fronts,
    and thank each of you as witnesses here today.
        As we all know and you discussed earlier, we are in a
    digital revolution where values extend beyond the physical
    crypto. NFTs and tokenizing real estate are already shaping our
    economy, expanding financial access, and improving efficiency
    in places like agriculture. And I represent the 6th District of
    Maryland, and Maryland, we are leading the way in financial
    innovation and digital asset management, and I am really
    excited about how digital assets can really be utilized by the
    agricultural industry and by our farmers. But as you know,
    innovation, not opportunity, comes with risk, and in 2022, FTX
    collapse, wiped out billions and devastated retirees, students,
    and small businesses. And I think that is why, Mr. Miller, you
    are so excited about making sure that there are bumpers and
    safeguards in this regulatory environment. So I am eager to
    support digital asset innovation, but there are countless
    examples how we just do need to have these appropriate
    regulatory protections.
        So American policymaking and regulations, it seems, needs
    to be in line with business and the financial environment, and
    the enacted markets in crypto assets, or MiCA, regulation
    provides, it seems, some potential learning lessons for a
    unified regulatory framework, and it does seem that this
    bipartisan CLARITY Act improves on last year's version. So I
    just want to say, I do look forward to hearing from you and
    working with my colleagues to tackle these different risks and
    to make sure that we have a secure, transparent environment.
        So my first question is really to you, Dr. Piwowar. I
    thought your earlier testimony was great. Given your former
    role as a Commissioner at the SEC, I would love to hear your
    insights on the MiCA framework in the EU. It seems like it
    establishes some clear rules for crypto asset issuers, and
    service providers, and investors, and it would make sense that
    maybe there are certain of those structural elements that could
    maybe enhance the CLARITY Act effectiveness. One provision that
    I was interested in is the inclusion of measures that prevent
    market abuse, like insider trading, market manipulation, and
    unlawful disclosure of insider information. And there also did
    seem to be more of an emphasis on the traditional banks having
    a role in addition to the Big Net, our internet platforms. Do
    you think that there are structural elements that we could
    learn from within MiCA or consider with the CLARITY Act in
    helping its overall effectiveness?
        Dr. Piwowar. Yes. Thank you, Congresswoman, for the
    question. I am not familiar with the very specific provisions
    of MiCA, but what I can tell you is how the SEC does learn from
    what other regulators do, right? So the SEC has an Office of
    International Affairs that regularly works with regulators
    overseas, either bilaterally or multilaterally, through an
    organization called IOSCO, where we kind of learn from the
    mistakes of others, right? So in some cases, there is a second
    mover advantage. You kind of learn from those.
        I will note, I mentioned the Crypto Task Force at the SEC.
    Next week will be their fifth roundtable. They have put out a
    list of specific questions, some of them on based upon some of
    the things that were happening in MiCA, 48 specific questions
    around custody, all kinds of stuff. They have had over 100
    meetings that they post on their website. And I see a lot of
    the firms that have come to see them do have experience with
    MiCA, so they are going to----
        Mrs. McClain Delaney. That would be great.
        Dr. Piwowar. They are providing some of that information to
    them.
        Mrs. McClain Delaney. So that would be very helpful, yes.
    So I just wanted to put that up, and I might add some further
    questions because it just seemed like it would be a good
    starting point. The second thing is just, my background was in
    consumer protection and helping kids online, so I have always
    been concerned a little bit about consumer rights and privacy.
    I am concerned that this bill might weaken consumer protections
    by preempting key state safeguards and lacks clear language to
    preserve them. States like Maryland have strong protections,
    and I just want to make sure that we set a regulatory ceiling
    instead of a floor on this. Could any of you provide examples
    how the CLARITY Act as written will assure that our
    constituents won't lose any of these consumer protections and
    privacy under the bill?
        Mr. Miller. That is a great question. I think by pushing
    industry participants into registration at the CFTC and the
    SEC, you are pushing them into mandated Know Your Customer
    requirements and onboarding requirements. It is not ambiguous.
        Mrs. McClain Delaney. Anyone else?
        Dr. Piwowar. And I will also note that in the securities
    world, where there is preemption, there still is a very
    important role for the state securities regulators. The SEC
    works very closely with the state securities regulators,
    including Maryland, on a number of issues where they can be
    very helpful in rooting out fraud.
        Mrs. McClain Delaney. Thank you. Well, I just believe
    strong consumer protection and privacy are really important, so
    thank you, and I yield back and will submit some questions for
    the record.
        The Chairman. The gentlelady yields back. I now recognize
    the gentleman from Kansas, Mr. Mann, for 5 minutes.
        Mr. Mann. Thank you, Mr. Chairman, and thank you all for
    being here today. I represent the big 1st District of Kansas,
    which is 60 primarily rural counties in the central and western
    part of the State of Kansas mostly.
        It is evident that both U.S. businesses and individuals
    need regulatory clarity around digital assets, and there are
    currently no well-defined rules to allow businesses to operate
    legally and successfully within the United States. The CLARITY
    Act will provide a foundation that enables innovation and
    ensures that the U.S. can lead in this rapidly evolving sector,
    and I appreciate the Chairman's leadership on this increasingly
    important issue. Without this foundation, America will continue
    to fall behind and risk pushing innovation abroad, which I
    don't believe anybody here in Congress wants, and delighted for
    you all being here today and being part of this conversation.
        Just a handful of questions. First one is for you, Mr.
    Miller. Can you describe the different regulatory regimes that
    FTX.com, FTX U.S., FTX Derivatives were subject to?
        Mr. Miller. Sure. Thanks for the question, Congressman. FTX
    U.S. was a spot exchange and followed the 50 state regulatory
    program that we have talked a bit about today. FTX U.S.
    Derivatives was registered with the CFTC and was subject to
    full examination by the CFTC. FTX International operated on a
    patchwork of registrations and licenses globally that were very
    much unclear at the time, and remain unclear certainly when
    compared to what you would get from the CLARITY Act.
        Mr. Mann. So of the three, I guess, can you indicate kind
    of what you believe are the benefits are drawbacks to each
    different silo, if you will?
        Mr. Miller. Sure. So the business in each of its verticals
    was a centralized exchange, and the most powerful regulatory
    piece was clear customer asset segregation requirements, and
    that is what you got from the CFTC's registration program for
    FTX U.S. Derivatives. Beyond just customer asset segregation,
    there is surveillance, and I think market surveillance shows up
    in some of our state programs, but not as clearly as it does at
    the U.S. Federal markets regulators, and so I think those are
    the two important pieces.
        Mr. Mann. Great. Thank you. Next question for you, Ms.
    Pizzola. Conflicts of interest have been an increasing area of
    concern in the digital asset markets. How does the CFTC address
    potential conflicts of interest with current registered
    entities and regulations registrants?
        Ms. Pizzola. Thank you for the question, Congressman. Today
    there are a variety of mechanisms for addressing conflicts of
    interest within the Commodity Exchange Act for exchanges. There
    is a specific core principle that requires designated contract
    markets to have policies and procedures or a program in place
    to mitigate and a procedure to resolve the conflicts of
    interest in the exchange's decision-making process. And then
    there are more prescriptive requirements for futures commission
    merchants with respect to their conflicts of interest. They
    specifically have to have policies and procedures to disclose
    any material incentives or conflicts of interest to their
    customers with respect to those customers' decisions to
    transact in the markets. So there is a very robust regime in
    place today to ensure that conflicts of interest are mitigated
    or disclosed both at the exchange level and then at the level
    of the broker intermediary.
        Mr. Mann. Yes, thank you. I think that is helpful clarity
    for people. Next question for you again, Ms. Pizzola, as you
    may know, there are no regulators who oversee the centralized
    spot market exchanges across all commodity markets. What is
    different about digital assets and other commodity markets that
    warrants expanded regulatory oversight?
        Ms. Pizzola. Thank you for the question. I think one
    difference is that for many commodity markets, they are not
    centralized exchanges that are sort of similar to those that
    exist for securities and derivatives. A lot of commodities are
    commonly bought and sold in OTC bilateral transactions. And I
    think the difference here is that we do see digital assets
    often trading in a manner that is similar to securities and
    futures contracts, both in that they are available for trading
    on centralized exchanges and that they are more readily
    accessible to retail and more widely traded by retail. It is
    easy for a retail market participant to just use their phone to
    buy crypto assets. They couldn't do that with oil and gas in
    the same way, and I think as we talked about, that is not
    inherently a bad thing. There is financial freedom, financial
    inclusion that comes along with that, but then I think that
    also brings sort of a dynamic of more of a need for retail
    protection perhaps than we would see in other markets.
        I think, also, just finally to wrap up, it might make more
    sense for states to regulate in the area of other commodities
    where those transactions in the spot markets are taking place
    at a single physical location within the state. I think here
    crypto assets are inherently borderless, inherently in
    interstate commerce. As we talked about, you typically need the
    internet in order to be able to transact in them, absent sort
    of some of the new technologies that are coming online. So I
    think it is just sort of inherently sort of an interstate
    problem that requires sort of Federal regulation in a way that
    other commodities perhaps do not.
        The Chairman. I thank the gentleman. I now recognize the
    gentlelady from Illinois, Ms. Budzinski, for 5 minutes.
        Ms. Budzinski. Thank you, Mr. Chairman. I also do want to
    thank our Ranking Member Craig, and also our Subcommittee
    Chairman Johnson and Ranking Member Davis as well, and all of
    our collective work on these sets of issues related to digital
    assets. After the release of the CLARITY Act, I am grateful for
    the opportunity to engage directly with stakeholders today on
    this important legislation, so I just want to say thank you to
    the panelists for being here.
        It is important to me that Congress take steps to address
    the lack of structure and regulatory clarity for firms,
    consumers, and other players in the digital asset industry.
    That is why I was glad to work on a bipartisan manner with the
    Chairman and his team last Congress on FIT21 and to support
    that as it got over the finish line in the House, especially as
    some of my major priorities were included in that bill. One of
    my priorities sought to preserve consumer legal rights and
    flexibility to ensure the protections and ability to recoup
    their assets in the event of a market collapse, and the other
    was prior approval for products before entities become fully
    registered, improving the process for customer engagement. I am
    glad to say that I see that these important provisions have
    been included in this updated market structure bill, the
    CLARITY Act, to safeguard consumers and their assets. As I look
    at the CLARITY Act, I do have a few questions that I think this
    panel is very well suited to answer.
        Dr. Piwowar, decentralized finance, or DeFi, can be
    excluded from being regulated under some provisions of this
    Act. How could a regulator protect customers in a truly
    decentralized environment where there is no responsible entity
    and no traditional custody of assets?
        Dr. Piwowar. Great question. A couple responses. One, note
    that I mentioned the SEC Crypto Task Force is doing a number of
    roundtables. One that they have already had and one that they
    are having next week are specifically dedicated to DeFi,
    looking at trying to get those answers.
        Ms. Budzinski. Great.
        Dr. Piwowar. Second thing I will note is that I remember
    when I was at the Commission and we had a lot of conversations
    with folks on talking about DeFi, and there was no regulated
    entity there. And I said, ``Well, how do you do that?'', and
    one of the responses, ``Well, smart contracts.'' ``Well,
    explain this to me.'' ``Well, smart contracts, basic computer
    code.'' I said, ``What does a computer code do?'' They said,
    ``Well, basically routes orders on the way that customers do,
    the way they want them to do instead of being a broker-
    dealer.'' And I said, ``Did you take transaction-based
    compensation for that and the code? Could you do that?'' ``Yes,
    that is the legal definition of a broker-dealer.'' So what some
    people claim as DeFi is not truly DeFi, and those are the
    thorny issues that the SEC and the CFTC actually have to get
    to.
        Ms. Budzinski. Right.
        Dr. Piwowar. And to your point on what really is DeFi on
    that--what I like about the CLARITY Act is there is a specific
    study in there to look at those particular issues because there
    are smart people like Avery in here, like, way smarter than me
    to think about these things, but I don't know the answer to
    that.
        Ms. Budzinski. Okay.
        Dr. Piwowar. And the SEC and CFTC don't either, and so they
    are continuing to evolve and learn from folks.
        Ms. Budzinski. Great, and I am glad that conversation
    sounds like it is continuing next week with some roundtable
    discussions on this point, so thank you. My next question, Ms.
    Pizzola, would you be able to answer, I think elaborate, on
    this on this point as well around DeFi?
        Ms. Pizzola. Congresswoman, thank you, yes. I think it is
    appropriate certainly, as Dr. Piwowar said, to continue to
    study DeFi. I think it is certainly a nascent area of
    innovation that I think we don't want to see sort of quashed by
    sort of rushing to regulate it in the same way as sort of
    centralized markets. But I would also agree that if you have
    sort of activities that sort of closely resemble activities
    that are taking place sort of in a more centralized market,
    then I think we would sort of question whether it truly is
    DeFi. I think one sort of unique aspect of DeFi that sort of
    maybe warrants regulating it differently from centralized
    finance is the fact that under a truly decentralized setup, you
    sort of would have participants self-custody. They wouldn't be
    sort of giving control over their assets to a third party.
        And so I think that is sort of a fundamental difference
    from sort of the intermediaries that are regulated under the
    CLARITY Act where they are taking custody of customer funds,
    and so we do need to make sure that segregation and customer
    protection measures are in place.
        Ms. Budzinski. Okay. Mr. Miller?
        Mr. Miller. Maybe to share a thought on DeFi. Our current
    regulators have statutes that give them the authority to do
    something here, and that could be a safe harbor, a pilot
    program. But the benefits of those is they get to put
    conditions on them, and those conditions might look like the
    CLARITY Act in certain respects, but it is a tool. It is a tool
    we want to keep on the table.
        Ms. Budzinski. Okay, great. I am out of time. I yield back.
    Thank you.
        The Chairman. The gentlelady yields back. I now recognize
    the gentlelady from Texas, Congresswoman De La Cruz, for 5
    minutes.
        Ms. De La Cruz. Thank you, Mr. Chairman, for hosting this
    important hearing today on American innovation and the future
    of digital assets. I would also like to thank our panel of
    witnesses for their time today.
        Mr. Miller, thank you for sharing your recollection around
    the collapse of FTX. Learning from that failure is an important
    part of why we are here today. We want to make sure that there
    is never another collapse like this in the United States. In
    your testimony, you describe the collapse of FTX as insolvency
    due to fraud. How would the CLARITY Act protect against this
    behavior?
        Mr. Miller. Thank you for the question, Congresswoman.
    Insolvency means the assets that are meant to be there are no
    longer there, and in the context of cryptocurrency businesses,
    we are usually talking about customer assets. The CLARITY Act
    requires customer assets to be held in a segregated and
    protected way, and in a way that they cannot be taken by not
    customers.
        Ms. De La Cruz. So there are several of our farmers and
    ranchers listening to this hearing today and, like many
    Americans, saying, ``What does this have to do with ag? Why is
    this important?'' Does anybody on the panel want to answer for
    the viewing public today on why this is so critical to the
    future of our farming and ranching communities?
        Mr. Miller. I said I was from Oklahoma, so I should start.
    I think it is about payments and the flow of transactional
    finance. Every one of the constituents you mentioned are
    running businesses, and they want access to credit, they want
    access to easy and transparent payments, and they don't want to
    be stuck behind a broker or an agent unnecessarily. So I think
    that is a critical component of why it is interesting to anyone
    running a business.
        Ms. De La Cruz. So to those listening today, does that mean
    they could get faster payments for their products?
        Mr. Miller. I would defer to Dr. Ching.
        Dr. Ching. Thank you for the question, Congresswoman.
    Definitely. So I think to my colleague's point, payments
    infrastructure on blockchain is immensely, much more efficient
    than traditional payment methods. Today on Aptos, you can send
    money around the world for a hundredth of a cent and have it
    settle in under a second, and it is globally accessible. It is
    not something that is limited to one area or another. So I
    think it is a crucial technology for anyone running a business,
    as you said, to be able to support this technology and also
    build in programmable infrastructure. So not only can you have
    payments, you can have things that happen after those payments,
    maybe settle other accounts simultaneously. And so those
    combinations are just going to be very powerful for anyone
    running a business and supporting the newest generation of
    Web3.
        Ms. De La Cruz. So what this really means is this is
    transformation for our farmers and ranchers because what I am
    hearing, and for the American public listening today--the
    everyday, common person--if a farmer or rancher is able to get
    their monies faster, that means they can buy more product
    faster, right, and they can harvest faster. And that means
    growth, growth for their family farm, perhaps even future
    generations. Is that correct?
        Dr. Ching. Yes, that is correct. Also, there is no credit
    risk, there is no other settlement risk that comes into play,
    so it is just a much more efficient financial infrastructure
    for everyone.
        Ms. De La Cruz. So no credit risk, no settlement risk. That
    is a pretty good deal for our farmers and ranchers. So it is
    important that we have some type of regulatory infrastructure
    in place so that farmers can use these tools to grow their
    farms and for the future generations in farming. Would you all
    agree?
        Voice. Yes.
        Ms. De La Cruz. Would you like to say something? Would you
    like to say something?
        Ms. Pizzola. Yes, Congresswoman, thank you. I would agree
    as well. I would just add that I was inspired by the
    Subcommittee hearing back in April where we had, I believe it
    was called CattleProof and GEODNET, but in particular, I think
    sort of the CattleProof story of previously having had
    purchases of cattle using checks that maybe took days or weeks
    to clear and now being able to instead receive payment sort of
    almost instantaneous, I thought, really shows what Dr. Ching is
    speaking about in kind of a real-world use case of being able
    to have sort of those instantaneous payments. And I think that
    is very promising technology that, as you said, can allow for
    growth because you are getting your money faster and able to
    deploy it within the business for farmers and ranchers.
        Ms. De La Cruz. And it sounds like for planning purposes,
    right, if you have a check, it can bounce, then you still have
    to chase the buyer of the product, get a new check or get
    another form of money. All of that takes time, but when you
    have immediate access to capital, that means you can plan for
    the future, you can grow your product, grow your market, and
    pass on the legacy of farming to future generations. With that,
    I yield back.
        The Chairman. Thank the gentlelady and now recognize the
    gentleman from New York, Mr. Riley, for 5 minutes.
        Mr. Riley. Thank you, Mr. Chairman, and thank you to our
    witnesses for being here. I think part of the backdrop for
    this, it seems like maybe it was a while ago, but in other ways
    it wasn't, is that 2008 financial crisis. I represent a rural
    district in upstate New York, and looking at the cutting edge
    of all the issues we are talking about today, it is hard not to
    remember Wall Street, basically, treating the economy like a
    casino. It is still really frustrating for folks that Wall
    Street got a bailout while the middle class, which deserves a
    bailout, didn't. And people just really don't trust Wall Street
    still because of that, and they might be looking for, because
    of that, alternative places to invest.
        And I was texting earlier today, one of my buddies from
    high school, Mike Choji. He is really big into crypto and big
    supporter of it, and I asked him sort of his perspective on
    this, and I thought it was interesting. He said that crypto
    gives people like me--this is what Mike said--access to
    financial markets, kind of the way E-Trade used to do for
    stocks. But the thing with the stock market is it is still
    rigged for large players, and so he sees crypto as being more
    accessible for somebody like him. And I am wondering how we can
    make sure that as these new innovations are happening, we don't
    end up kind of going down the same path where this is something
    that is seen as accessible and fair for somebody like Mike
    Choji and not just run by the big players.
        And I think that one of the lessons we learned from the
    financial crisis was that a lot of people just got really over
    leveraged, and I am worried that we could end up in a similar
    situation here when I read about situations where there is
    digital asset trading on margins with really high leverage. And
    so my question for all of you is just generally, with that
    backdrop and that still being forefront of mind for so many
    folks in upstate New York, what sorts of things would you tell
    them about the regulatory efforts and legislative efforts to
    make sure this works for them and not just the big players. And
    then more specifically on this leverage issue, am I thinking
    about that the right way, and if I am, what are the best ways
    to address it, including potentially with respect to the
    legislation we are considering. Commissioner Piwowar, I want to
    start with you on that, if you could give your perspective.
        Dr. Piwowar. Sure. On that leverage point, I think you make
    a great point. Thinking back to the global financial crisis,
    right, what we saw was there was way too much leverage in the
    system that the regulators simply did not know anything about.
    If you think of the over-the-counter derivatives market, this
    is where the real credit risk was. I happened to be working in
    the White House during the global financial crisis, and part of
    my job was to look at and say, ``Well, which banks were exposed
    next?'' And the data that we had was completely useless because
    the current law at the time was actually the SEC and CFTC were
    prohibited from collecting information on the over-the-counter
    derivatives market. Dodd-Frank addressed that through Title VII
    and split up jurisdiction, very similar to what we are talking
    about today in terms of the swaps market and security-based
    swaps market. They could have done a better job on the front-
    end. I talk a little bit about that on my written testimony,
    but it now provides the regulators with the tools that they
    need to see the leverage in the system.
        The other thing we noted was that a lot of these exposures
    were with the banks, and so now the bank regulators need to
    step up and do their job. The response for the last 4 years was
    keep crypto out of the banks because the crypto can bring down
    the banks. What we saw in the case of Silicon Valley bank, it
    was almost the opposite. And so what we need to do not only
    with the crypto market, and as Dr. Ching pointed out, it
    actually takes out credit risk, it takes out market risk, it
    takes out systemic risk, types of concerns from these markets,
    so I think it is actually working in the right direction.
        Mr. Riley. Great. That is really helpful. Did anybody want
    to add anything on that?
        Dr. Ching. I will just add one thing, which is that I think
    in the DeFi space, you definitely have much more freedom around
    the products that are there. I think this regulation will
    definitely help to understand the protections for consumers,
    but the other advantage you are going to get from DeFi is going
    to be transparency. And so I think in those kind of previous
    instances you mentioned, there was a lot of lack of
    transparency around how much were the risks of the overall
    financial markets. In the blockchain space, those risks are
    kind of very clear and present for everyone to see and analyze
    and kind of understand, and then kind of educate customers
    about. So I think these are the kind of tools you want to build
    up and support as we see these technologies progress further in
    the future.
        Mr. Riley. That is really helpful. I appreciate it. I yield
    back, Mr. Chairman.
        The Chairman. Thank the gentleman. I now recognize the
    gentleman from Iowa, Mr. Feenstra, for 5 minutes.
        Mr. Feenstra. I want to thank the Chairman and Ranking
    Member for having this great hearing today.
        The increased adoption of digital assets and the use of
    blockchain technology has the potential to change the world by
    lowering the cost of services for everyday Americans and
    increasing the security and clarity of digital transactions.
    However, the past few years we saw President Biden wage a war
    on digital assets, which squashed innovation and brought
    regulatory uncertainty to the marketplace. I want to thank
    President Trump and this community for recognizing that this
    help spurs on innovation by providing clear rules of the road
    and growth of digital assets in the United States. The bill
    before us today establishes distinct roles for the SEC and the
    CFTC, providing a structured pathway for digital asset firms to
    operate legally and with confidence. Ensuring consumer
    protections through strengthened transparency and
    accountability in the marketplace, fostering innovation through
    regulatory structure to encourage businesses to remain in the
    U.S.
        Dr. Ching, thank you for taking the time to speak to us
    today. Your experience in the industry has great perspective.
    In your testimony, you emphasize the importance of regulatory
    clarity for token issuance and distribution. From your
    perspective, how does this bill ensure emerging blockchain
    applications are not unintentionally stifled by over rigid or
    over ambitious compliance frameworks, and then also, how does
    this benefit us also?
        Dr. Ching. Thank you for the question, Congressman. I would
    like to talk back a little bit about the start of Aptos Labs
    and answer this question. Aptos Labs was founded here in the
    U.S. in 2021, and we did face a lot of uncertainty when it came
    to launching our token and the token issuance and distribution
    of it. We spent a lot of time trying to understand the previous
    launches and see what the best practice for in the space, but
    ultimately, we had to launch with all of uncertainty. This bill
    and the CLARITY Act is going to really help projects like ours
    to understand what the right rules are and how to understand
    the framework that best supports American innovation.
        I also talked to hundreds of builders across the country.
    Many of them do not have the resources we have that can
    actually support that kind of investigation. This bill will
    really help them to get a lot of certainty and clarity in the
    market. Today there are estimated to be about 10,000 developers
    of blockchain technology, yet there are millions of programmers
    around the world and millions in the U.S. alone. We would love
    to see these programmers start to leverage their talents much
    more towards this technology base here in the U.S. as this
    CLARITY Act becomes very much a reality in the everyday world.
        Mr. Feenstra. That is fantastic. I am glad to hear the
    benefits. There are so many great benefits that this is going
    to create. Mr. Miller, this bill gives the CFTC new authority
    regulating jurisdiction over digital commodities, cash, or spot
    markets. I want to talk about this a little bit. Can you speak
    how this expanded jurisdiction would close existing regulatory
    gaps and why CFTC oversight of spot markets is critical for
    protecting consumers and ensuring market integrity?
        Mr. Miller. Thanks for the question, of course. So what the
    CFTC brings to bear is its expertise in markets: bids and
    offers, liquidity, preventing manipulation, preventing trading
    misconduct. And while today we have crypto markets that have
    some state regulatory programs, there is no clear trade
    surveillance, market monitoring, and market conduct obligations
    under those programs. The CFTC makes those the fundamental
    tenets of their regulatory approach.
        Mr. Feenstra. Thank you. So what would you say to banks? I
    know banks are sort of concerned about some of these aspects.
        Mr. Miller. Yes. So banks want to ensure that they have
    clarity from their regulators, that they are permitted to
    operate in any given asset class. And I think as we get more
    clarity around the types of products the CFTC and the SEC are
    regulating, the bank regulators get more and more comfortable
    about giving the banks the ability to deploy their capital into
    these markets, and ultimately, that brings up liquidity, and it
    brings up the resiliency of the markets with more participants.
        Mr. Feenstra. That is great. So it is sort of a win-win for
    everybody.
        Mr. Miller. It is all moving in the right direction.
        Mr. Feenstra. Yep. All right. Thank you, and I yield back.
        The Chairman. The gentleman yields back. I now recognize
    the gentleman from California, Mr. Costa, for 5 minutes.
        Mr. Costa. Thank you very much, Mr. Chairman. I think this
    hearing is timely considering the fact that we will, I believe,
    next week be marking up the CLARITY Act. And I regret, for
    those who testified earlier, that I missed your comments, but I
    am going to ask some questions, and maybe you have already
    opined on that statement. But clearly, at this point in time,
    there does not appear to be a real regulatory framework in our
    country to deal with the efforts of digital assets and how
    those are transferred. Is that correct? Do I hear----
        Mr. Miller. I'll say yes. Yes, there are 55 million
    Americans who hold digital assets, and it is not clear what the
    regulatory environment is for the service providers of that
    business.
        Mr. Costa. And have the four of you had an opportunity to
    look at the markup, the draft of the digital market CLARITY Act
    that we will be hearing next week?
        Mr. Miller. I have studied pieces of it.
        Mr. Costa. I see a couple heads nodding. Let's start, is it
    Chelsea Pizzola?
        Ms. Pizzola. Yes, sir.
        Mr. Costa. Do you think that this really establishes that
    level of framework and if so, what is lacking or what is
    problematic, in your view?
        Ms. Pizzola. I do think this establishes the appropriate
    framework for regulation of digital commodity markets within
    the United States. I think the bill appropriately allocates
    jurisdiction between the CFTC and the SEC in a way that
    reverses the prior ambiguity that had driven digital commodity
    markets----
        Mr. Costa. Mr. Miller, do you agree?
        Mr. Miller. I agree. It is thoughtful and balanced. It
    invites the regulators to coordinate, but it creates clear
    allocations of registration authority.
        Mr. Costa. Any critiques on the current draft on how we can
    make changes or improve it as we look toward next week's
    hearing?
        Mr. Miller. I think the biggest issue is that it is not
    adopted.
        Mr. Costa. It is not what?
        Mr. Miller. It is not adopted. It is not passed.
        Mr. Costa. Oh, okay. Got it. No, I was reading some of the
    background. There is no obviously comprehensive framework at
    this point in time. Only nine of the digital asset service
    providers have registered with the SEC, five of those firms
    registered pursuant to settlement agreements arising from SEC
    enforcement actions, and no digital asset service provider is
    registered with the SEC as a national security exchange, so,
    therefore, there is no regulated platform to deal with trading
    of these digital asset securities, you would agree.
        Dr. Piwowar. Congressman, I would say, yes, that the
    CLARITY Act provides that framework for them to do that. And
    then on your earlier question, just to add to what they were
    saying, I note that the CLARITY Act is a substantial
    improvement from the discussion draft that was out there. And I
    really appreciate the fact that the staff and the Members
    really took to heart some of the feedback that was coming in
    from folks on things like the definition of affiliated persons
    and how to deal with sort of dual registration stuff. As far as
    what else needs to get done, in my testimony, I point out that
    continue to work with SEC and CFTC staff. They are the ones
    that are going to have to implement this, and the CLARITY Act
    was just----
        Mr. Costa. And do you believe that the SEC, this will then,
    if enacted into law, will give them the necessary tools to
    provide the regulatory oversight necessary to protect
    businesses from engaging in these transactions?
        Dr. Piwowar. Yes, and it preserves their exemptive
    authority to allow them to tailor the regulations that fit this
    market that are unique and a little bit different than some of
    the markets they already oversee.
        Mr. Costa. Dr. Ching, do you agree?
        Dr. Ching. From our point of view, we have been studying
    the FIT21 and CLARITY Act. We see a lot of improvements as
    well. Thank you for the feedback that I think has provided by
    many counterparties, including ourselves, overall, we are very
    positive about the direction of this.
        Mr. Costa. So you agree.
        Dr. Ching. Yes, I agree.
        Mr. Costa. By the way, I am a bit curious. Aptos Labs, I am
    familiar with Aptos, California. Does this have any thing to do
    with that?
        Dr. Ching. It is exactly the same. Yes, so Aptos is a city
    in your state, and we named it after that.
        Mr. Costa. Yes, it is.
        Dr. Ching. Yes.
        Mr. Costa. It is a nice part of California. Okay.
        Dr. Ching. Beautiful place.
        Mr. Costa. Finally, in terms of comparative analysis, or is
    there, I guess is the better question, in Europe or in Asia
    that would compare to establishing this type of a regulatory
    framework for the SEC? Is there anything that other parts of
    the world that they are already doing?
        Dr. Piwowar. I was going to say, so we have a unique
    structure here where we have the SEC and CFTC as two markets
    regulators. Most places have a single market regulator, so
    there are a little bit of nuances that are going on there.
    Other places have moved, but because we are the biggest market
    in terms of, and I have talked about how our capital markets
    are the envy of the world, we are soon going to have the
    digital assets that are going to be the envy of the world, too,
    once the SEC and CFTC start implementing the regulations with
    the authorities that you provide them.
        Mr. Costa. Well, my time has expired, Mr. Chairman, but I
    think it is helpful as we are moving forward on this effort to
    ensure that we complement our efforts because these efforts and
    transactions not only include the continental United States,
    but obviously other parts of the world where we do business.
    Thank you.
        The Chairman. I thank the gentleman. I am now pleased
    recognize the gentleman that represents the rice and duck
    capital of the western United States, Mr. LaMalfa, for 5
    minutes.
        Mr. LaMalfa. Well finessed, Mr. Chairman. Well finessed,
    western. So Arkansas must not be the West. I appreciate it. I
    will put our rice and ducks up against anybody's.
        Anyway, I wanted to clarify something that was mentioned
    earlier in this Committee on a concern about the funding for
    CFTC and its ability to do the work, and it is my understanding
    that it will be self-sustained through the next 4 years through
    a fee schedule that it will have on those being regulated. So I
    understand it is called Section 410. So there was a contention
    earlier that there wouldn't be the resources for CFTC to do the
    work, but that is not the case.
        So that said, a couple thoughts on core principles. This
    will be focused on Ms. Pizzola. As we know, the core principles
    are a critical part of how CFTC regulates, and would you
    mention just some of the core principles that the Commission
    applies to these designated markets, how are they similar to
    the core principles applied to digital exchanges in the CLARITY
    Act so that we can get the contrast?
        Ms. Pizzola. Of course. Thank you, Congressman. I think
    some of the key core principles that apply to DCMs that have
    analogs in the CLARITY Act are requirements to provide a
    competitive, open, and efficient market that is really meant to
    protect the on-exchange price discovery process. I think
    similarly, a core principle requiring publication of trading
    data in a timely manner, it is again meant to protect the price
    discovery mechanism on exchanges. I think as Mr. Miller
    mentioned earlier, that the requirement to monitor trading to
    prevent manipulation, price distortion, and disruptions,
    requirements to protect markets and market participants from
    abusive practices, these types of really sort of market
    integrity and market transparency mechanisms are a key reason
    that the CFTC-regulated markets have functioned so well over
    the previous decades. And I think the fact that the CLARITY Act
    has these core principles or sort of analogs of those core
    principles really is promising for its ability to have
    similarly robust digital commodity markets.
        But I think at the same time, the CLARITY Act appropriately
    adds additional core principles that are tailored for digital
    assets. For example, there are requirements to disclose
    information that is specifically relevant to digital assets,
    like digital asset economics, source code, transaction history,
    that maybe you wouldn't see those requirements for other
    commodities because they just aren't applicable. But, I think
    in that regard, the CLARITY Act is very appropriately tailored
    to digital assets and the core principles that it sets forth.
        Mr. LaMalfa. All right. Thank you. Just following up then,
    how do these core principles work to ensure that the exchanges
    are well run as well as provide strong consumer protection?
        Ms. Pizzola. Well, I think some examples of ways that the
    core principles ensure exchanges are well run are things like
    recordkeeping requirements, requirements to have system
    safeguards in place, obligations to undergo examinations, for
    example. I think those are ways that the regulators can come in
    and make sure that there are records. And also, I think
    financial integrity and financial resourcing requirements,
    those are all ways that if the CFTC, for example, will come in
    and make sure that the exchange is, through examining records
    and through looking at the exchanges financial wherewithal,
    will make sure that it is being appropriately run and that
    there aren't any cybersecurity or other system safeguard
    concerns.
        Mr. LaMalfa. All right. I would still like to follow up on
    some of the FTX situation previously with my remaining time and
    shoot this to Mr. Miller. Maybe it has been answered, but I
    would like to hear a little more on what do you think it would
    have been like if these consumer protections had been in place
    in the CLARITY Act for these digital assets, if they had been
    regulated under CLARITY Act? How much better would that have
    turned out?
        Mr. Miller. Thanks for the question, Congressman. So you
    would have had an audit and examination requirement over
    customer funds, and you would have had an obligation of
    customer funds to be held in a segregated way. Those three
    tools ensure that customer funds cannot be accessed by
    founders, malfeasance, acting persons or otherwise. And so in
    the FTX case, there wouldn't have been a path for the founding
    team to access the customer funds without a regulator knowing
    about it.
        Mr. LaMalfa. Okay. Good. I appreciate that. Thank you both,
    and, Mr. Chairman, I know with Mr. Crawford out of the room, we
    really do know where the best rice comes from, so thank you. I
    yield back, sir.
        The Chairman. The gentleman yields back. Now, I am pleased
    to recognize Mr. Thanedar for 5 minutes.
        Mr. Thanedar. Good afternoon, and I thank the panel members
    here, all of you, to be here and educate us and give us your
    expertise. I want to thank the bipartisan coalition, including
    Chairman Thompson and Chairman Johnson and Ranking Members
    Craig and Davis, who introduced the CLARITY Act. Effective
    digital asset regulation is key to a successful market where
    both buyers and sellers of digital assets can thrive. This
    bill, while not perfect, represents a major step in the right
    direction to ensure that United States can be a leader in
    future innovation in the digital asset market.
        I am a serial entrepreneur myself, and I am looking at this
    from the entrepreneurial community. And my question is to any
    one of you on the panel, how does this CLARITY Act help in
    assuring the entrepreneurial community to stay in the United
    States because they take their laptops and computers and go
    anywhere in the world. How does this help them to stay in the
    United States, keep the development, the innovation here in the
    United States? How does this CLARITY Act help, and do you see
    areas where this CLARITY Act lack in giving that confidence
    that we do have a regulatory environment where they can foster
    and do better? So just wanted to get your input on any of this.
        Dr. Ching. I will start, and thank you for the question,
    Congressman. As a fellow entrepreneur, I can say that launching
    tokens in the U.S. has been difficult. We went through a lot of
    challenges in launching our own token and a lot of uncertainty
    back in 2022. We already know that the internet has yielded so
    many great innovations in the U.S., from Netflix to Facebook to
    Amazon to Google, and so on and so forth. I would love to see
    the next iteration of these entrepreneurs happen for Web3 in
    America, and in order to have that happen, we have to have that
    regulatory clarity. We have millions of programmers here who
    are going to careers in other places, in other fields, because
    of the lack of clarity that exists today, and I think with the
    CLARITY Act, no pun intended, we are going to start to see that
    innovation happen here in America at tremendous scale.
        We have talked to so many different projects in this space
    about what they want to do and how they want to launch tokens
    and how they want to build innovative products, whether it is
    digital identity, payments, infrastructure, commerce, and what
    we do see is that this lack of clarity makes it challenging for
    them. They don't have the necessary resources to find out how
    to best do things. And so I do believe strongly that with this
    new legislation, it is going to lead to a huge innovation wave
    within America, and America can be strong leaders in this space
    of blockchains and Web3.
        Mr. Thanedar. All right. Well, many of you are familiar
    with the FIT21 bill from last Congress. Where does CLARITY Act
    improve upon FIT21 and where does it take a step backwards?
    Anyone?
        Mr. Miller. Thank you for the question, Congressman. I
    think what the CLARITY Act gives us is direct and clear
    registration requirements. They tell the businesses and the
    founders, the entrepreneurs, where to go and which licenses
    they need. That is important. It also creates space for
    innovation around decentralized finance, and it instructs the
    regulators to continue thinking about that topic while leaving
    space for innovation. I think those are two critical
    components.
        Mr. Thanedar. Thank you so much, and, Mr. Chairman, I yield
    back.
        The Chairman. The gentleman yields back. I thank the
    gentleman. I now recognize the gentleman from Wisconsin, Mr.
    Van Orden, for 5 minutes.
        Mr. Van Orden. Thank you, Mr. Chairman. Mr. Miller, I read
    your CV here, and it is very impressive. I do have one
    question, though.
        Mr. Miller. Thank you.
        Mr. Van Orden. Well, you are welcome. I see that you were
    the General Counsel for FTX U.S. Is that correct?
        Mr. Miller. That is correct.
        Mr. Van Orden. How did that turn out?
        Mr. Miller. So you might recall or have heard in the news
    that the Global FTX Group entered into bankruptcy in November
    of 2022.
        Mr. Van Orden. When were you on board?
        Mr. Miller. I joined in 2021 and left after the bankruptcy
    file.
        Mr. Van Orden. Did you contribute or did you profit
    financially from FTX?
        Mr. Miller. My role there was as the General Counsel of FTX
    was----
        Mr. Van Orden. That was not my question. I asked you if you
    profited from the failure of FTX.
        Mr. Miller. I did not profit from the failure of FTX.
        Mr. Van Orden. Okay. Well, thank you for clearing that up.
    I am going to ask you, starting with you, Doctor, tell me if
    this is an accurate statement, please. Bitcoin is a
    decentralized, scarce, and secure network for transferring
    value without any ability to restrict it. Altcoins are
    unregulated tech startups that regularly result in massive
    losses by retail investors while their promoters get rich. Is
    that accurate?
        Dr. Ching. I definitely have my views.
        Mr. Van Orden. Is that accurate?
        Dr. Ching. In my view, I would think not, but----
        Mr. Van Orden. Why not?
        Dr. Ching. I think it is really this space----
        Mr. Van Orden. How is that inaccurate, I guess would be the
    way to phrase that.
        Dr. Ching. I think this space's lack of clarity around
    regulation has really led to that issue.
        Mr. Van Orden. Okay.
        Good to go. Sir, Bitcoin is a decentralized, absolutely
    scarce and secure network for transferring value without any
    ability to restrict it. Altcoins are unregulated tech startups
    that regularly result in massive losses by retail investors
    while promoters get rich. Is that accurate?
        Dr. Piwowar. I don't know. I don't invest in Altcoins, and
    they are not under the SEC's jurisdiction.
        Mr. Van Orden. So you have no idea what you are talking
    about then? Is that what you are telling me?
        Dr. Piwowar. No, no, no. The ones that are under the SEC
    jurisdiction are the ones that I am more familiar with, initial
    coin offerings and things like that. So Altcoins, meme coins,
    stable coins the SEC has said that they are not under the same
    jurisdiction.
        Mr. Van Orden. Yes.
        So you are narrowly focused on one thing and you don't have
    an understanding, a broad understanding, of this entire
    ecosystem? Is that what you said?
        Dr. Piwowar. I have a casual understanding of it, but as an
    expert testifying, it is based on the SEC's----
        Mr. Van Orden. Thank you. I appreciate that. Mr. Miller?
        Mr. Miller. Yes, sir.
        Mr. Van Orden. Do you want me to read that again? Bitcoin
    is a decentralized, scarce, and secured network for
    transferring value without any ability to restrict it. Altcoins
    are unregulated tech startups that regularly result in massive
    losses by retail investors while promoters get rich. Is that an
    accurate statement?
        Mr. Miller. I think we have several enforcement fraud-based
    actions against private----
        Mr. Van Orden. That is not what I am asking. If you can
    reflect on your former vocation or current vocation when you
    were the General Counsel of FTX, would that statement be
    accurate?
        Mr. Miller. The statement I----
        Mr. Van Orden. Did retail investors get fleeced?
        Mr. Miller. There are Altcoins offerings that we should not
    have, and the CLARITY Act will make them----
        [Cross talking.]
        Mr. Van Orden. I am not talking about the Act, sir. I am
    asking you a very direct question. So did retail investors get
    fleeced while a bunch of people got rich? One guy went to
    prison for 25 years working with FTX, which you were the
    General Counsel of there, sir. You should be intimately
    familiar with this. Is that an accurate statement or not?
        Mr. Miller. There were customer losses when FTX filed for
    insolvency.
        Mr. Van Orden. Okay. Enough of that. Ma'am, we are not
    listening. So is that an accurate statement? Should I read it
    again for you, please? Do you need----
        Ms. Pizzola. Yes.
        Mr. Van Orden. Okay. Here you go. Bitcoin is a
    decentralized, scarce, and secure network for transferring
    value without any ability to restrict it. Altcoins are
    unregulated regulated tech startups that regularly result in
    massive losses by retail investors while promoters get rich. Is
    that an accurate statement?
        Ms. Pizzola. Congressman, we have seen Altcoins failures
    that did result in investor losses. I think we have seen----
        Mr. Van Orden. Okay.
        Ms. Pizzola. In other markets we have seen, similarly,
    sometimes see stocks go to zero and see massive losses. But I
    do think the bill puts in place the kind of disclosure
    mechanisms and other protections against insiders sort of
    dumping tokens that I think help.
        Mr. Van Orden. Awesome. Thank you, and I want to be crystal
    clear. I view these types of currencies as a way to help guard
    against tyranny, and I want them to be independent from the
    government. They should be regulated only to the point where we
    can't fleece people, like Mr. Miller is the General Counsel for
    FTX, and that happened. I don't want that to happen again, but
    these currencies are critical for us to maintain freedom. We
    have to be able to exchange in commerce without the government
    getting in our business.
        And so I am supporting your efforts. I just want you to
    really focus on what the heck is going on here and understand
    it ain't about you. It is not about making a dollar off another
    dollar. It is about making sure that American citizens and
    world citizens, because these are global commodities, to make
    sure that they have the ability to transact amongst themselves
    without the United States Government or other governments
    getting into our business. And with that, I yield back.
        The Chairman. The gentleman yields back. I now recognize
    Ms. Tokuda from the great State of Hawaii.
        Mr. Tokuda. Thank you, Mr. Chairman, and thank you to the
    witnesses that are here. Aloha, Dr. Ching. It is great to see
    another kama`aina in the room.
        The potential for digital assets to transform our modern
    financial systems is undeniable, and I appreciate the
    Committee's commitment to developing a thoughtful bipartisan
    framework to regulate these new technologies. Last Congress, we
    took steps to develop a modern framework for regulating digital
    assets with the FIT21 Act, and many of us did raise strong
    concerns that the legislation did not go far enough in
    establishing strong consumer protection standards, particularly
    around disclosures, fraud prevention, and cybersecurity
    safeguards. In the wake of several high-profile cases of
    cryptocurrency fraud and bankruptcy among crypto exchange
    companies, as was just mentioned, like the collapse of FTX in
    2022, I believe it is crucial that we bake robust, strong
    consumer and investor protections into our regulatory framework
    for digital asset markets. We have an important opportunity
    with the CLARITY Act to prevent future market catastrophes by
    setting the right conditions to ensure security and
    transparency for investors while also promoting innovation in
    this area.
        Dr. Piwowar, your testimony highlights the importance of
    consumer protection measures in Federal security laws, such as
    disclosure requirements, that aid informed decisions and best-
    interest standards and other fiduciary duties that ensure fair
    treatment. As we develop frameworks for regulating digital
    assets, what are the key customer protection elements that we
    should take into consideration, and how do the protections in
    the CLARITY Act compare to those provided by the SEC for other
    types of financial transactions?
        Dr. Piwowar. Thank you for that question. It is the same
    ones that the SEC already has, right? The foundation is
    disclosure, right, so giving proper disclosure about meaningful
    information to make informed investment decisions about whether
    to buy-sell securities or vote their shares, so that is where
    it starts with. Then there is the protection of the actual
    customer assets, and Ryne talked about at the CFTC. It is
    basically the same thing at the SEC. It is different underlying
    laws, but it is basically the same thing where you safeguard
    the customer assets, you don't allow the company to play with
    those assets, and in the event of a failure of the firm, that
    those customer assets are moved very quickly to a solvent
    institution that is there. And so those are very much the same,
    and then you mentioned best-interest standard. There are the
    conflicts of interest that are still there involved with not
    putting the firm's interest in front of the customer. So
    whether it is best interest for broker-dealers, or whether it
    is a fiduciary duty for investment advisors, or best-execution
    requirements in terms of the trading that is involved, those
    are all principles based, and we talked about the benefits of
    principle-based regulations, that they can be tailored for the
    specific markets.
        Mr. Tokuda. Is there anything in particular that you would
    want to add or strengthen when it comes to consumer protection
    into the Act itself or----
        Dr. Piwowar. I think what the Act recognizes is that the
    disclosures for digital assets are not going to be the same as
    for public companies in a couple ways: one, what is the
    disclosed and how long it is disclosed. What I really like
    about the Act is that when you have public companies or
    investment companies, they stay securities for their entire
    life, right? When it comes to digital assets, you have this
    issue of, early on, a central common enterprise, which is the
    definition that is used under the Howey Test for an investment
    contract, you have control by insiders. Insiders have
    infrastructure information around the public offering, but as
    the blockchain matures, and I really like the phrase that is
    used in the Act, ``evolves or matures into a decentralized
    blockchain system,'' that information becomes less important
    and, in fact, control goes away. And so the disclosure
    requirements sort of go away as the blockchain becomes mature.
    So I think that is an appropriately-tailored way to think about
    it.
        Now, in terms of whether it has got the exact numbers and
    the right numbers in there, this is where I think the SEC staff
    can be very helpful in providing some maybe tweaks around the
    edges in terms of getting the specifics right.
        Mr. Tokuda. Okay. I am pretty sure it was addressed, but I
    do think oversight discussions are really critical as we
    develop this as well. Actually, I wanted to move on to you, Dr.
    Ching. For myself, it is always an issue of accessibility,
    especially in our rural and remote communities like where both
    of us grew up, and one of the promises of new financial
    technology is that it can broaden financial access. But for
    that to happen, rural communities like ours, many of which
    still face gaps in broadband access and limited exposure to
    financial innovation, need to be able to come along for the
    ride, if you will. So as somebody that comes from the State of
    Hawaii, I am sure you are familiar with the challenges we face
    with connectivity, especially in the Nupur Islands. Rural
    communities also tend to have higher under-banked population.
    Can you speak to the role a Federal framework for digital asset
    markings can play in promoting equitable access to new
    financial technologies?
        Dr. Ching. Thank you for the question, Congresswoman. I
    just want to start off by saying I think education is a big
    piece of this. I participated in the first inaugural Hawaii
    Blockchain Summit last year and also been exploring some
    efforts in the islands around tokenizing drivers' licenses, as
    well as some efforts even in Moloka`i to support different
    kinds of value exchange using blockchain-based technology. I do
    share your concerns as well, though, with the lack of broadband
    access, that it is difficult for everyone within the islands to
    kind of experience and benefit from the technology as well.
        Earlier on in the hearing we did discuss that blockchain is
    undergoing transformation where perhaps without internet
    access, you can still interact with each other and then have
    those transactions settled to the blockchain a later point when
    they do come into contact with internet. And so we are going
    to, from our point of view, explore those technologies to make
    sure we can actually enable that in the future.
        Mr. Tokuda. Thank you very much, and thank you, Mr.
    Chairman, for always prioritizing access in rural America, like
    both of our districts. Thank you. I yield back.
        Mr. Johnson [presiding.] Very good. In the queue is Mr.
    Rose, followed by Mr. Messmer at this time, and with that, the
    gentleman from Tennessee is recognized.
        Mr. Rose. Thank you, Mr. Chairman, and thanks to Chairman
    Thompson and Ranking Member Craig for holding this important
    hearing, and thank you to our witnesses for taking time to be
    with us today.
        Dr. Piwowar, regarding Section 109 of the CLARITY Act,
    which pertains to international cooperation, I would like to
    explore the safeguards the SEC would likely implement when
    entering into information-sharing agreements with foreign
    regulatory authorities. Specifically, what measures would the
    SEC take to ensure that sharing sensitive information with
    foreign regulators doesn't compromise U.S. national security or
    the proprietary business interest of digital asset companies?
        Dr. Piwowar. Thank you for that question. The information-
    sharing agreements with SEC primarily are in the enforcement
    context and are information about fraud that is global in
    nature. So if you have somebody perpetrating fraud from one
    country and it affects U.S. investors, and then the proceeds of
    that fraud are put into a bank or financial institution in
    another country, the information-sharing agreements allow the
    regulator--allows the SEC to find out from the regulators where
    the fraud was being perpetrated to try to stop that fraud, and
    then also to work with the regulators in the other countries to
    freeze the bank accounts to get the customer money back for the
    customers.
        Mr. Rose. Thank you for that. The CLARITY Act requires four
    joint rulemakings between the SEC and the CFTC in order to set
    up efficient and functioning digital commodity markets.
    Importantly, these joint rulemakings clearly delineate their
    respective responsibilities. Opponents of this bill have
    criticized these joint rulemakings, citing the practical
    challenges of the SEC and CFTC coordination. Dr. Piwowar or Mr.
    Miller, and you both can speak to this, can you highlight some
    of these joint rulemakings and explain why it is essential for
    the CFTC and SEC to coordinate on these matters?
        Dr. Piwowar. Yes, thank you, Congressman. Yes, in my
    testimony, one of my recommendations was to try to narrow the
    amount of actual joint rulemaking that has to go through on the
    back end. Having been at the SEC and implement some of the
    Dodd-Frank implementations where many of them were joint
    rulemakings, it is difficult to do those. So I would urge you
    to actually talk to the staff and see how much you can get done
    on the front-end because it slows it down on the other end. It
    is not because they don't work well together. It is just
    because they have different authorizing statutes, different
    ways of looking at things, and their time could be better spent
    actually implementing the regulations rather than actually
    writing them.
        Mr. Miller. Thank you for the question. We are trending
    towards a single marketplace with equities, cryptocurrencies,
    other tokenized assets, and so the exchange places in many
    respects might be dual registered. And so the two agencies, if
    the exchange place is registered with both of them, need to
    identify a primary regulator and figure out what the role of
    the other regulator is. And there is a history at the two
    agencies of doing this all the way back to Shad-Johnson through
    the Dodd-Frank Act and going forward, so I believe they will do
    it. I do agree with Commissioner Piwowar that the more
    instruction that comes in the legislation, the better.
        Mr. Rose. Thank you. And so I take it both of you think it
    is not ideal, but inescapable that there need to be the joint
    rulemakings. Is that a fair----
        Dr. Piwowar. Yes, there are some issues where they just
    have to get together and do it, so I will give one quick
    example is futures contracts on stock market indexes, right? So
    a futures contract on the S&P 500 Index is given to the CFTC,
    right, for jurisdiction, but if you have a single stock futures
    contract, that behaves exactly like the stock and you are
    concerned about insider trading, and so the SEC is given
    jurisdiction over that. But what do you do with narrow-based
    indexes of three or four or five or nine stocks or whatever?
    Well, that was where the SEC and the CFTC had to come together
    on what Shad-Johnson and some other things come together and
    actually hammer out those things. So there are some places
    where they have to hammer out those things, but the more you
    can handle those on the front-end, the quicker the rulemakings
    will actually get done.
        Mr. Rose. And I believe as a part of recent executive
    action that you are going to end up going through OIRA a couple
    of times on these things. Do you have concerns about that?
        Dr. Piwowar. I do not. I have always been a strong
    proponent of cost-benefit analysis, economic analysis at the
    agencies. The agencies have always been subject to judicial
    review and have had rules thrown out on cost-benefit analysis.
    I think going through additional review actually would kind of
    help and decrease the risk of having these things overturned.
        Mr. Rose. All right. I think my time has expired, so I will
    yield back the balance of my time. Thanks, Mr. Chairman.
        Mr. Johnson. Thank you, Mr. Rose. The gentleman from
    Indiana is now recognized for 5 minutes.
        Mr. Messmer. Thank you, Mr. Chairman, and thank you for the
    witnesses for being here today. Dr. Ching, you mentioned that
    Aptos had to fight through regulatory inefficiencies to make
    its way to market. Did the lack of clarity impact your start
    date, harm your revenue, or decrease or delay customers'
    involvement?
        Dr. Ching. Thank you for the question, Congressman. It
    mainly impacted our ability to launch to market, a time to
    market, as well as impacted our ability to understand exactly
    how we could educate folks about token usage. We definitely
    tried to be as conservative as possible and also just apply
    best practices.
        Mr. Messmer. Okay. Can we assume the challenges you faced
    are endured by other blockchain technologies?
        Dr. Ching. Definitely. We are not alone in this space.
        Mr. Messmer. Okay. Thank you. Mr. Miller and Dr. Ching, as
    individuals who have experienced extremes of the current
    regulatory system and the absence of statutory structure, each
    of you has an enlightening perspective to share. On one end of
    the spectrum, honest investors are being punished, while on the
    opposite end of the spectrum, spotty regulations have allowed
    bad actors to cause incredible damage. Would each of you speak
    to how the CLARITY Act provides regulatory guide rails as
    described in Mr. Miller's testimony instead of a blanket that
    suffocates innovation?
        Mr. Miller. Thank you for the question. Our learned
    experience as markets professionals is that responsible
    regulation promotes innovation, promotes growth, and promotes
    the deployment of capital, and so I think that is where the
    CLARITY Act is striking the right balance. It says here is a
    structure, opt into it, you get certainty and then you can do
    your business.
        Mr. Messmer. Thank you.
        Dr. Ching. I also agree with that. I am very supportive of
    all your efforts.
        Mr. Messmer. Super. Thank you. With the obvious failure of
    the current regulatory structure to support innovation in
    digital asset markets, I feel the need to ask why it has taken
    so long to pass legislation, but I think your testimonies have
    already explained the draft and redraft nature of Congress and
    the regulatory pendulum of Administrations very well. The
    CLARITY Act, like you said in your testimony, Mr. Miller, marks
    a bold step in actually producing a legislative solution. It
    does so using input gathered not only from this year's round of
    comments, but last year's as well. One of the notable strengths
    of the CLARITY Act is the inclusion of the CFTC's core
    principles regulation. Mr. Miller, can you speak that this
    adaptive regulatory style will keep the legislation relevant in
    an ever-changing industry?
        Mr. Miller. Thank you for the question. So the core
    principles approach in the Commodity Exchange Act and CFTC
    rules allows innovators and entrepreneurs to build their
    business and educates them on what the expectations are from a
    principles-based perspective of regulators, and I think that
    approach has proven durable over the years, and it is the right
    approach now.
        Mr. Messmer. Okay. Thank you. Thank you, Mr. Miller. Now,
    Ms. Pizzola, do you think the CLARITY Act checks the right
    regulatory boxes in integrating both prescriptive and adaptive
    methods to govern digital asset market structures?
        Ms. Pizzola. Congressman, yes, I do. I think it
    appropriately provides the kind of flexibility that Mr. Miller
    was just talking about for exchanges to tailor their compliance
    methods to their particular business models, which I think we
    have seen be very successful in regulation of designated
    contract markets. There is that flexibility that is appropriate
    for the exchanges. I think for the regulated intermediaries,
    the regulation is a bit more prescriptive in some areas, sort
    of record keeping, chief compliance officer requirements,
    disclosures, things of that nature. And I think it is, perhaps
    appropriately so, a little bit more prescriptive just because
    there is that direct interface that those intermediaries have
    with customers. They may be receiving customer funds, but they
    are also interacting on a daily basis with those customers. So
    there may be sort of more instances for trust building, but
    also for potential fraud and things like that when you sort of
    got face-to-face interaction or otherwise direct interaction
    every day.
        Mr. Messmer. Okay. Well, thank you. Thank you both. I am
    encouraged that the text in front of us and heartened that
    developers, lawyers, and regulatory experts here have come
    together in agreement that the CLARITY Act gets it right. So
    thank you all, and I yield back my time.
        Mr. Johnson. Thank you, the gentleman from Indiana. Before
    we adjourn today, I invite the Ranking Member to share any
    closing comments she may have.
        Ms. Craig. Thank you so much, Mr. Chairman. If this hearing
    proved anything, it is that there is bipartisan agreement that
    we need clear rules of the road to provide sufficient customer
    protections for retail investors and to allow innovators in
    this space to do what they do best. The CLARITY Act is a good
    first step toward this shared goal. I want to thank the
    witnesses for joining us to share the firsthand perspective
    that we need to make informed public policy, and I want to
    thank the Chairman here for holding this hearing, and the
    Subcommittee Chairman. I hope we can continue to work together
    to strengthen this bill and broaden support for it in the U.S.
    House. I still firmly believe that any market for digital
    assets must be fair. If the United States is to be a leader in
    this space, we must make sure digital assets do not become an
    avenue for political corruption, but we will have an
    opportunity to talk more about that a little bit later. Again,
    thank you, and I yield back.
        Mr. Johnson. We are on the cusp of something special here,
    a major victory for consumers, markets, and innovators, and I
    think it is remarkable. I want to thank the hearing panelists
    today because I do think the standard D.C. way all too often is
    to do things that are polarized and partisan, insular,
    uninformed, kind of detached sometimes from the real work of a
    marketplace. And yet this process, the CLARITY Act, building on
    the successes of FIT21, has been the opposite of that. It has
    been bipartisan, it has been collaborative, it has been
    informed, and it has been done together in a bipartisan and
    bicameral conversation, and with many stakeholders, primarily
    across the technology and consumer protection sphere. And I
    think we are, Madam Ranking Member, at a spot where we can make
    further improvements to the bill and ultimately land in a place
    that is going to be a huge success for everyone involved.
        With that, under the Rules of the Committee, the record of
    today's hearing will remain open for 10 calendar days to
    receive additional material and supplemental written responses
    from the witnesses to any questions posed by a Member.
        With that, this hearing of the Committee on Agriculture is
    adjourned.
        [Whereupon, at 12:35 p.m., the Committee was adjourned.]
        [Material submitted for inclusion in the record follows:]
       Submitted Transcript by Hon. Glenn Thompson, a Representative in
                           Congress from Pennsylvania

        ROUNDTABLE: AMERICAN INNOVATION AND THE FUTURE OF DIGITAL ASSETS

                        (BLUEPRINT FOR THE 21ST CENTURY)

                                     ______

                              TUESDAY, MAY 6, 2025
                          U.S. House of Representatives
     Subcommittee on Digital Assets, Financial Technology, and
                                       Artificial Intelligence,
                                           Committee on Financial Services;

                                         joint with the

        Subcommittee on Commodity Markets, Digital Assets, and
                                             Rural Development,
                                                   Committee on Agriculture

                                                       Washington, D.C.

        The Subcommittees met, pursuant to call, at 10:00 a.m., in Room
    1300, Longworth House Office Building, Hon. Bryan Steil [Chairman of
    the Financial Services Subcommittee on Digital Assets, Financial
    Technology, and Artificial Intelligence] presiding.
        Members present (Committee on Financial Services): Representatives
    Steil, Huizenga, Davidson, Rose, Timmons, Stutzman, Nunn, Downing,
    Haridopolos, Moore, Hill (ex officio), Lynch, Foster, Gottheimer,
    Garcia, Liccardo, Waters (ex officio), Sherman, and Himes.
        Members present (Committee on Agriculture): Representatives
    Johnson, Rose, Lucas, Austin Scott of Georgia, Rouzer, Mann, Finstad,
    Nunn, Bresnahan, Messmer, Taylor, Thompson (ex officio), Wied, Davis of
    North Carolina, Budzinski, Jackson, Thanedar, McDonald Rivet, Figures,
    Vindman, Mannion, McClain Delaney, and Craig (ex officio).

        Mr. Steil. The Subcommittee will come to order. I note that today's
    Committee activity will be viewed----
        Ms. Waters. I object to this joint hearing. Pursuant to the House
    rules, this joint hearing requires unanimous consent, and I do not
    consent.
        Mr. Steil. You are recognized. May I ask the basis for the
    objection from the Ranking Member?
        Ms. Waters. I object to this joint hearing. Pursuant to the House
    rules, this joint hearing requires unanimous consent, and I do not
    consent.
        Mr. Johnson. Does the lady have a question?
        Mr. Steil. Will the Ranking Member yield?
        Mr. Johnson. Madam Ranking Member?
        Mr. Steil. Will the Ranking Member yield?
        Mr. Johnson. Mr. Chairman, I would ask if the lady would yield for
    a question.
        Mr. Steil. Will the Ranking Member of the Committee on Financial
    Services yield to a question?
        [Pause.]
        Mr. Steil. I will ask again. Will the Ranking Member of the full
    Committee on Financial Services yield to a question from the
    Subcommittee Chairman?
        Mr. Johnson. Mr. Chairman, I would just note, by way of context,
    for the Ranking Member, I understand your objection, or I understand
    that you have made it. I just want to get a better insight into what is
    the basis of your objection, so that if there is something that we can
    do to remove that problem we can work in good faith to do so.
        [Pause.]
        Ms. Waters. I object to this joint hearing because of the
    corruption of the President of the United States and his ownership of
    crypto and his oversight of all the agencies. I object.
        Mr. Johnson. Mr. Chairman, before I yield I would just note that a
    good regulatory product, good regulatory rules of the road I think
    would provide an environment where people would have more faith in the
    marketplace. And I think these conversations are a critically important
    part of getting there. Thank you.
        Mr. Steil. The Chairman of the full Committee on Financial
    Services, Mr. Hill, is recognized.
        Mr. Hill. Thank you, Mr. Steil. I want to be really clear and set
    the record straight today. The Ranking Member has expressed concern
    about the conflicts of interest, which is why she is disrupting today's
    joint hearing. Through her actions today, the Ranking Member has thrown
    partisanship into what has historically been a strong, good, working
    bipartisan relationship.
        For those of you that may not know, we held a similar hearing, a
    similar joint hearing in this same building in May 2023, under the
    leadership of Chairman Thompson, then Ranking Member David Scott,
    former Chairman McHenry, and Ranking Member Waters. The purpose of that
    hearing, like today's hearing, is to discuss the importance of rules
    for digital assets so that every market participant must abide by them.
        I was encouraged by the engagement that we received from last
    Congress by Members on both sides of the aisle. There was overwhelming
    support from the House Democrats and Republicans on legislation that
    brings digital asset markets into the regulatory perimeter and closes
    the gaps in regulation, gaps that we all agree exist, gaps that
    President Biden agrees that exist, gaps that President Trump agrees
    that exist. Members worked hard to provide robust consumer protections,
    and they did so in a manner that would make our constituent proud.
        We left our differences at the door, and we were honest and
    transparent in our legislative work. Members on both sides of our
    committees are committed to crafting legislation to provide that
    regulatory clarity to encourage responsible actors in the digital asset
    ecosystem. That is what most of the Members in this room are here to
    discuss today.
        As the Ranking Member currently pointed out, to hold a joint
    hearing we must receive unanimous consent from both Republicans and
    Democrats to proceed. The Ranking Member received ample notice, more
    than 6 weeks, and negotiated an additional witness for the minority.
    Yet after that good-faith effort, the Ranking Member is objecting
    today. We agreed not to notice legislation to this joint hearing, yet
    the Ranking Member is objecting today. We determined a seating chart,
    discussed opening statements and witnesses, yet the Ranking Member is
    objecting today.
        I want to thank Agriculture Ranking Member Craig and her staff,
    Subcommittee Ranking Member Don Davis, Chairman Behnam, and our
    witnesses who traveled here to be dedicated to their time to share
    their views with the Committee. I also want to thank Chairman Thompson,
    Subcommittee Chairs Johnson and Steil, and my staff for your commitment
    for working relentlessly with the minority.
        Hearings are an opportunity for Congress and the American people to
    explore important matters of policy together. Whether we agree or
    disagree on policy, we hold them publicly so that our constituents can
    understand how we work to better their lives.
        This hearing would have served as a forum for Financial Services
    and Agriculture Members to learn from our panelists and discuss
    solutions to issue. And given the cross-jurisdictional nature of the
    work, a joint hearing has been very, very needed.
        While I understand the Ranking Member has concerns, but by
    objecting to this hearing the Ranking Member is undermining the
    opportunity for these two committees to engage in a conversation of
    vital importance to the American people. That is a loss for our
    committees, the House, and the public at large.
        Those of us who remain in this room will not sit idly by and
    abandon the urgent work we have before us, that our committees have set
    out to do. We will sit together, hear from these good witnesses, and
    ask questions and learn from your expertise. We will do the difficult
    work of finding common ground on issues like digital assets that matter
    so strongly to Americans. We will try not to silence one another over
    policy disagreements.
        This is just the beginning of the discussion, and I look forward to
    seeing how we can move forward in a bipartisan way. And I yield back to
    the chair.
        Ms. Waters. Mr. Chairman?
        Mr. Steil. Thank you very much, Mr. Chairman.
        Ms. Waters. Mr. Chairman?
        Mr. Steil. Does the Ranking Member insist upon her objection?
        Ms. Waters. I insist upon my objection, and I would like everyone
    to join me in CVC Room 217 to discuss what we should be discussing is
    heard----
        Mr. Steil. The objection to convening this meeting----
        Ms. Waters. Trump's crypto corruption.
        Mr. Steil. The Ranking Member's objection to the meeting is heard.
    We will now move on to a roundtable.
        Mr. Lynch. Mr. Chairman, may I be heard on the objection?
        Mr. Steil. The Ranking Member of the Subcommittee, Mr. Lynch, is
    recognized.
        Mr. Lynch. Thank you, Mr. Chairman, and to my colleagues on the
    Agricultural Committee, as well. Ranking Member Waters has objected to
    this hearing because of the clear conflicts of interest between
    President Trump and his family's personal crypto ventures and the
    legislative proposals our Committee are considering. President Trump
    and his family are exploiting the presidency to enrich themselves,
    using their personal crypto business, World Liberty Financial.
        Never in American history has a sitting President so blatantly
    violated the ethics laws----
        Mr. Steil. I ask the Ranking Member----
        Mr. Lynch. Reclaiming my time.
        Mr. Steil. The gentleman was offered a moment to comment----
        Mr. Lynch.--for financial gain.
        Mr. Steil. The gentleman was offered a moment to comment on the
    objection.
        Mr. Lynch. President Trump's crypto dealings are estimated to be a
    total of $2.9 billion----
        Mr. Steil. The gentleman is no longer recognized.
        Mr. Lynch.--and nearly 40 percent of his total wealth----
        Mr. Steil. You will be recognized----
        Mr. Lynch.--between issuing a meme coin, a governance token----
        Mr. Steil. The gentleman, Mr. Lynch, would be noticed if he was in
    a hearing----
        Mr. Lynch. [Unclear.]
        Mr. Steil.--of which he would have the ability to speak----
        Mr. Lynch.--to proceed to speak over the Trump family to provide
    every detail of his dealings containing his conflicts of interest.
        Mr. Steil. Ranking Member Lynch, you are no longer recognized by
    the chair. The gentlelady's objection is heard.
        We will now move into a roundtable.
        Ms. Waters. I insist on my objection.
        Mr. Lynch. Will my remarks be entered into the record?
        Mr. Steil. It is too bad for the Ranking Member that it is not a
    hearing. If it was a hearing, the Ranking Member would be protected by
    House rules. There was an objection from the Ranking Member of the full
    Committee----
        Ms. Waters. The Ranking Member insists on her objection. I object.
        Mr. Steil. The objection is heard. The objection is heard, and we
    will now move into a roundtable. We want to hear from our participants,
    who traveled to share their expertise with us. And I would ask that
    participants make brief remarks.
        To keep our Members on track, I would also ask that they limit
    their comments and questions to 5 minutes.
        To open the roundtable, I would like to ask Agriculture
    Subcommittee of Commodity Markets, Digital Assets, and Rural
    Development Chairman Johnson to offer remarks.
        Mr. Johnson. Well, a rose by any other name smells just as sweet.
    This is the second public event these two committees have done
    together. I think it is a remarkable degree of cooperation and
    partnership, and I think it builds on the work of last term, where
    Democrats and Republicans, Ag and Financial Services, worked together
    to get things done.
        And for me today, we get so lost in some of the terminology. What
    about the Howey Test, and what about this, and what about custody, and
    these things matter. But ultimately, to me, it comes down to two
    gentlemen, Mark and Mike. The Ag Subcommittee, or maybe the full
    Committee--I forget--had a really good hearing a couple of weeks ago,
    where we talked about the real-world applications. And Don Davis was
    there and helped me manage that Subcommittee hearing, where we talked
    about the real-world use cases of digital assets and blockchain
    technology, and how they can enhance the lives of everyday Americans.
        Mark Tague, a fourth-generation cattleman in Oklahoma, he co-
    founded CattleProof to improve those cattle markets. Mike Horton, an
    engineer in California, developed GeoNet to create an accessible,
    world-wide precision mapping network. These are real-world problems
    that these gentlemen have used blockchain technology to help solve.
    Without tokens, the blockchain wouldn't work and neither CattleProof
    nor GeoNet would exist.
        And so let's not forget these stories as we talk through the CFTC
    and the SEC and jurisdictional battles and the Howey Test and
    decentralization, exempt offerings, and secondary trading. This legal
    discussion only matters because if we get it right it will empower
    entrepreneurs and it will encourage innovation. If we give Americans
    like Mark and Mike certainty about how to build with digital assets,
    they will create better services that improve our country.
        So, to me, that is really the point of the hearing. The regulatory
    framework only matters because innovation matters. And I do want to
    close, Mr. Chairman, by thanking our panelists for traveling here, for
    taking their time to prepare their remarks, and to help make sure that
    we get a better product. I want to thank my colleagues on the other
    side of the aisle who stay here and continue to do their work.
    Ultimately, the world is run by those who show up, and for Members who
    have shown up, they are giving a beautiful gift to these committees, to
    the House, and ultimately to the American people.
        With that I yield.
        Mr. Steil. The gentleman yields back. I now recognize the Ranking
    Member of the Agriculture Committee, Mr. Davis, to offer remarks.
        Mr. Davis of North Carolina. Thank you, Mr. Chairman, and to the
    witnesses who are here this morning.
        I strongly believe the future of American innovation depends on our
    ability to lead in the digital economy. Digital assets and blockchain
    technology are not passing trends. They are foundational technologies
    with the potential of revolutionizing everything from financial
    services and supply chains to how we deliver aid, store data, and
    connect rural communities to global markets.
        And if we want to ensure that innovation continues to flourish, we
    must provide a clear and forward-looking regulatory framework, and that
    means working to bring certainty to innovators, investor, and
    consumers. We must clarify the roles of the SEC and the CFTC, reduce
    regulatory fragmentation, and ensure the rules reflect the unique
    nature of this technology.
        I also emphasize the enormous potential digital assets hold for
    communities like the ones that I represent in eastern North Carolina.
    This technology can unlock new pathways for rural development,
    financial inclusion, and economic resilience. But that can only happen
    if we create a policy environment that fosters innovation while
    upholding market integrity and investor protection.
        Let's be clear. American leadership in this space is not
    guaranteed. Other countries are moving quickly to attract talent,
    capital, and infrastructure. If we do not act with vision and purpose,
    we risk ceding that leadership, and with it the value that defines our
    markets. I look forward to working with my colleagues to ensure the
    United States remains a global leader.
        Thank you, and I look forward to hearing from our witnesses, and I
    yield back.
        Mr. Steil. I thank my colleague for his remarks. I will recognize
    myself. But before I begin my remarks I would like to acknowledge what
    just occurred. For over a month, the majority on both the Financial
    Services Committee and the Agriculture Committees worked in good faith
    to organize this Subcommittee hearing, designed to foster really
    meaningful dialogue on digital assets and the legislative solutions
    needed to close the existing regulatory gaps.
        While some of my colleagues have chosen to leave the room, our work
    continues undeterred.
        This legislation is simply too important not to engage in an open
    and public discussion about how the United States can lead in Web3. I
    remain hopeful they will soon recognize the stakes and the critical
    importance of robust, nonpartisan engagement in this process.
        More than 15 years ago, a nine-page document, the Bitcoin White
    Paper, sparked a shift in how we think about money, trust, and value.
    That idea sparked the digital asset ecosystem. Innovators have since
    built decentralized networks that offer services once thought
    unimaginable.
        But innovation has not followed a straight line. Outdated
    regulatory frameworks and a ``regulation by enforcement'' approach by
    then-Chairman Gary Gensler and the Biden-Harris Administration have
    stifled clarity and pushed jobs, investment, and leadership offshore.
    Worse, the uncertainty has exposed consumers to greater risk from fraud
    and mismanagement.
        Congress has both the opportunity and responsibility to act. We
    must pass comprehensive, bipartisan legislation that provides clarity
    and fosters responsible innovation.
        Last month, Chairmen French Hill and GT Thompson introduced six
    core principles that now form the basis of the discussion draft
    released yesterday. Today's roundtable will evaluate those principles
    and address key questions about: (1) asset classification, (2) agency
    jurisdiction over centralized intermediaries, (3) reducing regulatory
    fragmentation, and (4) establishing guardrails that support innovation.
        To me, the path forward is clear. The choices we make now will
    determine whether the United States remains a global leader in digital
    finance or if we fall behind.
        And I thank our panelists for being here today, and I look forward
    to a thoughtful and productive conversation.
        I will now recognize the Ranking Member of the Committee on
    Agriculture, Ms. Craig, to offer remarks.
        Ms. Craig. Thank you so much to our witnesses for being here today.
    This is a really important conversation.
        I am here because I think we need to be engaged in part of the
    discussion to agree on the rules of the road as they relate to crypto.
    It isn't going away, and we have a responsibility to be here and be
    part of the solution.
        If we are successful in working together, then legitimate
    enterprises will innovate and thrive, and consumers and retail
    investors will be protected. If we fail to find a bipartisan solution
    to these pressing questions, we will witness more scandals, and
    consumers will not have the protections that they so clearly need.
        It is important and it is legitimate to call out the self-dealing
    from the Trump Administration related to hawking meme coins from the
    White House. It is corrupt, it is wrong, and it makes this process of
    coming together to regulate crypto more partisan than it needs to be.
    While these conversations may be difficult, they are important for our
    constituents.
        I am pleased that we are moving forward with this roundtable today,
    and with that, Mr. Chairman, I yield back.
        Mr. Steil. I thank the gentlelady for her remarks. The Chairman of
    the Committee on Agriculture, Mr. Thompson, is recognized to offer
    remarks.
        Mr. Thompson. Thank you, Mr. Steil. For 2\1/2\ years, our
    committees have worked together on legislation, writing rules of the
    road for digital asset markets. I am proud of what we accomplished last
    Congress, with FIT, and it is a great example of what can happen when
    we work together.
        Unfortunately, today is an example of what happens when we cannot
    work together. We wind up with a second-best solution. But the
    discussion today will go on. I appreciate all our colleagues who have
    chosen to make time for these witnesses and this discussion today. We
    have a rare opportunity to make law this Congress and to be the authors
    of legislation which will change the way we use the internet and how we
    interact in the digital commodity.
        I want to thank Chairman Hill, Chairman Steil, and the entire
    membership of the Financial Services Committee for your continued
    partnership in this work.
        I would also be remiss if I didn't recognize our terrific Committee
    leadership and Ranking Member Craig, Chairman Johnson, and Ranking
    Member Davis. We are blessed with an abundance of thoughtful
    legislators who are eager to work on digital asset legislation.
        Finally, welcome and thank you to our witnesses, and I especially
    want to welcome back to Chairman Behnam. I appreciate all the time and
    effort you each have spent preparing for today, and I look forward to
    the discussion and yield back the balance of my time.
        Mr. Steil. The gentleman yields back. Does the Subcommittee chair,
    Mr. Lynch, are you interested in offering comments?
        Mr. Lynch. I am. I would like to address the roundtable, which I
    did not before.
        Mr. Steil. I will recognize that.
        Mr. Lynch. Thank you, Mr. Chairman. President Trump's crypto
    dealings are estimated to total about $2.9 billion in value and nearly
    40 percent of his total wealth. Between using his meme coin, governance
    token, and USDE stablecoin, of which 75 percent of the proceeds go to
    the Trump family, every detail of his dealings contains a conflict of
    interest.
        Last week, The New York Times released an extensive investigation
    outlining President Trump's many conflicts of interest. To put it
    bluntly, I quote, ``World Liberty Financial has eviscerated the
    boundary between private enterprise and government policy in ways
    without precedent in American history.''
        I know this hearing, this gathering has been planned for a while,
    but last Thursday, in a meeting in Dubai, Trump's family's company made
    a deal with a Dubai investor to invest $2 billion that will benefit the
    Trump family.
        I understand crypto. I understand the other issues here. But this
    is a mechanism by which other people outside, foreign interests, can
    actually influence our President, not just this one but in the future,
    as well. And I think that is a relevant issue before this forum.
        Thank you. And I do thank the witnesses for their willingness to
    come here and assist the roundtable with its work. Thank you, Mr.
    Chairman, and I yield back.
        Mr. Steil. The gentleman yields back. The Chairman of the Financial
    Services Committee, Chairman Hill, is recognized.
        Mr. Hill. Thank you, Chairman. I want to thank our witnesses again
    for your missions, to share your views with us today.
        As noted, look, we provided the minority 6 weeks of notice and
    lavishly structured a joint process between the Ag Committee, the
    Financial Services Committee, minority, and majority. So I just
    continue to be disappointed in Ranking Member Waters' decision to exit
    the meeting and objection.
        In the 118th Congress we made tremendous progress. We made
    significant strides to build bipartisan, bicameral consensus on how to
    craft a regulatory framework for digital assets. Seventy-one Democrats
    in the last Congress joined Republicans in passing last Congress'
    regulatory framework view, that Mr. Thompson and I offered, FIT21. It
    is the precursor of the work we are doing here today. We have turned
    the page. We are approaching it in a fresh way, and this roundtable is
    essential to getting new views on how to go in a different direction.
        To my friends on the other side of the aisle, our door is always
    open. No regulatory framework that is fit for purpose for digital
    assets, that provides oversight, development, and innovation in
    America, that is a failure, just as no clarity for what is a quality,
    dollar-backed stablecoin, if we don't do that, that is a failure,
    because that leaves the regulatory gap, that was pointed out thoroughly
    by both President Biden and President Trump. And this Committee,
    working together with Ag and Financial Services on a bicameral,
    bipartisan basis, we are going to get the job done.
        And I want to thank all of you for being here today. I want to
    thank our chair, and I will yield back.
        Mr. Steil. The gentleman yields back. I would like to briefly
    introduce our participants today.
        Mr. James Rathmell is General Counsel at Haun Ventures, a venture
    capital firm that supports cryptocurrency-related startups.
        Mr. Alex Miller is the Chief Executive Officer at Hiro Systems, a
    company that provides infrastructure and tools to developers building a
    digital global economy on top of Bitcoin.
        Mr. Daniel Davis is Partner and Co-Chair of Financial Markets and
    Regulation at Katten Muchin, and is the former General Counsel at the
    Commodity Futures Trading Commission.
        Mr. Greg Tusar serves as Vice President of Institutional Products
    at Coinbase, where he leads the development of the firm's efforts in
    prime brokerage, in custody, financing, and exchange.
        The Honorable Rostin Behnam, a Distinguished Fellow at the Psaros
    Center, Georgetown University, and former Chairman of the U.S.
    Commodity Futures Trading Commission.
        We thank you all for taking your time to be here, and if you would
    like to each make some remarks we will just go from the left to the
    right, starting with Mr. Rathmell.
       STATEMENT OF JAMES RATHMELL, J.D., GENERAL COUNSEL, HAUN VENTURES
                         MANAGEMENT LP, MENLO PARK, CA
        Mr. Rathmell. Chair Steil, Chair Johnson, Ranking Members Lynch and
    Davis, and Members of the Subcommittee, thank you for the privilege of
    speaking today.
        My name is James Rathmell, and I am the General Counsel of Haun
    Ventures, a venture capital firm founded by Katie Haun, who was a
    Federal prosecutor and a General Partner at Andreessen Horowitz. Prior
    to Haun Ventures, I was in legal practice, where I primarily focused on
    securities offerings of all kinds, from venture capital financings to
    IPOs to capital markets transactions.
        At Haun Ventures, we invest in teams building with frontier
    technology. We believe crypto, i.e., cryptographic primitives with
    economic incentives, has the potential to modernize financial
    infrastructure and digital ecosystems. With new primitives, money,
    assets, and markets can become like everything else on the internet--
    transferrable at the speed of information, accessible, programmable,
    and auditable.
        Our portfolio companies reflect the ambition of this moment. Plume
    is streamlining the tokenization of real-world assets with built-in
    legal and compliance tools. BVNK uses stablecoins and decentralized
    infrastructure to make global payments for businesses as seamless as
    sending an email.
        Aleo embeds infrastructure for digital identity and authentication
    while protecting the sensitive data of everyday users. And Farcaster is
    reimagining social media by returning control to users and developers
    through decentralized protocols.
        These teams want to build and expand in the United States, but they
    need clarity to do so, not special treatment, just consistent rules
    that reflect how these systems actually work.
        At the heart of today's hearing is something deceptively simple:
    digital assets. A digital asset is not inherently a stock, currency, or
    investment contract. In many cases it is something entirely novel: a
    computing primitive that evolves over time and serves multiple
    purposes, depending on the context. We need legislation that accounts
    for the unique properties of digital assets and evolves with them.
        But why are existing laws inadequate to meet the present need? A
    token might start its life primarily as a mechanism for capital
    raising, with the initial transactions involving security-like
    characteristics. But as adoption grows, that same token may evolve to
    primarily serve other functions: as a means of payment, as a governance
    mechanism, or to provide access to services on a protocol.
        This evolution isn't incidental. It is the explicit goal of many
    projects. They aim to decentralize over time, becoming governed by
    open-source communities and secured through trustless consensus.
    Digital assets are the bedrock of this incentive mechanism.
        A successful legal framework must accommodate this transition. If
    done right, it can unlock more resilient, transparent, and accessible
    financial and digital infrastructure.
        It is not the case that digital asset issuers refuse to comply with
    the law. Our industry has tried every single pathway available under
    existing securities laws to conduct a token offering. But a core
    reality remains: protocols depend on liquid markets, price discovery,
    community participation, and disintermediation. Existing law simply
    doesn't contemplate this. That is the legal black hole that many
    projects face today.
        So what would a better blueprint look like? We need a graduated
    framework that adapts to a project's lifestyle. Early on, lightweight
    disclosure regimes can help address information asymmetries. As
    networks mature and decentralize, the focus should shift to market
    integrity and price discovery.
        Moreover, decentralized networks have incredible amounts of high
    resolution, real-time data. Our portfolio company Artemis, for example,
    has developed tools for parsing and analyzing this data, everything
    from market statistics to developer activity to application usage.
        U.S. financial regulators were early movers in the 1980s and 1990s
    to adopt electronic systems and make data freely available through the
    internet. Here, too, they should lead and work with the private sector
    to ensure that on-chain data is standardized and disseminated into the
    market.
        The United States has led before. In the 20th century, we built the
    world's most dynamic capital markets by balancing investor protection
    with financial and technological innovation. We have the opportunity to
    do that again with crypto. If we don't act, innovation won't wait. It
    will simply move elsewhere. And we will lose not only economic
    opportunity but also the chance to shape the rules of the road
    according to our values.
        We believe that the future of capital markets, the global financial
    system, and the internet will run on open-source blockchains. So what
    is at risk is not just American innovation in the digital asset space,
    but ceding our hard-won leadership role in traditional markets, as
    well.
        This Congress has a historic opportunity. The blueprint you create
    today will determine whether the next generation of digital asset
    innovation happens here or abroad.
        Thank you, and I look forward to your questions.
        [The statement of Mr. Rathmell follows:]

       Prepared Statement of James Rathmell, J.D., General Counsel, Haun
                     Ventures Management LP, Menlo Park, CA
        Chair Steil and Chair Johnson, Ranking Members Lynch and Davis, and
    the distinguished Members of both Subcommittees, thank you for the
    privilege of testifying today.
        My name is James Rathmell, and I'm the General Counsel at Haun
    Ventures, a venture capital firm founded by Katie Haun, who served as a
    prosecutor in the Department of Justice for over a decade and was a
    General Partner at Andreessen Horowitz. Prior to Haun Ventures, I was
    in legal practice, where I primarily focused on securities offerings of
    all kinds, including venture capital financings, IPOs, and capital
    markets offerings by established public companies.
        At Haun Ventures, we invest in teams innovating with frontier
    technology. We believe that crypto, which we define as decentralized
    cryptographic primitives paired with economic incentives, holds the
    potential to modernize financial infrastructure and digital ecosystems.
    With new cryptographic primitives, we believe money, assets, and
    markets will become like everything else on the internet: transferable
    at the speed of information, accessible, programmable, transparent, and
    auditable. This is made possible because of decentralized protocols,
    which are designed differently from both existing internet platforms
    and existing financial networks--in that they leverage digital assets,
    the subject of today's hearing, for economic incentives and
    coordination. Furthermore, decentralized protocols are often built on
    open-source code, enabling transparency, innovation, and competition as
    the best ideas rapidly proliferate into superior product offerings.
        Our portfolio companies reflect the diversity and ambition of this
    moment. The founders behind these projects are building and expanding
    in the United States, and they are asking for a clear, consistent set
    of rules so they can build with confidence. Clarity isn't about giving
    them special treatment, it's about giving everyone, from developers to
    investors to users to regulators, a shared understanding of how these
    systems work and how we will ensure fair market participation.
        Our portfolio company Plume is pioneering the tokenization of real-
    world assets, streamlining the complex process of bringing real estate,
    commodities, and financial instruments onchain and integrating relevant
    legal, regulatory, and compliance standards directly into its
    infrastructure. Another portfolio company, BVNK, uses stablecoins and
    decentralized infrastructure to make global payments for businesses as
    fast and seamless as sending an email, something traditional systems
    still fail to do.
        Beyond finance, Aleo is a new blockchain that embeds privacy-
    preserving computing and infrastructure to protect sensitive consumer
    data and security; this technology provides the basis for a new and
    more secure digital identity, which can in turn be leveraged to combat
    problems like authentication and deep fakes. And our portfolio company
    Farcaster is helping reimagine social media through an open,
    decentralized protocol that returns control and data to users and
    developers.
        At the heart of today's conversation is something deceptively
    simple: digital assets. Much of the confusion in current law--and the
    frustration felt by entrepreneurs--arises from the fact that we are
    dealing with a new asset class not contemplated by existing frameworks.
    A digital asset is not inherently a stock, or investment contract, or a
    currency. In many cases, it's something entirely novel: a new computing
    primitive that can represent many different things depending on the
    context in which it's used, and which can evolve over time.
        This is why we need legislation that recognizes the unique
    characteristics of digital assets and offers a framework that evolves
    with them. Digital assets are not just financial instruments--they are
    building blocks for a new digital and financial system. They can carry
    value, confer rights and privileges, enforce rules, and facilitate
    coordination at scale.
        The title of today's hearing is apt. What we urgently need is a
    blueprint--an architectural schematic--for the next century of American
    innovation to unlock the inherent potential of digital assets. We
    cannot reasonably expect that the blueprint from which we built the
    house of 20th century American innovation will do the job.
        In 1996, the jurist and legal scholar Frank Easterbrook famously
    delivered a lecture titled ``Cyberspace and the Law of the Horse,'' in
    which he argued that we did not need new ways of legal thinking with
    respect to the internet, any more than we needed an entire branch of
    study dedicated to equine law: ``Lots of cases deal with sales of
    horses,'' Easterbrook said, ``others deal with people kicked by horses;
    still more deal with the licensing and racing of horses, or with the
    care veterinarians give to horses, or with prizes at horse shows. Any
    effort to collect these strands into a course on `The Law of the Horse'
    is doomed to be shallow and to miss unifying principles.'' \1\
    Easterbrook's conclusion was that novel and unique legal frameworks for
    the internet were superfluous.
    ---------------------------------------------------------------------------
        \1\ Frank H. Easterbrook, ``Cyberspace and the Law of the Horse,''
    University of Chicago Legal Forum (1996).
    ---------------------------------------------------------------------------
        Of course, this conclusion was wrong in 1996 as the internet was
    emerging, and it remains wrong now that the total amount of economic
    activity on the internet measures in the trillions of dollars per year.
    The laws governing the internet are of paramount national and global
    concern, and the lesson from the past 30 years is that we need to
    continually sharpen our thinking to meet the present moment of
    technology. Easterbrook's words also sound eerily familiar to those of
    us in the digital assets industry, who have long been told that crypto
    entrepreneurs should simply abide by the existing rules. Like the
    internet before it, digital asset innovation warrants a tailored
    approach that respects longstanding legal principles, while adapting
    them to meet the moment. We're grateful to the Members present here
    today for tackling this challenge head-on.
        But why are existing laws inadequate to meet the present need?
        Perhaps the most challenging aspect of regulating digital assets is
    that the same token can serve multiple functions simultaneously. A
    token might start its life primarily as a mechanism for capital
    raising, with the initial transactions involving security-like
    characteristics. But as the network develops and adoption grows, that
    same token may evolve to primarily serve other functions--as a means of
    payment, a governance mechanism, or to provide access to services on a
    network or protocol.
        In fact, this evolution is not merely incidental. Rather, it is the
    explicit goal of many digital asset projects. They aim to transition
    from centralized development efforts to decentralized networks, which
    are governed by their communities and secured through game theoretic
    incentive mechanisms. These networks ultimately rely on trustless
    consensus--where participants reach agreement without relying on
    intermediaries--and digital assets are the bedrock of this mechanism. A
    successful legal and regulatory framework must accommodate this
    transition rather than stifle it, because enabling decentralized
    innovation can unlock more resilient, transparent, and broadly
    accessible financial and digital infrastructure.
        Of course, one way that digital assets can be used is for capital
    raising purposes--so that a project can hire people, lease office
    space, and pay for development costs. For those seeking to raise
    capital in a traditional securities offering, there are a few pathways.
        The most frequently used, especially for venture-backed companies
    like the ones in our portfolio, is Regulation D. Reg D was adopted in
    1982, and allows an organization to conduct a private securities
    offering without registering with the SEC, as long as the sales are to
    accredited investors of a certain income bracket, net worth, or degree
    of professional licensure. Reg D is an incredible success story: many
    of the world's largest and most innovative companies were originally
    seeded from venture capital investments under the Reg D exemption. From
    July 2022 to June 2023, over 19,000 operating companies relied on Reg D
    to raise more than $275 billion.\2\
    ---------------------------------------------------------------------------
        \2\ Mark T. Uyeda, Commissioner, U.S. Securities & Exchange
    Commission, ``Remarks at the 51st Annual Securities Regulation
    Institute'' (Jan. 22, 2024), https://www.sec.gov/newsroom/speeches-
    statements/uyeda-remarks-securities-regulation-institute-012224.
    ---------------------------------------------------------------------------
        However, Reg D is not without its drawbacks. For one, a typical Reg
    D offering consists of a highly negotiated and bespoke set of legal
    documents, costing tens or hundreds of thousands of dollars in legal
    fees to paper. Moreover, and as I will discuss in greater detail below,
    private securities lack liquid markets and therefore efficient price
    discovery. Finally, Reg D offerings do not enable broad community
    participation.
        These drawbacks led to the creation of two other exemptions signed
    into law in 2012. Regulation A+, also known as Reg A+ or the ``mini-
    IPO'', was designed to facilitate access to capital for early-stage and
    mid-stage companies and to bridge the gap between private and public
    markets by allowing broader investor access. Regulation Crowdfunding,
    also known as Reg CF, was built to support small businesses and
    startups that may not attract institutional capital but have strong
    community support.
        Unfortunately, Reg A+ and Reg CF have been mostly unsuccessful at
    achieving these goals, representing less than 1% of private capital
    raised in recent years.\3\ Commissioner Uyeda at the SEC, who himself
    worked on the proposing and adopting releases for Reg CF a decade ago,
    recently concurred with the assessment that Reg CF has failed as a
    mechanism for low-cost capital formation by startups and small
    businesses, since an offering can cost more than $500,000 in fees
    despite a total offering cap of just $5 million.\4\
    ---------------------------------------------------------------------------
        \3\ David Krause, ``Why Aren't Reg A Offerings More Popular Among
    Small Businesses?,'' The CLS Blue Sky Blog (Apr. 27, 2023), https://
    clsbluesky.law.columbia.edu/2023/04/27/why-arent-reg-a-offerings-more-
    popular-among-small-businesses/.
        \4\ Uyeda, supra note 2 (``In 2012, the JOBS Act introduced the
    concept of crowdfunding into the Federal securities laws, and in 2015,
    the Commission adopted Regulation Crowdfunding (`Regulation CF'). I
    worked on both the proposing and adopting releases for Regulation CF.
    Almost 10 years later, has Regulation CF achieved its intended goal of
    `provid[ing] startups and small businesses with capital by making
    relatively low dollar offerings of securities . . . less costly'?
    Unfortunately, the answer is `probably not.' '').
    ---------------------------------------------------------------------------
        And then of course, there are public offerings. Today, an IPO will
    typically cost millions or even tens of millions in fees paid to
    lawyers, accountants, FINRA, the exchanges, transfer agents, and the
    SEC itself for filing and registration.\5\ This does not include
    ongoing legal and compliance costs of being a public company, which can
    be in the millions of dollars per year. Leaving digital assets aside
    for a moment, these compliance costs are one reason we have seen the
    number of publicly listed companies decline by 50% since the late
    1990s.\6\
    ---------------------------------------------------------------------------
        \5\ PwC, ``Considering an IPO? First, understand the costs,''
    https://www.pwc.com/us/en/services/consulting/deals/library/cost-of-an-
    ipo.html.
        \6\ Wes Moss, ``The Decline In U.S. Stocks To Choose From: What It
    Means For Investors,'' Forbes (Feb. 3, 2025), https://www.forbes.com/
    sites/wesmoss/2025/02/03/the-decline-in-us-stocks-to-choose-from-what-
    it-means-for-investors/.
    ---------------------------------------------------------------------------
        It's important to note that every single one of these pathways--Reg
    D, Reg A+, Reg CF, and IPO--has been tried by digital asset issuers. It
    is simply not the case that market participants have defiantly refused
    to comply with existing laws. However, beyond the substantial costs to
    lawyers, auditors, and others, as well as the inadaptability of
    disclosure-based regimes for the particularities of digital assets,\7\
    an existential risk looms over those who have tried to shoehorn digital
    assets into existing securities laws: the need for liquid markets.
    ---------------------------------------------------------------------------
        \7\ Paul Grewal, Faryar Shirzad, and Thaya Knight, ``Digital Asset
    Securities Regulation: A Petition for Rulemaking from Coinbase,''
    Harvard Law School Forum on Corporate Governance (Aug. 1, 2022)https://
    corpgov.law.harvard.edu/2022/08/01/digital-asset-securities-regulation-
    a-petition-for-rulemaking-from-coinbase/.
    ---------------------------------------------------------------------------
        If you look at the largest decentralized blockchains today--
    Bitcoin, Ethereum, Solana--it is strictly necessary to acquire the
    associated digital assets (i.e., BTC, ETH, SOL) to use and participate
    in the corresponding network. If we followed Google from its venture-
    backed origins through its 2004 IPO, there was never a moment in which
    everyday users needed to own and spend Google stock to run searches;
    where the price of Google stock was instrumental to secure Google.com
    or incentivize users to improve the software; or where the lack of an
    active trading market in Google stock directly imperiled the
    functionality of the search engine.
        Meanwhile, liquid markets with robust price discovery are an
    essential, non-negotiable precondition for the successful functioning
    of crypto protocols. This is the legal black hole many projects find
    themselves in: perhaps a project may find a way to conduct a digital
    asset offering under an existing pathway--even one that is costly and
    poorly suited to the unique characteristics of tokens--but often there
    is no viable next step if the asset lacks a functioning market to
    support its transfer, sale, and use for the intended purpose on a
    network or protocol.
        Ensuring that digital assets and decentralized systems can operate
    as designed will benefit all market participants--both institutional
    and retail. The current regime, characterized by excessive compliance
    costs, high barriers to entry, and a reliance on multiple
    intermediaries, is not only impeding innovation but also failing to
    deliver on its core promises. It is ill-equipped to address the unique
    attributes of digital assets and, as a result, is falling short on both
    consumer protection and market integrity.
        So what could be a better blueprint? Any market structure
    legislation will need a fit-for-purpose regulatory regime that evolves
    with project maturity. This would recognize the changing nature of
    digital assets throughout their lifecycle and apply appropriate
    oversight at each stage.
        During the earliest stages, when a project is raising funds and
    beginning development, we should look to lightweight disclosure-based
    regimes to address information asymmetries between insiders and the
    public. Rather than shoehorning digital assets into ill-fitting
    securities laws, we should create a new pathway specifically designed
    for digital assets that address their unique risks and opportunities.
    For instance, many projects are open-source-meaning that the source
    code is available for anyone with sufficient technical knowledge to
    analyze and use. This is quite different from the information
    asymmetries that exist with securities, where issuers and their
    insiders may have specialized knowledge about a company that needs to
    be disseminated into the market to create an even playing field.
        As a network launches, decentralizes, and matures, the regulatory
    focus should shift accordingly to ensure market integrity, liquidity,
    and efficient price discovery. This is the only way networks and
    protocols will achieve their true potential. Such a graduated approach
    would provide the clarity entrepreneurs need while ensuring appropriate
    protections for market participants at each stage. It would recognize
    that the same token can have different regulatory and policy
    implications at different points in its lifecycle.
        In the 20th century, the United States did the world a profound
    service by building the most reliable, transparent, and robust capital
    markets in history--through a regulatory approach that balanced
    investor protection with innovation. We have the same opportunity with
    crypto. If we fail to seize it, that innovation will not wait; it will
    simply happen elsewhere. And if it does, we risk not only ceding
    economic opportunity but also the ability to shape the rules of the
    road in a way that reflects our values.
        I believe this Congress has a historic opportunity to establish a
    framework that will secure American leadership across both financial
    and non-financial use cases in our industry for decades to come. The
    blueprint we create today will determine whether the next generation of
    digital asset innovation happens here in the United States or
    elsewhere.
        For the sake of our economic competitiveness, national security,
    and the millions of Americans who stand to benefit from these
    technologies, I urge you to seize this opportunity.
        Thank you for your time, and I look forward to your questions.

        Mr. Steil. Thank you very much.
        Mr. Miller, you are recognized to share your remarks.
       STATEMENT OF ALEX MILLER, CHIEF EXECUTIVE OFFICER, HIRO SYSTEMS;
                     PARTNER, CHAOTIC CAPITAL, BOZEMAN, MT
        Mr. Miller. Thank you. Chair Steil, Ranking Member Lynch, Chairman
    Johnson, Ranking Member Davis, good morning. Thank you for inviting me
    today.
        My name is Alex Miller, and I am the CEO of Hiro Systems. I have
    spent the last 15 years of my career on one thing, which is helping
    builders build. Our mission at Hiro is to enable developers to build a
    global, seamless, decentralized and interconnected economy on top of
    Bitcoin via the Stacks network, a fully decentralized blockchain that
    is one of the oldest and largest Layer 2s to Bitcoin. It provides the
    speed and programmability that doesn't exist on Bitcoin but helps bring
    it to everyone and actually bring it the scale and capacity to be used.
        Why I am really here today, though, is that Hiro is a little bit
    unique. We have been not only very proudly based in the U.S. since our
    founding, but when we built the first version of the Stacks blockchain
    about 7 years ago, which was known as Blockstack at the time, we ran
    the first, and I believe we are the only company still around to have
    run an SEC-qualified, Regulation A offering for tokens.
        We believed deeply, from the beginning, that for a project to have
    the firmest base to be a generational project it needed to be built the
    right way, decentralized with trust and within compliance to the laws,
    so that there was no question that it would remain around. And for that
    reason we chose to make the initial offering of STX, which is the token
    that is used for gas and to create the incentives that are necessary
    for any decentralized system to work via Regulation A, so that
    everyone, not just the accredited investors who traditionally make up
    Reg D or the international investors who make up Reg S offerings, could
    participate.
        Unfortunately, we ran headlong into the challenge that is trying to
    fit the square peg of new technology into the round hole of the current
    law. Due to the lack of a clear regulatory structure, trying to do it
    the right way has cost us, at this point, more than the $15 million
    that we raised through that Regulation A offering. If we had not raised
    also through Reg D and Reg S, we would have spent every penny that we
    had simply trying to come in and register.
        It has caused to have to create suboptimal compliance structures,
    that has made the experience worse for the users and developers on this
    network. And it has put us at a competitive disadvantage to projects
    based outside the U.S. who are less decentralized and less transparent.
        Hiro was built by developers and for developers, and we proudly--
    proudly--believe in the power of free markets and decentralized
    technology to unleash the creativity and lift millions out of poverty.
    We, as a society, have hundreds of years to show how important
    predictability and certainty is to business. And just because the
    technology is different does not mean that the needs of entrepreneurs
    and builders are any different than they were 100 years ago.
        While there have undoubtedly been bad actors in crypto, the current
    regulatory ambiguity helps them at the expense of honest actors and
    good projects. Clear regulatory frameworks will enable ethical projects
    to flourish, while ambiguity helps that aren't.
        So my ask of you today is this: give builders the regulatory
    clarity that they are asking for, with fit-for-purpose, cost-effective
    structures that let them get back to building while providing
    disclosures, transparency, and confidence to investors. Doing so will
    encourage this ethical innovation, protect consumers, and most
    importantly, reassert America's position as a global leader in
    technology.
        Again, thank you for having me today, and I look forward to
    discussing this more with you.
        [The statement of Mr. Miller follows:]

       Prepared Statement of Alex Miller, Chief Executive Officer, Hiro
                 Systems; Partner, Chaotic Capital, Bozeman, MT
    I. Introduction
        Chairman Steil, Ranking Member Lynch, Chairman Johnson, Ranking
    Member Davis, and Members of the Subcommittees:

        Thank you for inviting me to testify at today's hearing. My name is
    Alex Miller, and I am the CEO of Hiro Systems PBC, a company that makes
    tools for developers building decentralized applications on top of the
    Bitcoin and Stacks blockchains.
        I've spent the last 15 years of my career helping software
    developers build new technology. This includes 8 years at Stack
    Overflow, the largest knowledge-sharing community in the world for
    developers, where I ran numerous parts of the business that enabled
    more than 50 million people per month to collaborate with their co-
    workers and strangers around the world. I've also been a founder,
    employee, advisor, or board member of startups and nonprofits both
    large and small.
        I'm an ardent and true believer in the power of free markets to
    unleash human potential. There has never been a force as powerful for
    improving the lives of billions of people as the last hundred years of
    capitalism and markets, which has allowed the ingenuity and creativity
    of builders to unleash a pace of advancement we've never seen before.
        At Hiro, we believe that the more you can enable easy, fast, and
    simple interactions between people, the more you can build and the more
    opportunity you can create for everyone. Blockchain technology has the
    potential to do this by facilitating more efficient, distributed, and
    secure financial transactions for consumers and financial institutions
    across the globe. We in the United States are fortunate to have access
    to legal and capital markets that many across the world do not--markets
    that have helped maintain our position as the technological and
    economic leader for generations. The potential of blockchain technology
    to create open markets globally is what makes its development an
    inevitability; there is too much promise and potential for it not to
    happen. The only question is whether the U.S. will be at the forefront
    of this next evolution, embedding our values in its DNA, and once again
    harness technology to increase our prosperity.
        We also believe in building it right. Hiro was the first company,
    and the only still-operating, to qualify a Regulation A offering with
    the Securities and Exchange Commission (SEC) for sales and
    distributions of tokens,\1\ an integral part of blockchain networks.
    That experience gives us a unique ability to provide insights into what
    needs to change to support development of the industry.
    ---------------------------------------------------------------------------
        \1\ Hiro qualified its token offerings under Regulation A under the
    Securities Act of 1933, which is an exemption designed to enable
    companies to raise capital without incurring the more burdensome
    registration and reporting requirements applicable when a company
    conducts an initial public offering. We believe the lessons of our
    experience apply not only to Regulation A but other offering mechanisms
    that the SEC or Congress might consider for digital assets.
    ---------------------------------------------------------------------------
        We believed from the outset that our network and operations needed
    to comply with the Federal securities laws and regulations. We found,
    however, significant roadblocks and a lack of clarity within the SEC's
    processes, which were unnecessarily time consuming because they
    involved repetitive rounds of inquiries and apparent lack of
    coordination. In addition, when we sought to exit the reporting regime,
    the SEC staff could not provide clear guidance on when and how to do
    so. Hiro was also ill-served by the absence of a clear pathway for
    sales of its digital assets on exchanges. Further, some of the
    disclosure and financial reporting requirements imposed on Hiro were
    onerous without providing token purchasers and holders meaningful
    protections.
        Hiro's experience reveals unnecessary obstacles that, in our view,
    Congress could help alleviate by taking the following steps:

       Congress should provide a regulatory framework and mandate
            that the SEC adopt rules for digital asset offerings that are
            clear, appropriate for the unique nature of digital assets and
            their networks, and minimizes uncertainty.

       Congress should adopt, or require the SEC to adopt, a clear
            legal standard for exiting any registration, qualification, or
            reporting regime for digital assets--including because a
            network is ``decentralized'' and so should no longer
            appropriately be responsible for ongoing reporting, as
            discussed below.

       Congress should adopt rules to clarify that programmatic
            sales of digital assets (i.e., preprogrammed sales made through
            exchanges in blind bid/ask transactions) by an issuer are not
            securities transactions subject to the Federal securities laws
            and specifically SEC registration or qualification.

       Congress should require the SEC to adopt standards for
            disclosures and financial information that evolve over the
            lifecycle of a project so as to provide purchasers appropriate
            material information about blockchain networks and digital
            assets but not be overly burdensome on issuers, particularly
            those that are early-stage companies.

        Separately, from the disclosure considerations, in order to foster
    the most vibrant open ecosystem, Congress should protect the right for
    developers to contribute to the deployment of open-source software
    without attribution of liability for third party use.
        I discuss these requests in more detail below.
    II. Hiro's History and Background on the Digital Asset Offering Process
        Hiro's mission is to provide developers crucial infrastructure and
    tools needed to create applications and utilities using a layered
    solution, with Bitcoin's network at the base, that will, in turn, build
    a stronger digital global economy and facilitate better, more efficient
    transacting. Hiro, then known as Blockstack, began by building the
    first version of our ``Stacks'' blockchain, which was deployed in
    October 2018. Stacks is one of the first, and still largest, Bitcoin
    Layer 2 blockchain networks to work towards the vision of scaling the
    Bitcoin network for billions of users and millions of transactions per
    day. Because all blockchain infrastructure has limitations as to how
    much activity they can support, ``Layer 2'' networks like Stacks exist
    to bring additional functionality and scale to the most well-known
    public blockchains (like Bitcoin), by allowing more transactions to
    happen faster and for a lower cost on a separate chain, before being
    combined into a single transaction on the base blockchain for ultimate
    security.
        Like many blockchain networks, to enable an open and permissionless
    system, the Stacks blockchain needs a mechanism to provide incentives
    for miners to perform key functions; as a result, the first version of
    the network introduced the Stacks token, referred to as STX, which
    offers a reward for those constructing and validating transactions.
    Without an incentive mechanism like STX, decentralized networks like
    the Stacks network simply cannot function. At the time, although we
    disagreed with this view, the SEC viewed all tokens, such as STX, as
    securities subject to its jurisdiction, which meant we needed to
    distribute the STX in compliance with applicable SEC regulation.

        We believed deeply from day one that for a generational project to
    have the strongest base and legitimacy, it needed to be built the
    ``right way''--leaving no doubt about its legal compliance and with
    open access to all.

        For that reason, we chose to make the initial offering of STX
    through a qualification process with the SEC, under Regulation A. The
    goal was that anyone, not just the traditional venture capital and
    institutional investors who can usually invest in an exempt,
    unregistered offering, could participate. We were the first, and are
    now the only still-operating, company to complete a token offering
    qualified by the SEC.
        In choosing this path, we hoped to encourage participation in the
    network and show it was possible for a U.S. company to raise capital
    through a digital asset with regulatory certainty.
        We did not, however, anticipate the difficulty we faced engaging
    with the SEC in our effort to qualify the token offering. Our process
    was filled with uncertainty and was extremely protracted, lasting 12
    months, far beyond a more typical registration process. This came at
    tremendous cost to the company--$2.8 million from initiation of the
    offering process through qualification--and undercut confidence within
    the industry that engaging with the SEC or its Staff is a good idea.
    III. Lessons Learned
        We approached the SEC with the intention of complying with the
    Federal securities laws. To date, we have spent well more than $15
    million dollars on the offering process, compliance with the reporting
    regime, and our defense against an unwarranted investigation triggered
    by our attempts to work with the Staff. That amount represents more
    than the entire amount raised through the offering. Though we walked
    willingly into the SEC's doors, we were in many ways left with a
    competitive disadvantage relative to other projects, especially those
    based outside the U.S.
        Based on our experience, I believe that there is limited efficacy
    for existing registration and qualification processes as a mechanism
    for a tailored disclosure regime without significant substantive
    amendments. Below are a number of considerations for future legislation
    or regulation to address the challenges we encountered.
    A. Congress Should Provide a Regulatory Framework and Mandate that the
            SEC Adopts and Implements Rules for Digital Asset Offerings
        Congress should pass legislation requiring the SEC to adopt and
    implement rules for digital assets that are clear, appropriate for the
    unique nature of digital assets and their networks, and minimize
    uncertainty. Providing clear rules of the road for these entities and
    assets will enable a more normal process for the offering.
        Blockstack did everything it could to facilitate collaborative
    discussions with the SEC. We initially engaged with the SEC Staff on a
    number of regulatory concerns and provided analysis with our positions
    on issues we thought would be of concern to the Staff, with the goals
    of assuring the Staff of our thoughtful and collaborative approach and
    receiving constructive feedback regarding their concerns. Following
    several rounds of productive conversations, the Staff agreed that it
    was appropriate for us to file our application for potential
    qualification of the offering, and we started speaking with the Staff
    responsible for reviewing filings.
        This began a long and arduous process. Unfortunately, there was no
    apparent overlap between the Staff in our initial meetings and the
    Staff responsible for the review of Regulation A filings, which had
    evidently not seen the analysis we circulated. This necessitated
    additional time to discuss the same subset of issues repeatedly. In
    fact, throughout the process, new Staff were introduced into the
    conversations on an ongoing basis many times, typically without
    background or briefing, leading them to submit the questions and
    comments we had already answered and/or re-open topics that were
    previously (we thought) closed. We exchanged more than 15 rounds of
    comments (both written and verbal) with the Staff of different
    divisions of the SEC during this time. By contrast, registered initial
    public offerings typically take much less time--it is more typical to
    have 2-3 rounds of comments, even when a company is raising orders of
    magnitude more money.
        If Congress were to adopt, or direct the SEC to adopt and
    implement, rules for digital assets that are clear and appropriate for
    the unique nature of digital assets and their networks, it would
    minimize uncertainty about its disclosure and financial reporting
    requirements and reduce the need to engage on compliance questions and
    seek guidance. This could help prevent the long and costly process Hiro
    endured.
    B. Congress Should Codify a Clear Off-Ramp from Registered Or Qualified
            Offerings for Decentralized Network Creators
        As part of any legislation passed, Congress should provide a means
    to exit registration or qualification and related reporting. Hiro's
    difficulties also exemplify how critical that would be to the industry.
        Once Hiro's offering was qualified, we determined that we would,
    within a short period of time, achieve a ``decentralized'' network and
    may not appropriately be responsible for ongoing reporting regarding
    the STX tokens and network. The premise was that once the network
    operated independently of Hiro, the need for disclosures would be
    obviated, because Hiro would no longer have the ability to primarily or
    materially influence the value of the STX relative to others involved
    in the network. Hiro also would no longer have nonpublic insights into
    factors related to the STX or the network that should be communicated
    to token holders.
        We therefore again engaged with the Staff to discuss our thoughts
    on the level of decentralization that we believed would be fulfilled
    based upon anticipated technical, operational, and economic changes to
    the network. Version 2 of the Stacks blockchain, released in January
    2021, contained a wide variety of upgrades, including, in our view,
    fully decentralizing it such that Hiro could no longer control any
    subsequent changes to the network.\2\
    ---------------------------------------------------------------------------
        \2\ Muneeb Ali, Stacks Cryptocurrency Expected To Reach Non-
    Security Status in the United States (December 7, 2020), https://
    blog.blockstack.org/stacks-cryptocurrency-expected-to-reach-non-
    security-status-in-the-united-states. Relevant factors included owning
    less than 10-15% of the tokens, requiring token holder consent for
    changes (which could be proposed by anyone), integration of significant
    numbers of non-affiliated miners, and many others.
    ---------------------------------------------------------------------------
        Hiro provided notice to the Staff and token holders through filings
    that disclosed Hiro's plan to file the Form 1-Z ``Exit Report'' (to
    cease its Regulation A reporting obligations) 6 months after it
    determined that decentralization was achieved. Following the launch of
    the decentralized version of the network in January 2021 and several
    additional months of discussions, Hiro informed the Staff of our intent
    to file our Form 1-Z in July 2021.
        Almost immediately, Hiro's engagement with the Staff stalled until,
    shortly thereafter, the SEC's Enforcement Division opened an
    investigation into Hiro related to `potential securities violations'.
    In other words, our efforts to participate in a collaborative process
    appeared to send us down the path to a costly referral to enforcement.
        At no time did the SEC articulate what supposed securities
    violations they were investigating, just wide ranging and scattered
    `requests for information'. Hiro faithfully complied with all
    enforcement-related requests spanning a period of 3 years. We spent
    more than $2.5 million in legal costs and countless hours responding.
    Each time the pattern was the same: the SEC would send a request, we
    would comply, and the Enforcement Division would go silent for months,
    until the next request. This pattern continued until the SEC's
    investigation was suddenly and unexpectedly closed on July 9, 2024.
    Hiro continued to meet its reporting obligations under Regulation A
    until the filing of our Exit Report on January 8, 2025, which we had
    delayed during the investigation out of caution (meaning that we also
    incurred ongoing reporting costs in the interim).
        It is critical that any regime that requires regulatory approval or
    other action for distribution of digital assets provide a clear and
    realistic way to exit that regime. We continue to believe, consistent
    with prior statements by the SEC and its staff and our own experience
    building a blockchain network, that once a system is decentralized, an
    issuer should no longer appropriately be responsible for ongoing
    filings. However, the uncertain and broad boundaries of what
    constitutes ``sufficient decentralization'' (including as referenced
    under the SEC Staff's 2019 Framework for Digital Assets) materially
    constrained Hiro's ability to take actions to exit the Regulation A
    reporting regime with certainty.
        The process Hiro experienced was exceedingly costly to both Hiro
    and users, and it is unclear what the benefit has been to STX holders.
    Every substantial business decision required consulting with lawyers.
    More importantly, to avoid any or all implications that we could
    somehow control or materially influence the network, we have avoided
    activities we were concerned could be viewed as technical foot faults,
    such as providing STX as consideration in service provider contracts
    without twelve month holding periods. Each of these decisions has come
    at a cost to us and users--for example, by limiting liquidity of the
    assets--without any obvious upside. We have also foregone opportunities
    within the scope of our entrepreneurial enterprise best suited to our
    unique and critical subject matter expertise, in the fear that any
    potential influence over the development of the network at all would
    threaten the Staff and the SEC's view of our status.
        I truly do not believe users or investors are well served by
    developers who effectively and fully renounce their project in the
    ``name'' of decentralization, which is what we believed we needed to do
    in light of our experience. Instead, we recommend focusing on
    parameters for decentralization that limit that misalignment between
    developers and users by allowing involvement of the developer of a
    network, as long as the developer cannot control operational or
    management decision making. I believe this is best met through a bright
    line definition of decentralization provided by Congress that is based
    on (a) the ownership of token supply across affiliates/related parties
    and (b) the technical control over the network.
        It is also worth noting that there were collateral consequences to
    the lack of certainty related to other market participants: Even after
    our Regulation A token offering, it wasn't clear to third parties how
    they could permissibly engage with the Stacks token. For example, could
    it be listed on exchanges? Which party could list it on an exchange?
    Who could provide custody arrangements? These are all questions that we
    hoped would have finality post-offering following an extensive process;
    we would hope they would be answered by additional clarity on
    decentralization.
    C. Congress Should Adopt Rules To Clarify that Programmatic Sales Using
            Exchanges by an Issuer Are Not Securities Transactions
        I also believe our company and the broader crypto market has been
    ill-served by the absence of a clear pathway to conduct token sales on
    exchange prior to network decentralization or maturity. Clarifying that
    pre-programmed sales of digital assets on exchanges in blind bid/ask
    transactions by an issuer are not securities transactions subject to
    SEC registration or qualification should be a priority. In many
    instances where Hiro's capital needs could have been met by periodic
    open market token sales, we were required to solicit venture capital
    investment or private placements to investment firms, which was both
    more costly and less supportive of development of the network. A legal
    framework including this standard would have eased this considerably.
        We understand that there can be a concern about issuers and their
    affiliates flooding the market with an unrestricted asset, which could
    harm existing holders. To avoid a scenario where large tranches of
    tokens are sold on the market by a development team using programmatic
    sales, a blended approach could be taken whereby tokens could only be
    sold through programmatic sales (a) after 12-24 months, to allow the
    market to assess their performance and ability to meet disclosure
    requirements, and (b) subject to annual caps, which could be based on a
    number of factors such as circulating supply, team supply, or prior
    annual expenditures.\3\
    ---------------------------------------------------------------------------
        \3\ This approach would be consistent with the ``dribble out''
    provisions under current Rule 144, which provides a safe harbor to
    secondary transactions for certain otherwise restricted securities.
    ---------------------------------------------------------------------------
    D. Congress Should Require the SEC To Adopt Appropriate and Tailored
            Requirements for the Disclosures Needed for Digital Asset
            Offerings, Which Should Evolve Over the Lifecycle of a Project
            and Not Include Audited Financial Statements
        Congress should mandate that the SEC adopt clear requirements for
    disclosures in digital asset offerings, and those disclosures should
    not include audited financials. We have spent approximately $450,000
    annually on external finance and legal costs related to audit
    obligations and semi-annual disclosures and an additional $500,000 as
    it relates to internal finance and legal personnel necessary to
    maintain our compliance as a reporting entity, representing upwards of
    7% of our total annual expenses.
        Were the audited financials simply a function of cost that provided
    tremendous benefits to investors, our calculus on the expense might be
    different. However, we have not found them to be an efficient use of
    our capital due to the lack of usefulness to crypto users and
    investors. We believe unaudited financials with a signed attestation as
    to their accuracy, should be sufficient.
        The disclosures made pursuant to Regulation A are intended to
    provide investors with information about the enterprise. While the
    business may change, the focus on the enterprise is static. On the
    other hand, the development of a blockchain network shapeshifts. It
    begins with the developer, which could be an enterprise, or could be a
    single or set of entrepreneurs with a vision. Following inception, the
    core functions, ideation, and development move from one entity to meet
    other builders, hobbyists, companies, and tinkerers; much of what the
    blockchain network becomes with each passing year through developments
    and upgrades no longer rests within the originating enterprise.
        With that difference in lens in mind, the utility of disclosures
    related to a single entity--the Regulation A filer--within a network of
    interconnected but distinct persons and organizations diminishes. While
    the status of Hiro's internal corporate governance, financial and
    compliance structures continued to elevate through our expenditures
    related to disclosures and audited financials, it did not give users
    what they needed. Instead, users interacting with our products or the
    network consistently reached out for information or metrics relevant to
    their uses.
        The feedback and commentary we receive from users is almost
    principally related to our developer tools and network metrics and
    functionalities. As a result, in lieu of audited financial statements,
    we believe investors would be better served by being provided the most
    pertinent details of a project to a crypto investor, like key persons
    to the project and their compensation arrangements, token holdings by
    the issuer and related parties, and disclosures of both anticipated and
    past token sales on a 15 or 30 day timeline, supplemented by
    blockchainspecific information such as a third-party security audit,
    key governance rights, information security practices, and procedures
    for multi-signature transactions, if applicable. At the beginning of a
    project, when a project's or the issuer's financials may be relevant to
    the project's long-term viability, financial statements may be relevant
    as well, but we do not believe subjecting them to audit is necessary in
    light of the cost, especially given that they will likely recede in
    relevance in many cases. Therefore, financials with an attestation from
    an accountant should be sufficient.
        Given the differences in mechanisms across blockchain networks, it
    would be difficult to prescribe a universal set of elements that should
    be subject to review in third parties audits, and so we recommend a
    principles-based approach to the financial information that should be
    provided. We do believe, though, that one unifying principle is that
    data within blockchain networks should be open and publicly verifiable
    by independent parties without need for supplementation by any
    development team. This would capitalize on the unique transparency that
    blockchains provide in order to help address concerns about an issuer,
    project, or affiliates falsifying or misrepresenting any data or
    metrics in the same way a formal audit does for financial statements.
    E. Congress Should Protect the Right for Developers To Contribute Open-
            Source Software Without Attribution of Liability for Third
            Party Use
        Finally, Congress should mandate protections for developers to
    contribute to open-source software deployed in permissionless
    blockchain protocols. Collaboration and open experimentation have been
    at the heart of almost all scientific progress, especially
    technological ones like the internet. Builders fearing they will be
    subject to personal civil or criminal liability for the actions of
    others they have no control over, using code they contributed to a
    public good, will have a chilling effect on long term progress. In
    order to ensure the progress of this industry in the U.S., developers
    need assurances that the use of their software contributions by third
    parties will not result in legal liability.
    IV. A Look Ahead
        Our effort towards regulatory compliance has been no small endeavor
    for an early-stage, 40-person company. While we have been disappointed
    by the opportunity for the U.S. regulatory regime to lead in this arena
    that is lost to time, we are incredibly encouraged by the work of the
    SEC in 2025 as evidenced by, for example, the creation and engagement
    of the Crypto Task Force and Staff Statements by the Division of
    Corporation Finance. If the SEC is focused on marshalling its resources
    towards transparent communication and industry engagement, and Congress
    mandates and supports that effort, I think we will see a markedly
    stronger digital asset industry emerge as a result. Whether the SEC
    adopts a framework similar to the Token Safe Harbor 2.0 or defers
    creation of new registered offerings for digital assets to await
    Congressional market legislation amendments, we believe our experience
    should be instructive on the limitations of qualification and
    registration regimes in their current forms as a means for token
    offerings.
        Hiro is built for developers by developers. We proudly believe in
    the power of free markets and blockchain technology to unleash the
    creativity of millions. As a civilization, we have hundreds of years of
    history to show how important predictability and certainty is to
    entrepreneurs, and just because a technology is new, does not mean
    these needs are any different. To fulfill the vision, builders need
    regulatory clarity and fit-for-purpose, cost-effective structures to
    provide meaningful disclosures to investors, so that builders can move
    quickly and with confidence in doing what they do best: building.
        Thank you to both Subcommittees for your focus on charting a new
    path for digital assets in the U.S.

        Mr. Steil. Thank you very much, Mr. Miller.
        Mr. Davis, you are recognized to offer your comments.
           STATEMENT OF DANIEL J. DAVIS, J.D., PARTNER AND CO-CHAIR,
         FINANCIAL MARKETS AND REGULATION, KATTEN MUCHIN ROSENMAN LLP,
                                WASHINGTON, D.C.
        Mr. Davis of Washington. Good morning. Thank you, Chairmen Steil
    and Johnson, Ranking Members Lynch and Davis, and Members of the
    Subcommittees and Committees for this opportunity.
        My name is Dan Davis. I am Partner at Katten Muchin Rosenman and
    the co-chair of the firm's financial markets and regulation practice.
    From 2017 to 2021, I had the honor as serving as the General Counsel of
    the Commodity Futures Trading Commission with, among others, then-
    Commissioner Behnam. It is good to share a table with you.
        I speak today in my personal capacity.
        I have two points regarding the CFTC to make in these remarks.
    First, the CFTC is already engaged in a significant portion of the
    digital asset markets, and second, that the CFTC is the natural Federal
    regulation to provide additional authority for the digital asset spot
    market.
        First, the CFTC is already engaged in a significant portion of the
    digital asset market. Let's start with basics. A digital asset is a
    commodity. Every court to address that question has ruled that a
    digital asset is a commodity. If I sell that digital asset to somebody
    else, that is presumptively a commodities transaction. The CFTC has
    enforcement authority over that transaction. If there is fraud or
    manipulation, the CFTC can prosecute that transaction, but that is all
    it can do.
        If I put a future on top of that digital asset, you get full CFTC
    regulatory jurisdiction. I have to register, I am examined, and I have
    to comply with CFTC core principles and regulations. If I put a swap on
    top of that digital asset, again, full CFTC jurisdiction. And if I put
    an option on top of that digital asset, full CFTC jurisdiction. Also,
    if I sell that digital asset to a retail person and I offer them
    financing or leverage, and I don't actually deliver the digital asset
    to them within 28 days, that is also full CFTC jurisdiction, and that
    is Section 2(c)(2)(D) of the CEA.
        So the CFTC already has a lot of jurisdiction over a wide array of
    digital assets. How much, exactly? Well, right now there are about 20
    or so CFTC-regulated products, based on digital assets that are either
    trading or have been self-certified to trade. Those 20 or so digital
    assets account for about 83 percent of the global market capitalization
    of all digital assets, 83 percent. Thus, the CFTC and its regulated
    entities are monitoring, surveilling, and engaging in at least 83
    percent of the digital asset market, and they have been doing so for
    about a decade now.
        I am encouraged by many parts of the bill, but one part that jumps
    out at me is Section 202, that recognizes that secondary market
    transactions should not be securities, but commodities transactions
    subject to CFTC regulation. I believe that is the correct application
    and interpretation of the Howey Test. I would go one step further than
    Section 202, and I would say that digital assets issued by issuers in
    blind bid/ask transactions are also commodities transactions and not
    securities transactions.
        That brings me to my second point. If there is to be a Federal
    regulator over the digital asset spot market, the CFTC is the natural
    choice. As I have just illustrated, the CFTC already interacts with a
    large portion of the digital asset environment. It has, at this point,
    extensive experience with the trading and operation of these products.
    In addition, the Commodity Exchange Act's principle-based and self-
    certification approach to regulation provides an environment in which
    these markets can develop with strong customer protections and market
    resiliency. The CFTC knows how to look over these markets, examine
    entities for compliance with core principles, and work with market
    participants to understand how these products and trading works and to
    innovate to make these markets the envy of the world.
        We have a great opportunity to improve regulatory clarity and bring
    trading in these important markets to the United States. I again thank
    you for your time, and look forward to the discussion.
        [The statement of Mr. Davis of Washington follows:]

      Prepared Statement of Daniel J. Davis, J.D., Partner and Co-Chair,
         Financial Markets and Regulation, Katten Muchin Rosenman LLP,
                                Washington, D.C.
        Chairmen Johnson & Steil, Ranking Members Davis & Lynch, and
    Members of the Subcommittees:

        Thank you for the opportunity to appear before you today and share
    my views about digital asset regulation, including the Commodity
    Futures Trading Commission's (CFTC) role in digital asset regulation. I
    had the honor of serving as the CFTC's General Counsel from 2017-2021
    and currently advise clients about CFTC and digital asset regulation in
    my role as a partner with Katten Muchin Rosenman LLP. However, my
    appearance before you is in my personal capacity; I am not representing
    or speaking on behalf of any other person, private sector agency or
    governmental agency.
        I would like to address a few issues in my testimony today,
    including the current jurisdiction that the CFTC has over the digital
    asset market, including the spot market, the CFTC's substantial
    experience regarding digital assets, and the protections that the
    Commodity Exchange Act (CEA) and rules currently offer for investors,
    particularly to retail customers.
    CFTC Jurisdiction Regarding Digital Assets
        As these Subcommittees are well aware, the CFTC is the primary
    regulator of the futures, options on futures, and swaps markets. The
    CFTC also regulates leveraged retail commodity transactions. The CFTC's
    full ``regulatory'' authority includes the ability to require
    registration and examine registered entities that offer these products.
        The CFTC also has enforcement jurisdiction (or anti-fraud and anti-
    manipulation jurisdiction) in the commodities markets at large. Thus,
    if the CFTC thinks that there is manipulation or fraud in a spot market
    for a commodity--such as gold or Bitcoin--it can institute an
    enforcement action to enjoin that activity and seek recompense of ill-
    gotten gains from that activity.
        Why is it important for the CFTC to have anti-fraud and anti-
    manipulation authority over the spot markets? Quite simply, because the
    spot markets highly influence the derivatives markets. Spot markets and
    derivatives markets are highly correlated. For example, there is a 99.9
    percent correlation between bitcoin's spot market price and the price
    on CFTC-regulated bitcoin futures products.\1\ If somebody can
    manipulate the price of the spot market, they generally also can
    influence the price of derivatives products based upon the underlying
    asset.\2\
    ---------------------------------------------------------------------------
        \1\ Grayscale Investments, LLC v. SEC, 82 F.4th 1239, 1245 (D.C.
    Cir. 2023). In Grayscale, the D.C. Circuit concluded that the SEC's
    denial of Grayscale's application for a bitcoin exchange-traded product
    was arbitrary and capricious because the SEC ``failed to explain its
    different treatment of similar products.'' Id. at 1242.
        \2\ See, e.g., In re Coinbase, Inc., CFTC No. 21-03 at 3-4 (Mar.
    19, 2021).
    ---------------------------------------------------------------------------
        Former CFTC Commissioner Dawn Stump provided an excellent
    explanation about the rationale and nature of the CFTC's anti-fraud and
    anti-manipulation authority for the spot market:

              The public should be aware that where cash commodity markets
            are concerned, this limited authority (anti-fraud/manipulation/
            false reporting, as opposed to day-to-day regulatory oversight)
            is bestowed upon the CFTC as a tool to assist in its primary
            function of regulating derivatives products, such as futures.
            Futures contracts serve a price discovery function. Well-
            functioning futures (and other derivatives products) rely upon
            a sound underlying cash market and may reference cash market
            indexes in their pricing. Therefore, cash market transactions
            can potentially be part of a scheme to manipulate prices of
            derivatives products that are regulated by the CFTC. Congress
            has recognized these relationships between prices of cash
            transactions and derivatives products, and thus the CEA
            provides the CFTC with limited enforcement authorities with
            respect to cash transactions.\3\
    ---------------------------------------------------------------------------
        \3\ Concurring Statement of Commissioner Dawn D. Stump Regarding
    Enforcement Action against Coinbase, Inc., (Mar. 19, 2021), https://
    www.cftc.gov/PressRoom/SpeechesTestimony/stumpstatement031921.

        Thus, CFTC enforcement actions in the spot market are not primarily
    focused on policing the spot market for its own sake. The CFTC
    emphasizes, instead, its role in regulating the derivatives markets.
        The CFTC nevertheless has actively used its enforcement authority
    in the digital assets space. It has brought at least 80 enforcement
    actions involving digital asset commodities. In the last fiscal year,
    almost 20 percent of the Commission's enforcement actions related to
    digital asset commodities.\4\
    ---------------------------------------------------------------------------
        \4\ CFTC Releases FY 2024 Enforcement Results, CFTC Release No.
    9011-24 (Dec. 4, 2024) (available at https://www.cftc.gov/PressRoom/
    PressReleases/9011-24).
    ---------------------------------------------------------------------------
        The CFTC has a long history of involvement with digital assets. As
    early as 2014, the first Bitcoin denominated cash-settled swaps,
    options and non-deliverable forwards began trading on CFTC-registered
    swap execution facilities.\5\ The next year the CFTC found that Bitcoin
    and other virtual currencies were commodities.\6\ The first cash-
    settled Bitcoin futures contracts began trading on CFTC-registered Cboe
    Futures and CME in 2017.\7\ During the same year, the CFTC for the
    first time designated a swap execution facility and derivatives
    clearing organization to transact in physically deliverable Bitcoin
    swaps contracts. Also in 2017, the CFTC's LabCFTC released a primer on
    virtual currencies.\8\ CFTC's LabCFTC, which when I was at the CFTC
    reported to me as General Counsel, has grown and is now the Office of
    Technology Innovation that reports directly to the Chairman.
    ---------------------------------------------------------------------------
        \5\ Stan Higgins, TeraExchange Receives US Approval to Launch First
    Bitcoin Derivative, COINDESK (Sept. 12, 2014), https://
    www.coindesk.com/tech/2014/09/12/teraexchange-receives-us-approval-to-
    launch-first-bitcoin-derivative/; In re TeraExchange LLC, CFTC Docket
    No. 15-33 at 3 (Sept. 24, 2015) (``On September 11, 2014, Tera filed
    with [the CFTC Division of Market Oversight] a submission self-
    certifying the Bitcoin swap for trading on its [swap execution
    facility]. Tera began offering the Bitcoin swap for trading on
    September 12, 2014.'').
        \6\ See In re Coinflip, Inc., CFTC No. 15-29 (Sept. 17, 2015).
        \7\ CFTC, Release No. 7654-17 (Dec. 1, 2017), https://www.cftc.gov/
    PressRoom/PressReleases/7654-17.
        \8\ LabCFTC, A Primer on Virtual Currencies (Oct. 17, 2017),
    https://www.cftc.gov/sites/default/files/idc/groups/public/documents/
    file/labcftc_primercurrencies100417.pdf.
    ---------------------------------------------------------------------------
        Since 2017, the CFTC has released additional backgrounders on
    virtual currencies and related derivatives products.\9\ And CFTC Staff
    in 2018 released an advisory regarding their priorities and
    expectations when reviewing new virtual derivatives products to be
    listed on CFTC regulated markets.\10\ The CFTC and its staff have
    continued to monitor the development of the digital assets market and
    recently withdrew the 2018 advisory because of ``additional [CFTC]
    staff experience in the intervening years, as well as increasing market
    growth and maturity'' in the digital asset space.\11\
    ---------------------------------------------------------------------------
        \9\ See CFTC Backgrounder on Self-Certified Contracts for Bitcoin
    Products, https://www.cftc.gov/sites/default/files/idc/groups/public/
    @newsroom/documents/file/bitcoin_fact
    sheet120117.pdf; CFTC Backgrounder on Oversight of and Approach to
    Virtual Currency Futures Markets (Jan. 4, 2018), https://www.cftc.gov/
    sites/default/files/idc/groups/public/%40customerprotection/documents/
    file/backgrounder_virtualcurrency01.pdf.
        \10\ See CFTC Staff Advisory No. 18-14 (May 21, 2018), https://
    www.cftc.gov/node/214951.
        \11\ See CFTC Staff Advisory No. 25-07 (Mar. 7, 2025), https://
    www.cftc.gov/PressRoom/PressReleases/9059-25. The new Advisory notes,
    for example, that ``since 2018, average daily volumes in aggregate
    across all Bitcoin futures have increased over 300 percent, and
    aggregate open interest has increased by over 800 percent.'' Id. at n.
    4.
    ---------------------------------------------------------------------------
        Today, there are many actively trading derivatives contracts on
    digital assets on CFTC-registered markets, with additional products
    that have been self-certified for trading.\12\ These contracts are
    based on a number of digital assets, including the two most-traded
    digital assets, Bitcoin (BTC) (63.5% of global crypto market cap) and
    Ether (ETH) (7.3%).\13\ Other derivatives products that are either
    trading or have been self-certified for trading on CFTC-regulated
    markets include: XRP (4.4%), Solana (SOL) (2.5%), USDC (2.1%), Dogecoin
    (DOGE) (0.9%), Cardano (ADA) (0.8%), Chainlink (LINK) (0.3%), Avalanche
    (AVAX) (0.3%), Stellar (XLM) (0.3%), Shibu Inu (SHIB) (0.3%), Hedera
    (HBAR) (0.3%), Bitcoin Cash (BCH) (0.2%), Polkadot (DOT) (0.2%),
    Litecoin (LTC) (0.2%), Pepe (PEPE) (0.1%), Cronos (CRO) (0.1%), Bonk
    (BONK) (0.1%), and others.\14\ Collectively, these various digital
    assets account for over 83 percent of global digital asset market
    capitalization.
    ---------------------------------------------------------------------------
        \12\ Products are ``self-certified'' by a CFTC-registered entity.
    An entity self-certifying a product must provide to the CFTC ``[a]
    concise explanation and analysis of the product and its compliance with
    applicable provisions of the [Commodity Exchange] Act, including core
    principles, and the Commission's regulations thereunder.'' 17 CFR
    40.2(a)(3)(v). Furthermore, a registered entity must ``provide [to CFTC
    staff] any additional evidence, information or data that demonstrates
    that the contract meets, initially or on a continuing basis, the
    requirements of the [Commodity Exchange] Act or the Commission's
    regulations or policies thereunder.'' Id.  40.2(b). In certain
    circumstances, the Commission can stay the trading of the contract. Id.
     40.2(c).
        \13\ The percentage of market cap for these digital assets (noted
    in parentheses ``(XX%)'' for each digital asset) was taken from
    coinmarketcap.com on April 30, 2025.
        \14\ See, Designated Contract Market Products, https://
    www.cftc.gov/IndustryOversight/
    IndustryFilings/
    TradingOrganizationProducts?Category=&Date_From=&Date_To=&Organizat
    ion=&Show_All=0&Status=Certified&Subcategory=&Type=&page=0 (visited
    Apr. 30, 2025).
    ---------------------------------------------------------------------------
        This long-standing and active oversight of digital asset
    derivatives has given the CFTC unique insights, expertise, and
    understanding of the operation of spot digital asset markets. For
    example, products trading on CFTC markets must not be readily
    susceptible to manipulation. Thus, the CFTC and CFTC-registered
    entities must monitor the digital asset spot market--over 83 percent of
    that market--to comply with current CFTC requirements. As Dr. Chris
    Brummer has noted, this activity on CFTC-regulated markets has allowed
    ``the CFTC [to] gain[ ] expertise in overseeing the
    institutionalization of significant infrastructures intersecting
    directly with the digital asset commodity spot market.'' \15\ The CFTC
    and CFTC-registered entities understand the digital asset spot market
    because they has been reviewing that market for a number of years.
    ---------------------------------------------------------------------------
        \15\ Testimony of Chris Brummer before the Subcommittee on
    Commodity Exchanges, Energy and Credit at 5 (June 23, 2022), https://
    agriculture.house.gov/uploadedfiles/brummer_
    congressional_testimonythe_future_of_digital_asset_regulation.pdf.
    Indeed, last year the CFTC voluntarily opened up to public comment
    consideration of a registered entity's proposed changes to the market
    structure for certain digital asset derivatives products. CFTC Seeks
    Public Comment on FTX Request for Amended DCO Registration Order, CFTC
    Release No. 8499-22 (Mar. 10, 2022), https://www.cftc.gov/PressRoom/
    PressReleases/8499-22. The CFTC received 1,500 comments in response.
    See https://comments.cftc.gov/PublicComments/CommentList.aspx?id=
    7254&ctl00_ctl00_cphContentMain_MainContent_gvCommentListChangePage=1_50
    . Although the request was ultimately withdrawn, the public comment
    process provided the CFTC with valuable insight into a host of
    questions regarding the market structure and operation of digital asset
    exchanges.
    ---------------------------------------------------------------------------
        Furthermore, the CFTC has clarified the scope of its authority to
    regulate retail commodity transactions that involve leverage,
    financing, or margin. A key statutory requirement for CFTC jurisdiction
    is whether ``actual delivery'' of retail commodity transactions have
    occurred within 28 days. The CFTC engaged in extensive rulemaking with
    the digital asset community and provided thorough guidance about the
    meaning of ``actual delivery'' as that phrase applied to digital
    assets, with multiple examples of acceptable and non-acceptable
    practices.\16\ With Commission-backed guidance on this issue in place
    after receiving and incorporating extensive public feedback, the
    Commission has used its enforcement authority to have market
    participants follow the guidance.\17\
    ---------------------------------------------------------------------------
        \16\ CFTC Final Interpretive Guidance, Retail Commodity
    Transactions Involving Certain Digital Assets, 85 Fed. Reg. 37734 (June
    24, 2020).
        \17\ See, e.g., In re Payward Ventures, Inc., CFTC No. 21-20 (Sept.
    28, 2021).
    ---------------------------------------------------------------------------
        Neither the CFTC nor any other Federal regulator has plenary
    regulatory authority over the trading of digital assets that qualify as
    commodities. Based on the CFTC derivatives products based on digital
    assets described above, I believe that at least 83 percent (and likely
    more) of the digital asset spot market transactions would fall within
    the CFTC's current enforcement authority. It is, therefore, a
    relatively short step to provide the CFTC with the additional
    regulatory authority to require registration and oversee these digital
    asset spot markets. A regulatory regime based on ``core principles''--
    key goals for CFTC registrants to achieve but with reasonable
    discretion to achieve those goals--would be a good fit for regulation
    of the digital asset spot market. This market is ever changing and
    regulatory regime that requires high standards while encouraging
    responsible innovation would provide participants in this area to
    flourish and be competitive with international counterparts.
    Customer Protections Provided in the CFTC Regime
        Entities subject to current CFTC jurisdiction must provide
    extensive protections to customers purchasing CFTC-regulated products.
    And the CFTC and the National Futures Association (NFA) \18\ have not
    hesitated to enforce these customer protections. In addition to the
    anti-fraud and anti-manipulation authority described above, there are
    significant rules regarding the segregation and protection of customer
    funds. CFTC-registered futures commission merchants (FCMs) must provide
    general written disclosures regarding the risks of futures trading and
    specific disclosure regarding their own circumstances.\19\ FCMs and
    introducing brokers must have privacy policies and have procedures in
    place to protect customer information.\20\
    ---------------------------------------------------------------------------
        \18\ The NFA has been designated by the CFTC as a registered
    futures association.
        \19\ 17 CFR  1.55; NFA Rule 2-30.
        \20\ See, 17 CFR Parts 160 and 162.
    ---------------------------------------------------------------------------
        The CFTC also has extensive rules to protect retail customers
    engaging in certain foreign exchange transactions.\21\ Entities engaged
    in retail foreign transactions must register,\22\ meet minimum
    financial requirements,\23\ and comply with various recordkeeping and
    reporting requirements.\24\ These entities must also provide
    appropriate disclosures to retail customers about the risks of engaging
    in these types of transactions, noting, among other things, that the
    customer can ``rapidly lose all of the funds [they] deposit for such
    trading and [they] may lose more than [they] deposit.'' \25\
    ---------------------------------------------------------------------------
        \21\ See generally, 17 CFR Part 5.
        \22\ Id.  5.3.
        \23\ Id.  5.6-5.7.
        \24\ Id.  5.10-5.11.
        \25\ Id.  5.5(a)(2)(b).
    ---------------------------------------------------------------------------
        The NFA has additional rules that protect customers. For example,
    NFA members and associates must observe high standards of commercial
    honor and just and equitable principles of trade. This includes dealing
    fairly with customers and others at all times.\26\ NFA members must
    also comply with express standards in all communications with the
    public generally and promotional literature specifically.\27\
    ---------------------------------------------------------------------------
        \26\ NFA Rule 2-4.
        \27\ NFA Rule 2-28.
    ---------------------------------------------------------------------------
        The NFA additionally requires members to provide specific
    disclosures regarding their digital asset activities and comply with
    certain conduct standards regarding their activities involving the
    digital assets Bitcoin and Ether.\28\ Should the CFTC gain regulatory
    jurisdiction over digital asset spot markets, then one would expect
    similar types of protections for retail customers to be provided.
    ---------------------------------------------------------------------------
        \28\ NFA Rule 2-51; see also NFA Interpretive Notice 9073.
    ---------------------------------------------------------------------------
    Conclusion
        There appears to be a significant gap at the Federal level in the
    regulation of spot digital assets.
        The CFTC has extensive experience in the digital asset space
    through both its (1) overseeing of trading of digital asset-based
    derivatives on CFTC-regulated exchanges and (2) asserting its anti-
    fraud and anti-manipulation enforcement authorities over the spot
    markets. The CFTC and NFA also have significant experience in providing
    protections to customers participating in these markets. This
    experience would provide an excellent foundation should Congress decide
    to give the CFTC regulatory jurisdiction over the digital asset spot
    markets.
        Thank you for the opportunity to appear before the Subcommittees. I
    look forward to answering any questions you may have.

        Mr. Steil. Thank you very much, Mr. Davis.
        Mr. Greg Tusar, you are now recognized to share your comments.
                   STATEMENT OF GREG TUSAR, VICE PRESIDENT,
               INSTITUTIONAL PRODUCT, COINBASE GLOBAL, INC., SAN
                                 FRANCISCO, CA
        Mr. Tusar. Thank you. Good morning Chairmen Steil and Johnson,
    Ranking Member Davis, and Members of the Committee. Thank you for the
    opportunity to testify today. I appreciate the opportunity to discuss
    the future of financial markets and the critical need for regulatory
    clarity in the digital asset space.
        My name is Greg Tusar, and I serve as Vice President of Institution
    Product at Coinbase. I spent over 30 years working at the intersection
    of technology and finance, and one thing I have learned is that markets
    work best when rules are clear and technology is embraced, not ignored.
        Today we are experiencing a major market shift, similar to the
    transition from floor trading to electronic trading, which I
    experienced firsthand at Goldman Sachs. This is a major technological
    shift that will enable new products and services across markets and
    asset classes. It will open up opportunities for both crypto and
    traditional players alike, and will create new economic opportunities
    for millions of Americans. But we need smart rules to help us usher in
    this transition in order to foster innovation, protect consumers, and
    ensure U.S. leadership.
        This is a once-in-a-generation moment to go back to first
    principles and design markets for the 21st century. This discussion
    draft released yesterday is a strong step in that direction. Although
    we are still digesting the Digital Asset Market Structure Act, it seems
    to build on the bipartisan consensus in FIT21 that would modernize our
    outdated systems and expand access to financial opportunity.
        Today I would like to highlight three recommendations for Congress
    to consider as you move forward on market structure legislation.
        First, we need to close the gaps in the current system. Today there
    is no Federal regulator with spot market authority over digital
    commodities. Exchanges and intermediaries are regulated by a patchwork
    of state laws that impose varying levels of consumer protections and
    create confusion in the market. The CFTC is the right Federal regulator
    to oversee the spot market. It has long overseen crypto derivatives,
    and has decades of experience with complex markets. Through its
    thoughtful work, it has also helped enable exchange-traded products
    under the jurisdiction of the SEC. We should now empower it to do the
    same for crypto spot markets in order to ensure national standards,
    proactive oversight, and consistent protection for every consumer, no
    matter the ZIP Code they live in.
        Second, we need to resolve the confusion over token classification.
    Today, developers are forced to guess whether a digital asset might be
    deemed a security, now or down the road, and often after lengthy
    litigation. This ambiguity has driven responsible projects overseas and
    allowed other countries to take the lead. Congress must draw clear
    lines and give both the SEC and CFTC distinct but complementary roles.
        Third, as I mentioned earlier, Congress should embrace the first
    principle of creating efficient, fair, and customer-focused market
    solutions. This means harnessing the benefits of technology to mitigate
    risks and modifying rules to meet customer expectations. A good example
    of this regulatory evolution happened in the late 1990s, when the SEC
    finalized Regulation ATS. This rule recognized that electronic trading
    was evolving outside of traditional exchanges and should be brought
    inside the regulatory perimeter. The new rules enable exchanges and
    brokers to operate order-matching systems, also known as alternative
    trading systems, which reduce the risk of opaque and fragmented
    markets. This framework is still in place today, and is a good fit for
    crypto.
        Coinbase supports the approach in the discussion draft that would
    allow for the ATS structure as well as create symmetry across the CFTC
    and SEC for regulating digital asset commodities and digital asset
    securities, respectively.
        In closing, I want to thank both committees for your leadership on
    crypto legislation. We are excited to move to more fully digest the
    discussion draft released yesterday, and look forward to building on
    the bipartisan success of FIT21.
        Thank you, and I look forward to your questions.
        [The statement of Mr. Tusar follows:]

        Prepared Statement of Greg Tusar, Vice President, Institutional
               Product, Coinbase Global, Inc., San Francisco, CA
        Good morning Chairman Hill, Chairman Steil, Chairman Thompson, and
    Chairman Johnson, and Ranking Members Waters, Lynch, Craig, and Davis.
    Thank you for the opportunity to testify before you today. It is an
    honor to join you in discussing the future of financial markets, the
    critical need for regulatory clarity in the digital asset space, and
    the role of Congress in fostering innovation while protecting
    consumers. The decisions made here will define not only the trajectory
    of this industry but also the position of the United States as a global
    leader in financial innovation.
        My name is Greg Tusar and I am the Vice President of Institutional
    Product at Coinbase. I lead teams focused on delivering products and
    services to the largest institutional participants in global markets,
    including asset managers, hedge funds, family offices, and corporate
    clients. Our offerings include Prime Brokerage, Custody, Financing, and
    access to Coinbase Exchange, the largest regulated spot crypto exchange
    in the United States. We also operate a Commodities Futures Trading
    Commission (CFTC) regulated Designated Contract Market (DCM), an NFA
    registered Futures Commission Merchant (FCM), and have a Securities and
    Exchange Commission (SEC) Registered Investment Advisor (RIA). Coinbase
    has extensive experience in highly regulated markets, and has an
    industry leading track record of integrating the highest standards of
    reliability, security, and trust into the evolving digital asset
    ecosystem.
        Today, I hope to share perspectives informed by more than thirty
    years of experience in financial market infrastructure, electronic
    trading, and the migration to digitally-native systems. My career began
    at TLW Securities--a firm that specialized in program trading--where I
    eventually served as CEO before the company was acquired by Spear,
    Leeds & Kellogg (SLK) and then by Goldman Sachs in 2000. There I served
    as a partner responsible for building the firm's electronic trading
    business and guiding their market structure investments.
        Based on these experiences, I know firsthand how thoughtful market
    structure design and regulation can drive efficiency, power innovation,
    protect consumers, and redefine the way financial markets operate. I
    also know that, at times, we need to take a fresh look at regulatory
    frameworks that may unnecessarily impede the integration of new
    technologies.
        Transitioning from floor trading to electronic systems was not just
    a technical exercise--it was a seismic shift in how orders were
    matched, costs were reduced, and access was democratized. It introduced
    unprecedented speed, efficiency, and access, but also required a
    complete reimagining of market rules. How should orders be prioritized?
    How could participants ensure equal footing when order books were
    digitized? And most importantly, how could the industry ensure
    transparency and fairness in a system no longer reliant on physical
    presence? Financial market regulators worked with the industry to
    grapple with these novel questions, and did so in a way that encouraged
    continued integration of emerging technology.
        That moment in history resonates deeply with me, particularly as we
    enter a similarly profound change to the financial system today. In the
    1990s, markets became electronic, ignited by the rise of electronic
    communications networks. Now, they are becoming digitally-native with
    the rise of crypto. The integration of open blockchain systems into our
    financial system will deliver better outcomes for participants while
    safeguarding trust. And we can foster this innovation here, in the
    United States, instead of driving it elsewhere.
        For this to happen, we need regulatory clarity: clear guidelines
    that allow market participants to build novel products and services
    without compromising the safety and soundness of our markets. We also
    need to understand that the role of regulation is to provide needed
    protections, and not to enshrine certain business models in perpetuity.
    Coinbase Background
        Coinbase offers a suite of products that empower tens of millions
    of consumers, institutions, and developers worldwide to discover,
    transact, and engage with crypto assets and Web3 applications. Founded
    in 2012, Coinbase has embraced regulation from the very beginning. As I
    noted in my introduction, we are regulated by both the CFTC and SEC,
    along with over 50 additional regulators across the United States.
        We are a registered money services business with FinCEN under the
    U.S. Treasury Department, and hold 46 state money transmission
    licenses, a Louisiana Virtual Currency Business Activity License, as
    well as both a BitLicense and limited purpose trust company charter
    from the New York Department of Financial Services (NYDFS).
    Additionally, our decision to go public in April 2021 marked a critical
    milestone--achieved after extensive review and engagement with the SEC.
    This experience reinforces our commitment to transparency, consistent
    regulations, and the essential role of robust capital formation markets
    in fostering innovative companies.
        For more than a decade, Coinbase has been at the forefront of
    building and implementing strong consumer protection measures, prudent
    risk management, and best-in-class security practices.
        Core to our consumer protection efforts is our rigorous listing
    process. Prior to listing any asset for trading or custody, our teams
    evaluate the assets against extensive legal, compliance, and
    information security standards. Additionally, we hold customer assets
    1:1 at all times, safeguarding them with industry-leading security
    standards and never lending or rehypothecating assets without customer
    authorization. Our safeguards--administrative, technical, and
    physical--are designed to exceed legal requirements and industry
    standards. Customer assets are appropriately ledgered, segregated, and
    managed in separate accounts and remain distinct from Coinbase's
    corporate assets.
        We also maintain an unwavering dedication to anti-money laundering
    (AML) compliance, as well as effective partnerships with law
    enforcement--both of which are vital for ensuring safety and integrity
    in the rapidly growing crypto space. Our comprehensive Financial Crimes
    Compliance program adheres to the U.S. Bank Secrecy Act (BSA), AML
    laws, and sanctions requirements, aligning with the same standards
    expected of traditional financial institutions. This focus allows
    Coinbase to keep customers--and the U.S. financial system--safe from
    bad actors.
    It's Time to Update the System
        Today, I am here to discuss how the Financial Innovation and
    Technology for the 21st Century Act (FIT21), which passed with a
    resounding bipartisan House vote of 279-136 in 2024, can evolve to
    better meet the needs of consumers, investors, and innovators. The
    evolution of legislation is not new--good bills become better all the
    time. We applaud the work of the 118th Congress to develop and pass
    FIT21, which was a substantial contribution towards creating clear,
    thoughtful, and consistent rules. The overwhelming bipartisan support
    for FIT21 reflected the growing recognition that modern rules are
    essential for fostering innovation, protecting consumers, and
    maintaining America's leadership in global financial markets.
        The legislation should build on the foundation established by
    FIT21, retaining many of its core principles while refining critical
    areas to address emerging challenges. This effort should clarify asset
    classifications--defining which digital asset transactions are
    securities and which are commodities--and empowering the CFTC to
    oversee spot markets for digital commodities. These steps are key to
    ensuring customer protections, promoting market transparency, and
    encouraging responsible innovation within U.S. borders.
    Gaps in Current Regulatory Frameworks
        Despite the rapid growth of digital asset ownership, use, and
    integration into financial systems worldwide, the regulatory frameworks
    governing their activity in the United States have lagged behind. This
    has been problematic--not only for developers and market participants,
    but also for consumers, who are left without the benefits of Federal
    regulatory protections. Closing these gaps in regulation has never been
    more urgent. Today, critical shortcomings hold this industry back,
    undermining its potential and exposing market participants to
    significant risks.
    Misaligned Regulators
        One of the fundamental challenges in digital asset regulation lies
    in the lack of clear regulatory boundaries between agencies like the
    SEC and CFTC. This lack of clarity has led to a tug-of-war over which
    asset transactions are securities and which are not securities. And the
    two agencies took different approaches to resolving the problem--
    leaving market participants and the American people in the middle. The
    SEC took the failed approach of regulation by enforcement, rather than
    providing market-wide guidance to help developers understand when
    certain characteristics might trigger the Federal securities laws. This
    resulted in opaque and lengthy litigation battles with individual
    companies that provided zero certainty for the markets or consumers. In
    contrast, the CFTC worked to understand digital assets and provide some
    pathways for digital asset services within the scope of their
    jurisdiction. But the CFTC's activity was ultimately limited given both
    the limits of their statutory scope and the conflict with the SEC over
    certain assets.
        The two agencies have also taken different approaches to the
    treatment of innovation more generally. A good example is the approval
    of Bitcoin futures contracts versus the approval of Bitcoin exchange-
    traded products (ETPs). The CFTC approved the first Bitcoin futures
    contract launched by the Chicago Mercantile Exchange (CME) on December
    18, 2017. This marked a significant milestone in the integration of
    cryptocurrency into mainstream financial markets, and also recognized
    that Bitcoin is a commodity, effectively digital gold. And yet the SEC
    did not approve a Bitcoin ETP until 2024, and only did so after a
    Federal appeals court ruled that the agency's refusal to provide a
    green light was arbitrary, capricious and inconsistent with law.
        This bifurcated and conflicting--and sometimes unlawful--approach
    to regulating crypto has created significant obstacles for innovators
    seeking to build responsible projects in the United States. Between the
    lack of clarity and the high probability of legal action from the SEC
    over the last 4 years, many innovators have opted to domicile their
    operations in overseas jurisdictions with clear rules. An explicit
    demarcation of jurisdictional authority between the SEC and CFTC--and a
    mandate from Congress for the agencies to provide the public with
    clarity--would resolve many of these uncertainties, restoring trust and
    ensuring market integrity.
        The root of the current regulatory confusion is token
    classification. Although I am not a lawyer and this is outside of my
    area of professional expertise, current frameworks fail to offer
    objective criteria for determining how assets should be classified,
    forcing developers and market participants to operate in regulatory
    gray areas. The lack of clarity isn't just a legal challenge--it
    stifles innovation and investment by limiting product designs and
    features that might otherwise have been offered if their regulatory
    treatment was clear.
        Although I will not focus on this specific topic in my testimony,
    the need for Congress to address the issue of token classification is
    absolutely critical to the healthy functioning of markets. The United
    States needs a consistent framework for token classification that
    reflects the unique qualities of digital assets whose value and
    functionality is derived from a blockchain network, and Congress has a
    critical role in bringing this about. The treatment of such assets must
    be based on the premise of technology neutrality. If the assets are not
    securities, then they should not be treated like securities. Today, the
    inability for developers to predict whether their project will be
    treated as a security prevents responsible innovation and risks their
    token being excluded from secondary market distributions critical for
    growth. For investors and institutions, misclassification or overly
    discretionary enforcement actions can result in substantial losses and
    damaged reputations.
    Spot Market Vulnerabilities
        Although derivatives markets for digital assets are subject to
    comprehensive oversight by the CFTC, spot markets--the platforms where
    assets are actively bought and sold by investors--largely lack Federal
    supervision. The CFTC's current authority is limited to fraud and
    manipulation in digital commodity spot markets, with no authority to
    proactively regulate the markets. As a result, market participants face
    a fragmented approach to spot market oversight, with regulation and
    enforcement scattered across state-level regulators in a patchwork
    system that fails to provide consistent rules or guardrails.
        This oversight gap is particularly impactful for retail users, who
    should be able to trust that their preferred intermediaries for asset
    trading and custody meet rigorous safety and operational standards no
    matter where they live. Good actors will strive to implement
    comprehensive and consistent standards, while the lack of Federal
    oversight leaves consumers exposed to potential bad actors who exploit
    the fractured system. Empowering the CFTC to oversee these
    intermediaries would address these vulnerabilities. It would ensure
    consistent national rules, improve consumer safeguards, and allow for
    proactive monitoring to mitigate risks and deter manipulation and
    fraud.
        As a long-time market practitioner, there is no doubt in my mind
    that the CFTC is well-prepared to take on this task. With decades of
    experience overseeing complex and volatile futures and derivatives
    markets, the agency has developed robust mechanisms for ensuring market
    safety even under extreme conditions. Since 2014, the CFTC has expanded
    this expertise to include derivatives referencing digital assets, which
    serve as the foundation for pricing the crypto ETPs market. The CFTC
    moving proactively on digital asset futures enabled the creation of
    ETPs by demonstrating that there was an orderly and functioning market,
    not one prone to manipulation, which could be used to help price the
    ETPs.
        Finally, the CFTC's principles-based approach to regulation,
    combined with its history of aggressively enforcing against bad actors,
    demonstrates its capability to advance customer protections while
    allowing innovation to flourish. By focusing on regulatory outcomes
    rather than prescriptive rules, the CFTC's approach to markets creates
    a flexible framework that accommodates the rapid evolution of
    technology while maintaining market integrity.
    The Benefits of a Federal Framework
        Throughout my career, I've built successful trading systems that
    have navigated a complex system of requirements. From my experience,
    unnecessary complexity generates risk, and eliminating it benefits to
    both consumers and service providers. Establishing a uniform set of
    standards through a Federal regulatory framework would be beneficial
    for replacing a patchwork of state-level regulation characterized by
    duplicative and sometimes conflicting compliance burdens. In its place
    would be a uniform set of consumer protections with lower system
    complexity and regulatory compliance costs.
    Uniform Customer Protections Across All States
        The lack of a Federal regulatory framework can lead to uneven
    protections depending on the state in which they reside. In some cases,
    if standards are too low or absent, this could leave consumers without
    protections they need. For example, the New York Department of
    Financial Services requires Bitlicense holders like Coinbase to provide
    certain disclosures about digital assets that are not required in other
    states. If an exchange or intermediary wanted to avoid these
    disclosures, it could simply decide to avoid operations in New York.
        It is also possible that regulatory requirements are set in ways
    that unnecessarily prevent residents of a jurisdiction from accessing
    legitimate services. A good example of this is staking: an essential
    part of blockchain operations in which participants earn rewards by
    helping to secure blockchain networks or validate transactions.
    Consistent with Federal and state law--and recent actions and
    statements by the SEC--more than 40 states allow their residents to
    stake through a service provider. Yet a few states still prohibit this
    activity. By introducing a common set of rules and standards at the
    Federal level, Congress can ensure more uniform customer protections
    and fair access to important products and services for consumers.
    Unified rules also provide greater trust and confidence in the market,
    empowering more Americans to engage safely with digital finance and
    protecting retail investors who rely on Federal regulatory safeguards.
        But uniform rules alone will not solve the problem. If Federal laws
    do not expressly preempt state law, there is bound to be continued
    uneven and unequal enforcement across the states. Such patchwork
    enforcement is often not the result of disparate legal standards, but
    rather the result of inconsistent application of standards that may
    otherwise be identical in law. Strong preemption is thus a critical
    element for any legislation. Otherwise, state and other authorities
    could and likely will continue to classify assets and activities in
    ways that Congress has explicitly rejected. Further, given the long
    tail of enforcement risk this industry has faced over the years,
    Congress should also apply preemption retroactively to ensure
    subsequent state regulators cannot undermine the purposes of the bill
    through litigation directed at past conduct.
    Reducing Duplicative Regulatory Oversight
        The current regulatory environment for digital assets burdens both
    intermediaries and other businesses offering crypto products with
    duplicative compliance requirements imposed by overlapping state and
    Federal regulations, and leaves consumers with little consistency in
    protections and often arbitrary barriers to accessing legitimate
    products and services. For example, exchanges operating across multiple
    states must navigate a maze of different rules, licensing requirements,
    and operational standards--while also ensuring adherence to Federal AML
    guidelines.
        This collage of rules creates inefficiencies that increase costs
    for both businesses and their customers. Platforms expend significant
    resources on complying with multiple oversight mechanisms that often
    require the exchange to set up systems in each state that are different
    shades of gray, rather than directing those resources toward
    innovation, security improvements, or expanding access for underserved
    communities. National standards would consolidate these requirements
    under a single framework, creating streamlined pathways for compliance
    that free innovators to focus on building transformative solutions.
    Reducing regulatory overlap also supports better enforcement by
    ensuring agencies can focus on key priorities rather than spreading
    their efforts across fragmented compliance jurisdictions. Perhaps most
    importantly, consistency gives consumers some clarity on what
    protections they can expect and how to best set their expectations when
    engaging in the crypto markets.
    Keeping the U.S. Globally Competitive
        National standards don't just resolve inefficiencies--they help
    position the United States as a global leader in digital finance and
    blockchain innovation. While Singapore, Switzerland, and the European
    Union have adopted unified frameworks that attract talent and capital,
    the fragmented U.S. regulatory landscape coupled by an enforcement-
    first approach has pushed innovators overseas. Without a clear,
    consistent roadmap for compliance across all states, developers and
    businesses find themselves focusing on jurisdictions where regulations
    are predictable and accessible, leaving the United States at a
    competitive disadvantage.
        Unified Federal standards create an environment where innovators
    can operate confidently, knowing their compliance obligations are clear
    and consistent throughout the country. These standards signal to
    investors, developers, and institutions that America is committed to
    fostering responsible innovation in the digital asset space, attracting
    the talent and capital needed to maintain global leadership.
    Congressional action on national standards would not only streamline
    oversight, but also allow the United States to set the tone for how
    blockchain-based systems evolve globally. This would embed American
    values like transparency, fairness, and consumer protection into the
    technology's development.
    Core Elements of Legislation
    Consumer Protection in Digital Asset Markets
        Consumer protection is the foundation of any well-functioning
    financial system. In digital asset markets, ensuring retail investors
    are safeguarded requires a regulatory framework designed to meet the
    unique characteristics of this emerging industry. A robust regulatory
    framework isn't just about reducing these risks--it's about fostering
    trust. When consumers are confident that the platforms they use are
    safe, transparent, and accountable, markets thrive, innovation
    accelerates, and more participants engage.
        At Coinbase, consumer protection is central to everything we do,
    and our global experience provides a roadmap for how strong frameworks
    can protect retail participants while enabling innovation. Based on
    this experience, we believe regulators should adopt a balanced and
    principles-based approach to ensure consumer safety without stifling
    progress.
    Protecting Retail Customers and Fostering Trust
        Retail customers are engaging with digital asset markets at
    unprecedented levels. Whether buying Bitcoin, participating in
    decentralized finance, or transacting in stablecoins, consumers across
    the U.S. deserve clear, consistent protections that allow them to make
    informed decisions without fear of exploitation. Key components of a
    robust framework include:

      1.  Transparency Requirements: Consumers need access to timely,
                accurate, and relevant information about the platforms and
                products they engage with. Requiring platforms to disclose
                material information--including tokenomics, fees, market
                risks, and operational security--helps retail investors
                assess opportunities and risks.

      2.  Strong Standards for Asset Listings: A reliable consumer
                protection framework should require exchanges to rigorously
                evaluate tokens before listing them for trading. This
                ensures assets meet clear legal and compliance metrics,
                protecting consumers from engaging with fraudulent or
                economically unstable tokens.

      3.  Custody Standards and Asset Segregation: Federal requirements
                ensuring that customer assets are legally segregated from
                house funds are critical to safeguarding customer holdings.
                Centralized platforms should also be required to adopt
                rigorous security solutions to ensure digital assets remain
                secure. We believe the CFTC is equipped to regulate
                custody, just as they would all other elements of digital
                asset markets.

      4.  Market Manipulation Oversight: Platforms should implement
                proactive measures to prevent market manipulation and bad
                actor behavior, including automated monitoring tools and
                transparent reporting of suspicious activity to regulators.
                These safeguards prevent unfair trading practices and
                reinforce market integrity.
    Customer-First Regulatory Structure
        A first principle for any market structure legislation should be to
    leverage rules that have worked in the past, but also recognize that
    technology and innovation can render some rules and requirements
    obsolete. As I noted earlier in my testimony, I have experienced first
    hand that regulations should evolve to meet both the demands of
    customers and the capabilities of platforms and technology. I helped
    stand up Goldman Sach's alternative trading system (ATS) more than
    twenty years ago, and from that experience, I believe the same
    regulatory structure can serve digital asset trading.
        The SEC first introduced Regulation ATS in December 1998, with the
    rules becoming effective on April 21, 1999. This regulation allowed
    broker-dealers and national securities exchanges to operate and
    register an ATS, giving brokers order-matching capabilities.
        ATS platforms played a critical role in the technological evolution
    of securities trading in traditional financial markets, and they can do
    the same for the trading of all digital assets, including securities,
    commodities, and payment stablecoins. These venues provide
    intermediaries like broker-dealers with the ability to offer an order-
    matching engine while operating under rigorous oversight frameworks.
    For digital assets, ATS inclusion within the broader regulatory
    framework would serve several key purposes:

      1.  Meeting Customer Demand: Customers engaged in digital asset
                markets expect the benefits provided by blockchain
                technology and integrated models, including efficiency,
                speed, and cost effectiveness. An ATS framework for digital
                assets ensures that customers continue to benefit from both
                existing streamlined business models and robust, well-
                understood rules.

      2.  Facilitating SEC-Compatible Trading Venues: The ATS model creates
                a bridge for regulatory compliance under SEC authority,
                allowing trading venues to operate in a highly-regulated
                environment while focusing on innovation. By applying ATS
                rules to digital assets, legislation could ensure that
                digital securities are traded responsibly under SEC
                jurisdiction, side-by-side with digital commodities.

      3.  Creating a Path for Institutional Adoption: ATS rules provide a
                familiar regulatory framework for institutions entering
                digital asset markets. Institutions increasingly seek
                compliance-forward trading platforms, and ATS regulations
                ensure that venues meet the rigorous operational and
                transparency standards that institutional investors demand.
                This clarity encourages more institutional capital to flow
                into digital assets, strengthening market integrity.

      4.  Ensuring Broad, Equitable Market Access: ATS platforms are
                designed to facilitate fair trading while ensuring
                equitable access for all participants. Using this model for
                digital assets under SEC regulation minimizes the risks of
                market manipulation, ensuring robust protections for retail
                and institutional investors alike.
    The Practical Alignment of ATS Rules and Digital Assets
        Coinbase strongly supports an ATS model for its compatibility with
    existing market structures and its ability to address current gaps in
    crypto trading regulation. Digital asset markets face significant
    challenges around fragmented oversight and inconsistent rules. Applying
    ATS frameworks to these markets would provide a proven regulatory model
    with modifications tailored to the unique properties of blockchain
    ecosystems.
        In practice, ATS rules can apply directly to digital asset markets
    in the following ways:

      1.  Disclosure Requirements: ATS platforms are required to provide
                detailed disclosures regarding execution practices, systems
                architecture, and operational conflicts of interest.
                Extending this transparency to digital assets would ensure
                that participants trust trading venues and understand the
                risks associated with executed trades.

      2.  Broker-Dealer Collaboration: ATS platforms are registered broker-
                dealers to ensure compliance and investor protections. This
                model encourages collaboration between innovation-focused
                trading venues and compliance-forward intermediaries,
                creating a partnership structure rooted in accountability.

      3.  Adaptations for Blockchain Systems: While ATS rules apply to
                traditional trade execution, the adaptability of this
                framework allows regulators to craft provisions
                specifically for blockchain-based tokenized environments
                and digital securities, reflecting the decentralized,
                programmable nature of these assets. In fact, despite many
                features of the ATS model that are a natural fit for
                digital asset markets, there are important elements of
                securities regulation that will need to evolve to reflect
                the specifics of crypto asset markets and distributed
                ledger technology. An ATS model would permit this necessary
                evolution.

        One of the greatest risks to digital asset adoption is instability
    caused by inconsistent oversight in trading venues. By integrating ATS
    rules into the framework, legislation could provide a clear, reliable
    pathway for regulated trading venues, creating unprecedented stability
    for market participants. Under ATS compliance rules, platforms offering
    digital securities could meet investor demands for transparency,
    operational security, and predictable reporting.
    Parallel ATS Structure Needed Under the CFTC
        As noted above, Coinbase strongly supports an ATS model that allows
    brokerage, dealer, exchange and custodial activities to be undertaken
    within the same legal entity. We would also urge Congress to create a
    similarly efficient and customer-first model under the jurisdiction of
    the CFTC. This would reduce the risk of regulatory arbitrage and ensure
    that customers benefit from this innovative approach to regulation.
        Throughout my career, I've learned that efficiency and trust are
    paramount in financial markets. For digital asset platforms to operate
    at scale and deliver the protections and transparency consumers
    deserve, simplicity in operational structures is essential. Forcing
    digital asset businesses to split core functions--such as trading,
    custody, and brokerage--into separate entities does not benefit the
    market. It instead creates unnecessary operational complexity, drives
    up costs for consumers, and diminishes market efficiency. Platforms
    like Coinbase have already demonstrated how an integrated technology
    stack can deliver seamless experiences to its customers in a safe and
    secure manner.
        In traditional financial markets, regulatory frameworks that
    require the separation of critical functions do so to mitigate
    conflicts of interest and promote market fairness. However, the unique
    characteristics of blockchain technology challenge the assumptions that
    have underpinned these rules for decades. Custody no longer needs to
    take place at a centralized clearing agency because transactions are
    recorded and settled on public blockchains. By eliminating a previously
    needed piece of infrastructure, integrated technology stacks can take
    advantage of atomistic settlement in ways that de-risk the financial
    system by removing settlement risk. This makes it less costly to
    operate by eliminating capital requirements to protect against
    settlement failures.
        Done responsibly with the right guardrails in place, integrated
    structures do not undermine consumer protection or market integrity.
    Instead, they foster greater transparency, enhance capital efficiency,
    create resiliency, and result in better outcomes for all participants
    in the ecosystem--from retail customers to institutional players.
        Digital asset platforms like Coinbase have already demonstrated how
    this can work in practice--it is how we are setup today. By
    incorporating trading, custody, and settlement into a single legal
    entity, we reduce the number of intermediaries to which customers need
    to pay fees. This approach creates efficiency and eliminates many of
    the friction points that hinder innovation in traditional financial
    systems. As noted above in relation to an ATS model, several key
    benefits emerge from a unified structure in digital asset markets:

      1.  Enhanced User Experience: Integrated platforms provide a seamless
                experience for users. For example, a customer who purchases
                digital assets on an exchange can have those assets
                securely stored in custody systems within the same
                platform, eliminating the need for manual transfers to
                external holding entities. This not only improves
                convenience but also reduces operational risks, as
                consumers avoid potential errors or delays caused by
                fragmented workflows.

      2.  Faster and More Cost-Effective Transactions: With trading,
                custody, and settlement services housed under one roof,
                platforms can settle trades in real-time and at a lower
                cost. This efficiency is particularly important in fast-
                moving markets where delays between trade execution and
                settlement can expose both retail and institutional
                investors to unnecessary risks.

      3.  Improved Transparency and Accountability: Blockchain technology
                itself provides unparalleled transparency, allowing for
                real-time auditing of transactions and fund flows. When
                integrated platforms leverage this inherent transparency,
                they not only simplify regulatory compliance but provide
                regulators and consumers clear oversight into how their
                processes operate.

      4.  Innovation Enablement: By reducing intermediaries, a unified
                structure allows exchanges to create and deploy innovative
                products more quickly. Whether it's digital securities,
                payment stablecoins, or new custody solutions, integrating
                these functions allows platforms to operate at the speed of
                technological development, rather than at the pace dictated
                by segmented regulatory structures.

        Countries like Singapore and Switzerland allow integrated
    operations, demonstrating the broad acceptance and competitive
    advantages of this approach. For example, Swiss providers like SEBA
    Bank operate as unified entities offering trading, custody, and lending
    services within a single framework. Similarly, the Monetary Authority
    of Singapore's (MAS) regulatory framework supports integrated digital
    payment tokens services, allowing platforms to combine brokerage and
    custodial functions efficiently. This unified model is one familiar to
    the most sophisticated market participants, and encourages them to
    bring their experience and expertise to the digital asset markets.
    Further, unified models enable seamless compliance processes, and
    foster innovation due to reduced operational fragmentation.
    Guardrails to Address Potential Risks
        The benefits of a single entity can be fully realized with
    appropriate safeguards to mitigate concerns about conflicts of
    interest. Historical rules separating functions in traditional markets
    were designed to address specific risks, such as exchanges prioritizing
    their own trades over client orders or commingling funds
    inappropriately. The advent of the ATS model shows that regulators have
    long concluded that these risks can be mitigated in traditional
    markets. In the context of digital assets, these risks can be managed
    even more effectively leveraging long-standing regulatory best
    practices, as well as blockchain technology. The following guardrails
    are examples of how regulators can balance the advantages of a unified
    structure with robust oversight:

      1.  Customer Fund Segregation: Platforms must be required to legally
                separate customer assets from operational reserves,
                ensuring that consumer funds remain secure and untouchable
                in the event of organizational distress or bankruptcy.

      2.  Operational Firewalls: To prevent conflicts of interest,
                vertically-integrated platforms should implement internal
                policies to prevent conflicts of interest between the
                broker, exchange, and custody functions. This could include
                designating separate personnel to work on specific
                functions.

      3.  Third-Party Oversight: The CFTC or the registered futures
                association should regularly check compliance for all
                platforms, helping to verify adherence to guardrails and
                ensuring that consumer protections remain strong.

        Permitting platforms to operate as unified entities does not mean
    removing oversight--it means creating smarter oversight tailored to the
    strengths of blockchain technology. Unified operational frameworks
    combined with proportionate and targeted guardrails creates win-win
    scenarios for customers and the market.
    Unified Custody Framework under the CFTC
        Custody of digital assets is one of the most critical aspects of a
    functioning and secure ecosystem. Whether for retail customers or
    institutional participants, safe and compliant custody solutions are
    essential to ensure trust and protect assets from theft, fraud, or
    improper access. Custody regulation in the United States will also
    equip American firms and institutions to compete globally based on the
    firm foundation of regulatory oversight in the United States. As
    discussed above in relation to integrated models, we urge Congress to
    ensure that exchanges, brokers, and dealers can custody assets or
    leverage a CFTC-regulated custodian. For digital commodities, we
    believe the CFTC is best positioned to act as the Federal regulator. A
    custody framework under the CFTC would enable a unified tech stack,
    unlocking major operational efficiencies.
    Why Custody Regulation is Critical for Digital Assets
        Digital asset markets operate very differently from traditional
    financial systems in terms of custody. Assets are stored in
    cryptographic wallets, with security relying on advanced techniques
    including cold storage, access controls, and distributed systems that
    leverage blockchain technology. Unlike traditional systems, digital
    asset custody involves greater technical expertise and programmability,
    which offers both risks and opportunities. Regulators must adopt an
    approach that reflects these unique dynamics while prioritizing safety,
    access, and cost efficiency.
        A robust Federal framework for custody ensures that:

      1.  Consumer Assets Are Protected: Custody regulation guarantees that
                consumer funds remain insulated from operational risks at
                exchanges or platforms, providing a critical safeguard
                against bankruptcy scenarios and fraud.

      2.  Transparency is Embedded: Standardized custody requirements build
                trust by mandating auditability and visibility into custody
                practices, allowing regulators and participants to verify
                safekeeping measures and safeguards.

      3.  Innovation Can Continue: Regulatory clarity creates an
                environment where innovators can pursue novel custody
                models like decentralized custody solutions and
                programmable security protocols without unnecessary legal
                ambiguity.
    There Should Be An Option for Custody Regulation at the CFTC
        As was provided for in FIT21, platforms should have the ability to
    utilize state pathways for custody regulation, including state trust
    and bank charters and credit unions. However, it would be a missed
    opportunity if new legislation does not also enable the CFTC to serve
    as a custody regulator. Allowing the market regulator to serve as the
    custody regulator, as many digital asset proposals have done over the
    years, would simplify the overall regulatory approach. Digital
    commodity custodians and trading platforms could develop more unified
    technology stacks that achieve greater operational efficiencies. In
    just the same way, one regulator can see the whole picture, and in the
    process, better protect consumers.
        Digital assets require regulatory flexibility to keep up with the
    rapid evolution of technology. The CFTC distinguishes itself with its
    principles-based regulatory approach, which focuses on market outcomes
    rather than rigid, prescriptive practices. The CFTC's approach would be
    well-suited to building on long-standing principles, such as the
    segregation of funds, operational security, and regular audits, while
    also enabling innovation to improve market functions.
    Applying AML Standards to Centralized Crypto Actors
        It is imperative that any future legislation aligns AML obligations
    for centralized crypto entities with those currently applied to
    traditional financial institutions. This includes on- and off-ramps
    connecting the tokenized digital ecosystem to the traditional banking
    system--key gateways in maintaining financial integrity.
    Blockchain's Transparency and Traceability in Combating Illicit Finance
        Contrary to misconceptions about digital assets being a haven for
    illicit activity, blockchain technology offers unparalleled
    transparency and traceability. Every transaction is permanently
    recorded on a public ledger, enabling compliance professionals and law
    enforcement to monitor, trace, and prevent illicit activity more
    effectively than traditional systems. This inherent transparency
    empowers platforms like Coinbase to implement robust AML, terrorist
    financing, and sanctions compliance programs that exceed regulatory
    standards.
        Through advanced blockchain analytics, Coinbase monitors suspicious
    activity in real-time, flags violations, and ensures any attempts at
    illicit exploitation leave a digital trail that law enforcement can
    investigate. Innovations such as smart contracts enable automated
    compliance measures, like restricting funds from sanctioned wallets or
    flagging large transactions for review.
    Coinbase's Commitment to AML and Sanctions Compliance
        Coinbase has built a comprehensive global compliance framework that
    adheres to regulatory requirements such as the BSA and the Patriot Act,
    ensuring the integrity of the digital asset system. Key elements of
    this framework include:

       Rigorous KYC Protocols: Verifying user identity and
            assessing risk to prevent illicit actors from accessing the
            platform.

       Advanced Transaction Monitoring: Using software to identify
            suspicious patterns and anomalies linked to money laundering or
            terrorist financing.

       Automated Sanctions Screening: Enforcing sanctions
            compliance by screening wallets and users against global
            watchlists such as OFAC.

       Collaborations with Law Enforcement: Sharing intelligence,
            aiding investigations, and recovering assets from bad actors in
            partnership with agencies such as the FBI and Homeland Security
            Investigations (HSI).
    Enhancing National Security Through Collaboration and Blockchain Tools
        Digital asset platforms like Coinbase actively support national
    security initiatives by monitoring and addressing threats such as
    terrorist financing, sanctions evasion, and criminal activity. For
    example:

       Combating Terrorist Financing: Blockchain transparency aids
            in uncovering networks attempting to move funds to terrorist
            organizations.

       Sanctions Compliance: Platforms rigorously screen
            transactions against international sanctions, providing
            regulators with tools to enforce compliance even across
            decentralized systems.

       AML Investigations: Partnerships with law enforcement have
            led to dismantling criminal networks involved in activities
            like human trafficking and ransomware.
    Congress's Role in Strengthening Compliance Frameworks
        Congress has an important role to play in ensuring that AML,
    sanctions compliance, and counter-terrorist financing measures are both
    effective and aligned with the capabilities of digital asset
    technology. Building on existing regulatory frameworks, Congress should
    consider advancing legislation that:

      1.  Encourages Platforms to Register in the United States: Providing
                a path for onshoring this industry is the single biggest
                thing Congress can do to help national security. By
                providing a framework for platforms to register in the
                United States, AML compliance standards are appropriately
                applied across intermediaries. This reduces gaps that bad
                actors can exploit.

      2.  Leverages Blockchain Transparency: Regulatory approaches should
                embrace the unique transparency of blockchain systems to
                identify novel methods for combatting illicit finance, such
                as real-time transaction monitoring and cross-border
                coordination tools.

      3.  Enhances Collaboration with Agencies: Formalizing partnerships
                between digital asset platforms and law enforcement will
                ensure that private sector expertise helps strengthen
                investigations across borders.
    Decentralized Finance (DeFi) at an Inflection Point
        DeFi, one of the most transformative blockchain innovations, offers
    programmable, permissionless, and globally accessible financial tools
    through decentralized smart contracts. It has the potential to
    democratize access to financial services, reduce costs, and address
    inefficiencies in traditional systems--especially for underserved or
    unbanked populations. However, DeFi is still in its early stages.
    Premature regulation could stifle this innovation, driving it offshore
    or limiting its ability to serve global markets effectively. Just as
    electronic trading systems needed time to mature before regulation,
    DeFi requires flexibility to evolve responsibly.
    Unique Benefits and Risks of DeFi
        Unlike centralized platforms, DeFi operates on transparent, public,
    and permissionless protocols without centralized operators. Innovations
    such as composability--the ability to seamlessly connect financial
    services--have the potential to redefine finance by offering greater
    efficiency, transparency, and fairness. The ecosystem is also
    organically addressing risks, such as smart contract vulnerabilities
    (i.e., coding errors or bugs) and governance attacks (i.e., malicious
    manipulation of the protocol), through rapid iteration, governance, and
    the development of insurance mechanisms. Haphazard and unfocused
    regulation now could discourage innovation and drive developers to
    jurisdictions with lower standards, hampering progress and financial
    inclusion efforts.
    A Balanced Approach to DeFi Regulation
        Recognizing DeFi's transformative potential means providing it the
    regulatory room to grow, while still addressing risks over time. Just
    as the approach to electronic trading adjusted as systems matured, DeFi
    deserves the same opportunity to prove its advancements in
    transparency, efficiency, and financial inclusion. Congress should
    avoid regulating DeFi prematurely under new legislation before the
    sector develops and any perceived risks are better understood. Instead,
    policymakers should continue to embrace the principles adopted in
    FIT21:

       Tech Neutral: Ensure legislation allows blockchains,
            developers, and technology providers to innovate and deliver
            software and hardware that enables new products and services.

       Collaborate: Develop public-private working groups to better
            understand DeFi.

       Risk-Based: Encourage innovation by allowing DeFi protocols
            to mature naturally while assessing risks and benefits.
    Now is the Time to Act
        Regulating digital assets responsibly is not just about protecting
    markets today--it's about shaping the future. Congress maintaining the
    goal of positioning the United States as the global leader in
    innovation sends a powerful message to developers, consumers, and
    investors: America is committed to building frameworks that protect its
    citizens while allowing transformative change to thrive. We cannot
    afford to sit back while other nations leapfrog us in deploying a
    foundational technology like blockchain. What's at stake is our ability
    to shape the rules of the future and ground them in American values.
        I urge Congress to act with urgency and convictiony to provide
    clarity, enforce protections, and give innovators across the United
    States the certainty they need to build responsibly. With swift action,
    you have the power to set the course for this industry and reaffirm
    America's leadership in shaping the future of technology and finance.
        Thank you to both Chairs and Ranking Members for this opportunity
    to testify. I look forward to answering your questions.

        Mr. Steil. Thank you very much.
        The Honorable Rostin Behnam is recognized for 5 minutes to share
    your remarks.
      STATEMENT OF HON. ROSTIN BEHNAM, J.D., DISTINGUISHED FELLOW, PSAROS
    CENTER FOR FINANCIAL MARKETS AND POLICY, MCDONOUGH SCHOOL OF BUSINESS,
                    GEORGETOWN UNIVERSITY, WASHINGTON, D.C.
        Mr. Behnam. Chairman Hill, Chairman Thompson, Ranking Member Craig,
    Chairman Steil, Ranking Member Lynch, Chairman Johnson, and Ranking
    Member Davis, I am honored and grateful to testify before you today.
        Between 2017 and 2025, I had the privilege of serving first as a
    Commissioner then as the Chairman of the CFTC. During that more than 7
    year period I observed the significant growth of the digital asset
    market and wider adoption of digital assets by both institutional and
    retail investors in the United States. I also observed the digital
    asset market endure multiple periods of dramatic volatility, often
    significant in size and scale.
        Throughout this time I publicly repeated one consistent message to
    Congress--under current U.S. law, there is a gap in regulation for the
    non-security digital asset market.
        The regulatory gap remains today, and has facilitated countless
    scandals and fraudulent activity. First and foremost, filling the
    regulatory gap will provide the needed customer protections that
    American investors have been accustomed to in traditional markets. 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 and industry players to capitalize on regulatory loopholes and
    unwitting retail investors.
        Though well intentioned, I believe this argument is the loophole.
    It has only left, for far too long, the vast majority of the digital
    asset market unregulated and American investors vulnerable to fraud and
    manipulation.
        I have consistently called for new legislative authority for the
    CFTC in order to provide core customer protections in the non-security
    digital asset market. As both committees consider a legislative
    solution, I believe it is critical to rely on durable legal precedent
    as the framework to define digital tokens as securities or commodities,
    and recognize that the nature of commodity assets do not necessitate an
    identical regulatory framework as do securities.
        Given the critical role the SEC plays in the oversight of security-
    based digital assets, the committees should consider legislating a
    disciplined, flexible, and balanced framework for the determination of
    tokens as either commodities or securities. Where intermediaries handle
    both security and non-security tokens in the cash market, separate
    jurisdiction is critical to a healthy, comprehensively regulated
    ecosystem. Currently there are numerous examples of individuals and
    entities dually registered with the CFTC and the SEC. In these
    instances, each agency retains its licensing authority over the
    registrant.
        Any regulatory system that contemplates a different model, where
    one agency defers to the other or is simply notified of activity within
    its jurisdiction, will be nothing more than a paper clip and a Band-Aid
    on the existing gap in regulation, leaving bad actors and arbitrageurs
    opportunities to exploit weaknesses and leave American investors at
    risk. Further, any framework where each agency does not retain its
    exclusive licensing authority portends a future of blurred jurisdiction
    across other financial products, like agricultural and energy, to name
    a few.
        While preserving each agency's authority is critical, supporting
    cross-agency collaboration, consistent with what is practiced today,
    and which may include tools like portfolio margining and other netting
    mechanisms is also beneficial, where appropriate.
        As both committees continue to consider legislation to fill the
    gap, I would like to focus attention on the components of a regulatory
    framework that would ensure the CFTC has the tools to provide customer
    and market protections.
        First, the principles-based oversight model has served the CFTC and
    its regulated markets well, striking an appropriate balance between
    clear outcomes-based requirements and measured flexibility to meet
    those outcomes.
        Second, appropriate funding is necessary to meet the mandate of any
    legislatively enacted regulatory program. I would strongly encourage
    the Committee and the Congress to consider a permanent fee-for-service
    model, exclusively assessed on digital asset registrants.
        Third, and following my earlier point, any legislative package
    should require registrants to provide information regarding traded
    tokens to ensure investors have access to material information.
        Fourth, an effective legislative effort mandating a regulatory
    framework for digital assets must include a role for self-regulatory
    organizations.
        Fifth, it is essential that legislation provide comprehensive
    authority for anti-money laundering, know-your-customer, and customer
    identification program, built off of existing requirements under U.S.
    law for market participants.
        And finally, a comprehensive education and outreach program will
    enable the investing public to understand both the risks and
    opportunities of this technology.
        The current divide between the U.S. and our international
    counterparts creates regulatory arbitrage opportunities that are
    exploited by bad actors and prohibits the U.S. from truly contributing
    to much-needed multilateral coordination efforts. Further, the
    potential economic benefits and innovation arising from this technology
    ultimately will be unmet without regulatory certainty.
        The principles and regulatory foundations that have made U.S.
    capital markets and derivatives markets the deepest, most liquid, and
    most resilient in the world provide an effective model for the digital
    asset commodity market. We need to act thoughtfully but with urgency to
    fill this harmful regulatory gap in order to give American investors
    the protection they deserve.
        I thank both committees for your focus in this area, and look
    forward to answering your questions.
        [The statement of Mr. Behnam follows:]

     Prepared Statement of Hon. Rostin Behnam, J.D., Distinguished Fellow,
      Psaros Center for Financial Markets and Policy, McDonough School of
               Business, Georgetown University, Washington, D.C.
        Chairman Hill and Ranking Member Waters, Chairman Thompson and
    Ranking Member Craig, Chairman Steil and Ranking Member Lynch, Chairman
    Johnson and Ranking Member Davis, Members of the Committees, I am
    honored and grateful to testify before you today on this important and
    timely topic.
    The Gap In Regulation
        Between 2017 and 2025, I had the privilege of serving first as a
    Commissioner, then as the Chairman of the U.S. Commodity Futures
    Trading Commission (``CFTC'').\1\ During that more than 7 year period,
    I observed the significant growth of the digital asset market and wider
    adoption of digital assets by both institutional and retail investors
    in the United States. Over this time, digital assets evolved from a
    little known financial product to one that has become ubiquitous
    globally, owned by nearly one in five Americans according to a 2024 Pew
    study,\2\ and easily accessible to the public.\3\
    ---------------------------------------------------------------------------
        \1\ Chairman of the U.S. Commodity Futures Trading Commission
    (2021-2025); Commissioner of the U.S. Commodity Futures Trading
    Commission (2017-2021).
        \2\ https://www.pewresearch.org/short-reads/2024/10/24/majority-of-
    americans-arent-confident-in-the-safety-and-reliability-of-
    cryptocurrency/.
        \3\ https://www.sec.gov/files/rules/sro/nysearca/2024/34-99306.pdf.
    ---------------------------------------------------------------------------
        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 repeated one consistent message
    to Congress: under current U.S. law, there is a gap in regulation for
    the nonsecurity digital asset market. In 2022, a Financial Stability
    Oversight Council report highlighted this gap in regulation of the spot
    market for digital assets that are not securities.\4\ This gap for non-
    security tokens continues to constitute a majority of the digital asset
    market measured by market capitalization.\5\
    ---------------------------------------------------------------------------
        \4\ Financial Stability Oversight Council, Report on Digital Assets
    and Financial Stability Risks and Regulation (Oct. 2022), Report on
    Digital Asset Financial Stability Risks and Regulation 2022
    (treasury.gov).
        \5\ https://coinmarketcap.com/.
    ---------------------------------------------------------------------------
        The regulatory gap remains today, and must be filled with targeted
    legislation; it has facilitated countless scandals and fraudulent
    activity, some very small and typical in criminal form, others massive
    in profile. First and foremost, filling the regulatory gap will provide
    the needed customer protections that American investors have become
    accustomed to in traditional markets regulated by the CFTC and the U.S.
    Securities and Exchange Commission (``SEC'').
        Further, based on my current observations and those while at the
    CFTC, I do not believe policy inaction will deflate public interest for
    digital assets; inaction will only result in greater risk to our
    financial markets and investors. As the digital asset market continues
    to integrate into traditional financial institutions, concerns
    regarding broader market resiliency and perhaps even financial
    stability will grow. In short, our current trajectory is not
    sustainable.
        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 and industry players to capitalize on regulatory loopholes and
    unwitting retail investors. Though well intentioned, I believe this
    argument is the loophole; it has only left, for far too long, the vast
    majority of the digital asset market unregulated and American investors
    vulnerable to fraud and manipulation. Between pursuing comprehensive
    regulation that does not undermine existing law, or inaction, there is
    only one choice: comprehensive regulation, full stop.
    A Legislative Solution to Empower Regulators
        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.\6\ Today's joint hearing
    demonstrates the healthy engagement and collaboration that these two
    committees, and also the two respective agencies overseen by these
    committees have enjoyed over many decades. Similar to debates around
    security and commodity futures during the advent of financial
    derivatives fifty years ago, or security based and commodity based
    swaps throughout the deliberation of the 2010 Dodd-Frank Wall Street
    Reform and Consumer Protection Act, I believe the digital asset market
    is another milestone in the evolutionary arc of financial markets that
    pose unique, but solvable policy questions.
    ---------------------------------------------------------------------------
        \6\ See, Rostin Behnam, Chairman, CFTC, Testimony Before U.S. House
    Committee on Agriculture, https://www.cftc.gov/PressRoom/
    SpeechesTestimony/opabehnam42 (Mar. 6. 2024); see also, Rostin Behnam,
    Chairman, CFTC, Testimony on The Future of Digital Assets: Providing
    Clarity for Digital Asset Spot Markets Before the U.S. House Committee
    on Agriculture, https://www.cftc.gov/PressRoom/SpeechesTestimony/
    opabehnam42 (Mar. 6. 2023).
    ---------------------------------------------------------------------------
        As both committees consider a legislative solution, I believe it is
    critical to rely on durable legal precedent as the framework to define
    digital tokens as securities or commodities, and recognize that the
    nature of commodity assets do not necessitate an identical regulatory
    framework fit for securities. Most notably, a key pillar of the
    securities law is bridging information gaps between an issuer of
    securities and prospective investors through mandated disclosures.
    While information about a public company's audited financial
    statements, executive leadership team, and business risk factors, to
    name a few, are identifiable and quantifiable for security issuers, and
    critically important to investors, the same is not the case for
    commodity assets.
        Any credible digital asset regulatory framework of commodity
    digital assets must include disclosures, but more limited in scope by
    virtue of the characteristics of the underlying asset. Put more simply,
    and using Bitcoin as an example, there simply is no regularly
    reportable information on this commodity token that fits neatly into
    the securities regime. In addition to disclosures for digital asset
    investors about risk of loss and the static characteristics of a token,
    the primary focus of a comprehensive market regulatory framework for
    commodity tokens like Bitcoin should rest on the principles of fair,
    orderly and efficient markets. The argument that the CFTC is not a
    disclosure based agency is only true insofar as commodities cannot
    fulfill the securities regime.
    Dual Registration
        Given the critical role the SEC plays in the oversight of security-
    based digital tokens, the Committees should consider legislating a
    disciplined, flexible, and balanced framework for the determination of
    tokens as commodities or securities. As mentioned, the SEC and CFTC
    have a longstanding partnership that facilitates strong, robust
    regulation of securities and commodity derivatives markets.
        Where intermediaries handle both security and non-security tokens
    in the cash market, separate jurisdiction is critical to a healthy,
    comprehensively regulated ecosystem. Currently, there are numerous
    examples of individuals and entities dually registered with the CFTC
    and SEC, most typically as a broker-dealer and futures commission
    merchant, or investment advisor and commodity pool operator. In these
    instances, each agency retains its licensing authority over the
    registrant. Any regulatory system that contemplates a different model,
    where one agency defers to the other, or is simply notified of activity
    within its jurisdiction, will be nothing more than a paper clip and
    band-aid on the existing gap in regulation, leaving bad actors and
    arbitrageurs opportunities to exploit weakness and leave American
    investors at risk. Further, any framework where each agency does not
    retain its exclusive licensing authority portends a future of blurred
    jurisdiction across other financial products, like agricultural and
    energy, to name a few.
        While preserving each agency's authority is critical, supporting
    cross-agency collaboration, consistent with what is practiced today,
    and which may include tools like portfolio margining and other netting
    mechanisms is also beneficial where appropriate.
    Targeted with Flexibility
        As both Committees continue to consider legislation to fill the
    regulatory gap, I would like to focus attention on the components of a
    regulatory framework that would ensure the CFTC has the tools to
    provide customer and market protections. The CFTC has been involved in
    the digital asset market for over a decade, sharpening its expertise
    and skillset in a balanced, deliberative fashion. The CFTC has also
    been at the forefront of many of the most complex and historic
    enforcement cases, working closely with other state and Federal civil
    and criminal authorities.
        First, the principles-based oversight model has served the CFTC and
    its regulated markets well, striking an appropriate balance between
    clear outcomes-based requirements, and measured flexibility to meet
    those outcomes. Core principles such as compliance with fair and
    orderly trading, system safeguards, financial resource requirements,
    and products not being readily susceptible to fraud or manipulation,
    serve as a solid foundation to build transparent and resilient markets,
    regardless of asset class. In light of the novel nature of digital
    assets, the CFTC would then, consistent with a legislative mandate,
    tailor rules to meet the risk and characteristic profile. The CFTC
    would also have flexibility to adapt with a changing market landscape,
    should the digital market evolve in a manner not first contemplated.
        Second, appropriate funding is necessary to meet the mandate of any
    legislatively enacted regulatory program. The CFTC is currently funded
    for its mandate; it is funded to regulate digital commodity cash
    markets. I would strongly encourage the Committees and the Congress, as
    it would in any instance where it increases an agency's mandate, to
    consider a permanent fee-for-service model, exclusively assessed on
    digital asset registrants, that is commensurate with the
    responsibilities outlined in any legislative effort. As with other fee-
    for-service models, Congressional appropriators and the agency should
    work together to set budget levels and subsequently set fees to meet
    those budget levels.
        Third, and following my earlier point about the need for a sensible
    disclosure regime, any legislative package should require registrants
    to provide information regarding a commodity token's structure,
    purpose, market-based characteristics, and general risks to ensure
    investors have access to material information.
        Fourth, a reliable self-regulatory organization (``SRO'') has been
    critical to the success of the CFTC and SEC for decades. Both the
    National Futures Association, in the case of the CFTC, and FINRA, in
    the case of the SEC, have served as effective boots on the ground for
    both agencies, complementing and supporting the missions of each. Any
    effective legislative effort mandating a regulatory framework for
    digital assets must include a role for SROs.
        Fifth, it is essential that legislation provide comprehensive
    authority for anti-money laundering (``AML''), know-your-customer
    (``KYC''), and a customer identification program (``CIP''), built off
    of existing requirements under U.S. law for market participants. With
    the right tools, including AML, KYC, and CIP authority, the digital
    asset ecosystem will not only become exponentially safer but also less
    vulnerable to terrorist organizations and illicit activity.
        Finally, given the broad adoption of digital assets by a
    significant portion of the American population,\7\ a comprehensive
    education and outreach program, built off of both the SEC and CFTC's
    customer education programs, will enable the investing public to
    understand both the risks and opportunities of this technology.
    ---------------------------------------------------------------------------
        \7\ Id., at 2.
    ---------------------------------------------------------------------------
    International Competition
        While CFTC Chairman, I had the privilege of serving as the Vice-
    Chairman of the International Organization of Securities Commissions
    (``IOSCO''). IOSCO's member agencies regulate more than 95% of the
    world's securities markets in over 130 jurisdictions.\8\ As Vice-Chair,
    I saw major and developing economies establish regulatory frameworks
    for the new asset class.
    ---------------------------------------------------------------------------
        \8\ International Organization of Securities Commissions, About
    IOSCO, https://www.iosco.org/v2/about/?subsection=about_iosco (last
    visited July 8, 2024).
    ---------------------------------------------------------------------------
        The current divide between the U.S. and our international
    counterparts creates regulatory arbitrage opportunities that are
    exploited by bad actors, and prohibits the U.S. from truly contributing
    to much needed multilateral coordination efforts. Further, the
    potential economic benefits and innovation arising from this technology
    ultimately will be unmet without regulatory certainty. Investors,
    entrepreneurs, and various other stakeholders simply cannot participate
    fully with confidence without regulatory protections and certainty.
    Conclusion
        The principles and regulatory foundations that have made U.S.
    capital markets and derivatives markets the deepest, most liquid, and
    most resilient in the world provide an effective model for the digital
    asset commodity market. We need to act thoughtfully, but with urgency,
    to fill this harmful regulatory gap in order to give American investors
    the protection they deserve.
        I thank both Committees for your focus in this area, and look
    forward to answering your questions.

        Mr. Steil. Thank you very much. We thank all of our participants
    for being here and sharing your expertise.
        We will now move on to questions in the roundtable. As this is a
    roundtable and not a hearing, I will control the time. I ask all of our
    Members to hold their questions to roughly 5 minutes, and I will do my
    best to alternate between not only parties but also full committees.
        We will begin by the chair of the Subcommittee on Agriculture, Mr.
    Dusty Johnson.
        Mr. Johnson. I will start by thanking former Chair Behnam. It was a
    remarkable investment of your time last Congress. You and I talked on
    Saturdays. You and I talked on Sundays. You understood it was not your
    job to craft legislation, but instead to provide the Members of this
    Committee insight needed to try to do right by this complicated policy
    issue. And, sir, you have been a clear and consistent voice that
    legislative inaction endangers consumers, and you said it again in your
    testimony today. It is a clarion call that does right by this process,
    and I just want to thank you for that.
        Mr. Davis, I thought your testimony was spot on. You talked about
    the CFTC being the natural choice to be the digital asset spot market
    regulator. You talked a little bit about why, but tell us more.
        Mr. Davis of Washington. First of all, the CFTC has the experience.
    I was in the room when Chairman Giancarlo, in 2017, was discussing
    Bitcoin futures and the wrestles that the agency was having with it
    back then. This agency has been wrestling with those issues ever since,
    and actually before that time.
        And there is a lot of learning that has been gained there. When you
    have a Bitcoin futures market, if a company self-certifies that, they
    have to say that that product is not readily susceptible to
    manipulation. The only way you can know that is if you are monitoring
    and surveilling the underlying Bitcoin spot market.
        So a natural part of the CFTC monitoring and examination regime has
    been the spot market. Obviously, it started with Bitcoin, which
    accounts for, on any given day, about 60 to 65 percent of the market.
    It grew to Ether, which is another eight to ten percent of the market.
    And as I noted in my remarks, there are now 20 digital assets that are
    either self-certified or trading.
        So you have an agency that has the experience of understanding,
    looking under the hood, looking how the spot market operates, where it
    works well, where it doesn't, has examined parties, CFTC registrants,
    and as Chairman Behnam can attest, has brought a number of enforcement
    actions for fraud and manipulation that require an understanding again
    of how the spot markets work.
        And I guess I would just add, principles work. Core principles
    allow entities to use innovation, productive, effective thinking, to
    find effective ways to resolve the problems that we all know we exist
    in any market--worries about fraud, worries about manipulation, worries
    about cybersecurity, worries about reporting. The core principle
    construct that the Commodity Exchange Act embraces really would allow
    this market to thrive.
        Mr. Johnson. Mr. Tusar, in your testimony you noted, similarly,
    that the CFTC has decades of expertise in complex markets. What else
    would you add to Mr. Davis's comments?
        Mr. Tusar. I wholeheartedly agree that the principles-based regime
    is the right regime for the digital asset ecosystem and market to
    really develop. This is a critical moment in the evolution of this
    space, and it needs a market structure that allows for innovation, but
    that also has the strong consumer protections that the CFTC and
    Commodity Exchange Act provide. And so those two principles are
    critically important.
        As I noted in my remarks also, Regulation ATS offered the same
    thing in the securities world. That similar parallel infrastructure in
    the CFTC regime will be critically important to allow exchanges to
    evolve, and also recognizing the unique characteristics of digital
    assets. They settle instantaneously. They don't have the same sort of
    credit risks and characteristics that normal securities or commodities
    have. So putting both of those things together will be critically
    important.
        Mr. Johnson. For each of the panelists, you said it in your
    testimony, each of you in a different way. But I want to make sure I
    understand. Basically a yes-or-no question. Does the absence of a clear
    regulatory regime do a disservice to consumers, investors, and
    innovation in the digital asset space?
        Mr. Rathmell?
        Mr. Rathmell. Yes.
        Mr. Johnson. Mr. Miller?
        Mr. Miller. Absolutely.
        Mr. Johnson. Mr. Davis?
        Mr. Davis of Washington. Yes.
        Mr. Johnson. Mr. Tusar?
        Mr. Tusar. Yes.
        Mr. Johnson. Chair Behnam?
        Mr. Behnam. Yes.
        Mr. Johnson. Thank you. With that, Mr. Chairman, I yield back.
        Mr. Steil. The gentleman yields back. The Ranking Member of the
    Subcommittee on Agriculture, Mr. Davis, is recognized.
        Mr. Davis of North Carolina. Thank you so much, Mr. Chair. I want
    to direct a question towards Chairman Behnam. It has been made evident
    by you that Congress is required to take action in order to address the
    regulatory deficiencies pertaining to digital asset markets. As the
    former chair of the CFTC, you directly observed the ramifications of
    inaction as well as the promise of legislation solutions that my
    colleagues and I are endeavoring to promote. I listened to your
    testimony earlier, and it seems like you have laid out what seems to be
    a very reasonable framework.
        My first question is, what would you prioritize within that
    structure that you outline, and then the second part of the question
    would be, what is the importance of all of this moving together, the
    interchangeability of this framework, for instance, of Congress failed
    to provide adequate funding or if we didn't educate? I would really
    love to hear more in terms of this framework that you laid out.
        Mr. Behnam. Thanks, Congressman. Above all else, and Mr. Davis
    alluded to this, the CFTC has been very active on the enforcement side
    of the ledger over the past 11 years. The first case that CFTC brought
    was in 2014, in the spot market with very limited authority.
        So as the Committee and these committees think about what authority
    is needed, it is much like the traditional authorities that both the
    CFTC and the SEC have in traditional markets. And I alluded to this,
    within the core principles it is around registration of intermediaries,
    whether it is exchanges, brokers, custodians, introducing brokers, or
    anyone sort of in the trade cycle that is involved with giving access
    to financial assets to customers. That has to be the centerpiece, and I
    believe, at least in the draft that I saw briefly yesterday, that is
    the centerpiece of what you are proposing, and that has to be the
    starting point.
        Everything else I listed, which is critical, the CFTC is not going
    to be able to do the work if they don't have the appropriate funding.
    And I wrote this in my submitted testimony at more length, with any
    Congressional mandate there is going to have to be more funding, and I
    think that is a critical piece because without that this job just won't
    get done appropriately. And we need this to get done appropriately.
        Above all else, customer education. Far too often I personally
    experienced, or the agency has experienced very vulnerable individuals,
    sometimes from low-income communities, who just don't have financial
    literacy to understand the risks associated with digital assets.
        So it is a multi-piece puzzle that has to be built one piece at a
    time. But I would encourage and certainly support the Committee's
    effort to do this comprehensively and as quickly as possible, but in
    one shot. And doing anything piecemeal and holding out for another sort
    of effort down the road, I understand things are difficult, but
    ultimately, if we are going to do this right, it has to be done
    comprehensively, and that is the registration, that is the
    surveillance, that is examination, that is making sure cyber and
    operational risk, that is communication, funding, education. It is a
    lot, but it is very, very much comparable to what we do in traditional
    derivatives markets or traditional securities markets.
        Mr. Davis of North Carolina. Thank you so much, Mr. Chair.
        My next question, and this would be for everyone, but I would
    definitely start with Mr. Tusar, the discussion draft of the market
    structure bill was released yesterday. Any early thoughts? I would just
    love to hear any early thoughts.
        Mr. Tusar. I appreciate the question. Thank you, Congressman. Early
    thoughts, as I said in my opening remarks, it is a strong step in the
    direction of making a few things very clear. First of all, and maybe
    most importantly, token classification, which today is very unclear
    with respect to the difference between commodities and securities and
    which fall under which regulatory regime. So it is excellent to see
    forward progress in that direction.
        Also, importantly, that there is the potential for there to be
    harmonization between the digital asset securities and digital asset
    commodities trading. Because what we anticipate is that these things
    will need to exist not just side by side but in the future in some
    integrated way. So it is important that the two regimes, on the CFTC
    and SEC side, are harmonized to the greatest degree possible, so that
    consumers are afforded the same protections and those sorts of things
    as we anticipate that they will exist on the same platform, and the
    expectations will be similar.
        And thirdly, that there is a potential path to have an integrated,
    Federal-level regime for custody potentially, as well, which we think
    is important. The potential for leaving custody unaddressed on the
    commodities side leaves open for the potential to be Federal-level
    regulation for trading and listing of assets, but state-level
    regulation for custody, which we think leaves the potential for gaps
    there, as well.
        But we feel, in conclusion, it is a strong step forward.
        Mr. Davis of North Carolina. Thank you. I yield back.
        Mr. Steil. Thank you very much. I know some people chose to leave,
    but I think if you look around this room, a lot of Members of both
    parties and both the Agriculture Committee and the Financial Services
    Committee is here, because this topic is so important. And I think the
    danger we have in this country is if we put our head in the sand and
    fail to regulate in this space, we actually have more risk than we do
    today.
        Some of my other colleagues will say, ``No, we live in a laissez-
    faire. Why regulate at all?'' And I think what is lost in that is that
    there is currently a large number of regulations that don't fit well in
    the digital age, in the token age, and in digital tokens.
        So what I want to do with you, Mr. Miller, if I can, is let's go
    back and learn a lesson about Hiro. You went through the Reg A process.
    You commented on this. Is the current exemption framework for raising
    capital compatible with the digital asset ecosystem?
        Mr. Miller. In short, it is definitely not compatible. If you look
    at all of the current securities law exemptions and registration
    schemes and qualification schemes, they are based on the fundamental
    idea of either a debt or equity offering in a company. And again, as
    somebody who has spent a long time in the startup world and worked with
    investors, Reg D works great for raising from a credited investor and
    angel investor.
        Mr. Steil. So to dive into it, so the people that are investing,
    are they getting the clarity that they should?
        Mr. Miller. No.
        That is the fundamental thing, is the registration scheme is all
    about aspect of the company. So Hiro remained, long after
    decentralization, remained a reporting issuer with the SEC. You can go
    see these reports about the dev tools business, fixing nothing.
        Mr. Steil. So it doesn't get the information that an investor
    needs.
        Mr. Miller. No.
        Mr. Steil. And then the question then becomes, of course, what was
    the cost associated with it? What did you raise and what did you spend?
        Mr. Miller. Right. So our Reg A raised about $15 million. It cost
    probably $3 million to run the Reg A.
        Mr. Steil. And this is my frustration, because what we want to do
    is make sure that the next innovators are in dorm rooms and basements,
    not in boardrooms and law firms.
        Mr. Miller. Exactly.
        Mr. Steil. And it sounds like as you went through this process you
    probably spent a lot of time in boardrooms and law firms.
        Mr. Miller. Absolutely.
        Mr. Steil. And if you didn't have that kind of capital you probably
    couldn't do this in your parents' basement.
        Mr. Miller. Nope.
        Mr. Steil. Because you would have to spend millions of dollars, in
    very tall buildings, attorneys, navigating through with the regulatory
    agencies. Correct?
        Mr. Miller. And that is why we see small teams who are trying to be
    upstarts moving offshore today.
        Mr. Steil. And so you would agree that we have to create a new
    system for digital assets to be able to efficiently go through the
    process, and provide the clarity to prevent abuse.
        Mr. Miller. Absolutely.
        Mr. Steil. All right. Let me jump over. Another impediment of the
    digital asset ecosystem is the legal classification of the assets. Are
    they securities, commodities, or maybe something else entirely? Mr.
    Rathmell, your guidance has been a useful project in determining
    whether or not there will be classified as a security or not. The SEC
    put forward a rule, 2019, a 60 factor test. Is this helpful at all, or
    does it just add more complexity into the system?
        Mr. Rathmell. We are grateful for the clarity, certainly. The
    challenge that we have consistently run into in this space, as Mr.
    Miller alluded to, is that we have startup teams who may have raised
    perhaps a few million dollars, who are spending a disproportionate
    amount on reading the legal tea leaves, and I think the 2019 guidance
    is kind of part and parcel of that. A 60 factor test is not really
    workable for an entrepreneur.
        Mr. Steil. It is not workable. Do you create your own internal
    process?
        Mr. Rathmell. For us, particularly, at a venture capital firm?
        Mr. Steil. Say it again?
        Mr. Rathmell. For us, specifically, a venture capital firm?
        Mr. Steil. Yes.
        Mr. Rathmell. Certainly we have looked at the 2019 guidance. We
    have looked at the Hinman speech as we are assessing the security
    status of an offering. But certainly there is a comprehensive kind of
    across this space a lack of legal clarity.
        Mr. Steil. So even with the guidance that came from the SEC, you
    are finding yourself spending big bucks on attorneys rather than on
    innovation development. Fair?
        Mr. Rathmell. Absolutely, and the same is true for all of our
    founders.
        Mr. Steil. So let me jump over to you if I can, Mr. Tusar, as we
    wrap this up. Because the other logical path, of course, people would
    say, ``Well, don't worry, Mr. Steil. We can go for a state approach.''
    And I think your background at Coinbase really gives us an opportunity
    to dog into that. Can you kind of highlight the impact the existing
    regulatory structure for digital asset trading platforms and how it
    exists, in particular at the state level? Maybe that is a path.
        Mr. Tusar. Yes. Thank you for the question, Congressman. We think
    it is critical that there be Federal-level regulations, that today we
    have a variety of different approaches. We have money transmission
    licenses from state to state, which leaves customers with different
    levels of protection, different levels of our ability to have products
    state by state when it comes to things like staking, and different
    levels of disclosure that are required.
        So we have advocated for some time that there absolutely needs to
    be Federal-level regulation, and so we are excited for this bill to
    move forward, to close the gap as it exists today.
        Mr. Steil. Thank you very much. I think what we have heard is the
    current state regulatory framework doesn't work. The current SEC
    regulatory framework doesn't work. And the work of Chairman Thompson
    and Chairman Hill to bring forward this market structure legislation is
    absolutely essential to provide clarity, to make sure that there is
    innovation and development occurring in the United States without the
    need for high-priced attorneys, and making sure that the United States
    wins Web3, and we are in a position now to compete with China.
        I will yield back. I will now recognize the Ranking Member on the
    Financial Services Subcommittee, Mr. Lynch, to offer comments, or ask
    questions.
        Mr. Lynch. Thank you, Mr. Chairman. Much appreciated.
        I think the greatest asset, that the greatest characteristics of
    our financial system writ large is trust. I think that is really what
    sets us apart from other countries. That is why we do so well with
    foreign investors. People trust the system, that the laws will apply,
    and they have a menu of rights that they can exercise.
        In the last few weeks, under the Trump-appointed leadership of the
    SEC, the SEC dropped almost every single lawsuit against some of the
    worst offenders in the crypto industry, companies such as Crypto.com,
    Ripple, Kraken, Gemini, Binance, Coinbase, Robinhood, and Uniswap.
    Those all have a proven history of irresponsible, predatory, or illegal
    practices.
        Then the Trump-appointed Prudential Banking Regulators were
    directed to rescind the thoughtful guidance that advised financial and
    depository institutions to exercise caution in engaging with crypto.
    This is a just a concern, because you have people's deposits, and there
    is supposed to be a stability there, and then you have crypto that is
    extremely volatile. It was a commonsense guidance.
        And then, a few weeks ago, the Justice Department announced it is
    disbanding the National Cryptocurrency Enforcement Team, which had been
    charged with combatting fraud and illicit financing crypto.
        Brick by brick, President Trump is showing us how democracies die.
    We are seeing long-standing investor and consumer protections
    dismantled, all to further President Trump's personal interests. And I
    believe all of these moves serve to have a corrosive effect on that
    trust that I talked about in the beginning.
        And in an even more appalling move, President Trump advertised a
    private dinner, this is outrageous. It would be funny if it wasn't
    true--advertised a private dinner at his golf club for the top 220
    investors in his meme coin--in his meme coin--that has zero value in
    reality, followed by a private White House tour for the top 50. That
    just screams government for sale right there.
        And then, last week, as I mentioned before, at a conference in
    Dubai it was announced that a fund backed by Abu Dhabi would be making
    a $2 billion business deal using President Trump's firm's digital
    coins. A foreign government will be making a direct, major contribution
    to President Trump's wealth, which stands to make the Trump family
    hundreds of millions of dollars.
        Mr. Davis, Mr. Behnam, I am aware of your history. Mr. Davis, you
    are a former general counsel. Don't you think that that undermines--
    look, if you are really hoping for the greatest future for crypto, that
    scamifies everything. It looks seedy, shady. Is there a way to promote
    crypto without--first of all, do you think that is helpful to crypto,
    all of those measures?
        Mr. Davis of Washington. Sir, I have no comment on what the
    President or what his family is doing.
        Mr. Lynch. I don't blame you. if I was an attorney I wouldn't
    answer the question either.
        Mr. Behnam, CFTC, you have been in this seat before. You are
    familiar with the ethics laws, and so are you, Mr. Davis. Do you think
    those breach the ethics laws, either one of you? Mr. Davis or Director
    Behnam?
        Mr. Behnam. Congressman, I said this last week or a few weeks ago
    in response to a question about a similar issue or the same issue.
    There are well built-out and decades-old ethnics rules around all
    government officials, whether it is elected officials, appointees, or
    everyone across the U.S. Government, and it is extremely important that
    those rules are upheld, for the same reasons you stated at the
    beginning of your comment. And I say this often, as well. The health
    and the size and the demand for U.S. capital market instruments,
    whether it is equities or derivatives, is because of the rule of law,
    because of the confidence in the integrity that foreign investors, but
    also U.S. investors, have in the accountability of our regulators,
    whether bank regulators or market regulators. And I do think for that
    continued success and growth and economic----
        Mr. Lynch. Okay. Just reclaiming the last 15 seconds of my time.
    All I am saying is, some of those moves might have pumped up the short-
    term price of crypto. I think in the long term is very, very bad for
    crypto. You want to have credibility. You want to have trust. And I
    don't think you are getting that with all those moves that I just
    remarked upon.
        Thank you, Mr. Chairman. I appreciate your courtesy, and I yield
    back.
        Mr. Steil. The gentleman yields back. The Chairman of the
    Agriculture Committee, Mr. Thompson, is recognized.
        Mr. Thompson. Chairman, thank you so much. Chairman Behnam, welcome
    back. It is nice to see you here.
        In 2023 and 2024, there was some uncertainty about the legal status
    of Ether as then-SEC Chair Gensler asserted Ether may, in fact, be a
    security, despite the CFTC publicly stating it was a commodity several
    years prior. You and other suggested that a sudden reversal in the
    settled treatment of a digital asset could be disruptive for anyone
    participating in the derivatives market.
        Please describe the uncertainty and confusion caused by the SEC
    claiming one thing and the CFTC claiming the opposite.
        Mr. Behnam. Thanks, Mr. Chairman. As we had contracts listed, and
    now there are many more than when I was chair, when contracts are
    listed on CFTC exchanges as derivatives, there is essentially an
    assumption that the underlying asset is a commodity. So when we had
    listed Bitcoin futures in 2017, and then listed Ether futures a few
    years later, there was an assumption, legally, that the underlying
    asset in that case, Bitcoin and Ether, were commodities.
        So any confusion in the public markets about what those assets
    were, along this security-commodity line would certainly create
    confusion, regulatory uncertainty, and potentially legal liability for
    any market participant who wanted to participate in some sort of
    innovative project or entrepreneurial project that involved those
    assets, as it relates to the two market regulators.
        Mr. Thompson. Very good. Thank you. Mr. Miller, Mr. Rathmell, and
    Mr. Tusar, what effect does this confusion have on digital asset
    ecosystem and innovation?
        Mr. Miller. So as I said, beyond the fact that we spent untold sums
    of time and money trying to guess at what the laws were, and even
    worse, what the laws would be in a few years, since when you have an
    agency interpretation it might change every 4 years, even today we just
    see, unless you are an absolutely huge, very well-funded team, you
    can't afford to take the risk of operating here. So these upstart
    teams, ones who are going to be the massive companies of the future,
    are choosing to go to other jurisdictions, whether it is in the Middle
    East or in areas of Southeast Asia, or things, where they aren't having
    to pay $1,000+ an hour for a lawyer to tell them, ``Well, I don't know
    what the law might be.''
        Mr. Rathmell. I would say something similar. Markets demand
    clarity, ultimately, and during this kind of very tumultuous period
    that we saw over the past half decade-plus, I was routinely approach by
    founders who were just trying to build their businesses, including some
    projects that were building on Ethereum. And these are founders that
    shouldn't have to understand the nuances of securities and commodities
    laws, who are just trying to build projects here in America, and who
    shouldn't have to spend millions of dollars on legal advice from
    lawyers who don't have a legislative or regulatory framework that they
    can actually reasonably interpret. And spending time with those
    founders and seeing them try to become armchair lawyers felt like a
    great wasted opportunity, because they were spending time doing that
    rather than building their businesses here in America.
        Mr. Thompson. Very good. Mr. Tusar, any thoughts.
        Mr. Tusar. Yes, Mr. Chairman. I would suggest that one of the
    greatest impacts is to the competitiveness of the U.S. as the hub for
    what we think is innovation for the future of the internet, the future
    of payments on the internet, and having that talent and that capital
    move to jurisdictions. The U.S. is the only in the G20 that does not
    have clear rules of the road, as is proposed in this bill. And I think
    are we not to act with urgency, I think we will continue to see that
    flight of capital and talent overseas.
        Mr. Thompson. Very good. Mr. Davis, Section 3 of the Commodity
    Exchange Act closes with its final purpose, to promote responsible
    innovation and fair competition. How does regulating digital assets
    fulfill CFTC's purpose of promoting responsible innovation and fair
    competition in the markets?
        Mr. Davis of Washington. Because well-functioning markets allows
    innovation to thrive. When the entrepreneurs know what the rules--and I
    am talking myself out of business. I am saying not use the lawyers as
    much. When you don't have to use the lawyers as much, when you are
    spending more of your time innovative and less of your time trying to
    figure out what in the world am I allowed to do in this ecosystem, the
    innovation succeeds. And we have seen that since the passage of the
    Commodity Futures Modernization Act a quarter of a century ago. The
    differentiation and types of products that have been allowed to trade
    in CFTC markets have grown tremendously. A number of those products
    have failed, but the ones that succeeded have succeeded tremendously.
    And that is because the self-certification system and the core
    principles system creates an environment in which innovation can get to
    the top.
        Mr. Thompson. Very good. Thank you, Chairman.
        Mr. Steil. The gentleman yields back. The gentleman from Virginia,
    Mr. Vindman, is recognized.
        Mr. Vindman. Thank you, Chairman. Good morning, everyone. Like many
    of my colleagues on this Subcommittee, I am genuinely excited about the
    innovation and dynamism in your industry. Just last month, we heard
    from witnesses leveraging this technology in remarkable ways, from
    modernizing cattle trading to advancing geospatial mapping. And one
    area I am particularly interested in is the national security
    application that are meaningful and significant.
        But while the potential is substantial, the public also sees some
    elected officials misuse these tools to scam Americans and risk
    themselves and their political allies. That kind of behavior undermines
    public trust and taints an otherwise promising innovation. Even more
    troubling, it opens the door to foreign adversaries to influence senior
    U.S. officials by purchasing large volumes of coins they promote or
    create.
        As a former White House ethics lawyer that advised senior White
    House officials, I find these actions deeply troubling, as do the
    American people. The American people recognize the President's scheme
    to profit off his own support for what it is, and frankly, there is a
    concern about emoluments.
        So as each of you, and as my colleague, Mr. Lynch mentioned, the
    foundation for your industry is trust. How are you currently building
    trust in digital assets? I will start with Mr. Miller.
        Mr. Miller. I think one of the great innovations that Bitcoin did
    bring to folks is, we can talk about it being money, we can talk about
    it being ledger, whatever. It is fundamentally that it allowed
    decentralized trust across the world, right. No matter where you are,
    with very little computing power, you can agree on what the history of
    something was. You can agree that, hey, going forward this is what we
    believe. And I think being able to have that on a borderless basis, and
    create trade and interaction and communication across the world like
    that, is an incredibly powerful trust-building primitive, that we
    haven't seen before, in a way. And I think using that to allow for
    transparency and interaction is one of the most powerful things we can
    do for a global economy, going forward.
        Mr. Vindman. So on that point, I think it is important to
    distinguish between transparency, which I think is very much there, and
    then trust, which is more foundational, and goes to the question of
    whether there are conflicts of interest, or where is investment going.
        Chair Behnam, do you have any comments on how do we build trust in
    digital assets, and specifically, how do we ensure that there are no
    conflicts of interest, to the earlier question about financial
    conflicts of interest from members of the government.
        Mr. Behnam. Thanks, Congressman. Ultimately, the trust is going to
    be built with a regulatory system in place, and that trust, as I
    mentioned earlier to Mr. Lynch, around our traditional markets, exists
    because of a comprehensive regulatory system, which many registrants
    will complain about, because in part it is burdensome, it is a
    challenge. But it ultimately creates a level playing field and one
    where market participants can trust that there is a system of
    transparency, where there are no conflicts of interest, which is a core
    principle in and of itself.
        So I do believe the step that the Committee is taking towards a
    regulatory system will be a step towards building trust. And over time,
    as markets become transparent, as they become what U.S. investors are
    accustomed to, and the protections that they afforded, and ultimately
    you have the rule of law and enforcement on the back end if you do have
    bad actors, and you will have bad actors, the trust will gradually
    grow. And I do think there will be a symmetry between what we have
    experienced in this country over 100 years, with our financial markets,
    and what the potential is in digital assets, as well.
        Mr. Vindman. Thank you. I think one of the important points here is
    the fact that conflicts of interest have to be part of the regulatory
    regime, to make sure that we maintain trust. And, frankly, the trust
    that is being developed now in digital assets that have promising
    futures is not undermined by conflicts, something completely outside of
    the control, really, of the industry, and sort of prevent the growth of
    this industry.
        So with that I yield back. Thank you.
        Mr. Steil. The gentleman yields back. The gentleman from Tennessee,
    Mr. Rose, is recognized.
        Mr. Rose. Thank you, Chairman Steil, and thanks to Chairman Johnson
    for holding the roundtable today, and thank you to our witnesses. And
    please know that your participation today will prove to be very helpful
    as we go about the work of trying to figure out how to fill in the gaps
    in the regulatory framework in this space.
        I am fortunate enough to sit on both the Financial Services and the
    Agriculture Committees and have seen firsthand the level of
    coordination needed between the committees to get digital asset market
    structure legislation out the door. This partnership is telling for two
    reasons, I believe. One, it demonstrates Congress' commitment to
    providing the digital asset ecosystem regulatory and legislative
    clarity. And two, it signals the need for the regulators under each
    Committee's jurisdiction to work together, as well.
        Mr. Davis, while you were at the CFTC, was there ever a policy
    issue that required such coordination between multiple Congressional
    committees and your agency?
        Mr. Davis of Washington. I guess I am not aware of a particular
    policy, but I know that the Chairmen that I served under, Chairman
    Giancarlo and Chairman Tarbert, were actively talking with Congress and
    with their counterparts at the SEC. I know there was engagement among
    the commissioners. I know there was engagement among the Divisions of
    Enforcement and some of the other divisions.
        So again, I don't know if there was a specific policy, but I know
    there has always been an active amount of engagement between both of
    the agencies and with Congress.
        Mr. Rose. And Mr. Davis, do you agree that the SEC and CFTC must
    work together in order to adequately oversee this space? And tell us,
    if you will, maybe one or two of the key challenges with regard to such
    a partnership.
        Mr. Davis of Washington. Absolutely. That coordination is critical.
    I think as has been alluded to already, one of the complications in the
    50 year relationship between the CFTC and the SEC is sometimes not
    having a full understanding of where the line is between the
    jurisdiction of the two agencies. I have spent an inordinate amount of
    time in private practice, advising clients and litigating the SEC on
    that very question.
        And so I think where Congress can provide an enormous amount of
    benefit in this space is as precise and specific delineations as
    possible between the jurisdiction of the SEC and the CFTC. As I noted
    in my opening remarks, I think Section 202 of the draft bill is a good
    example. I think it is pretty clear when you are reading that there are
    a host of secondary market transactions between third parties, that the
    bill would place within the CFTC's jurisdiction pretty clearly.
        Those types of provisions from Congress are critical, because
    whatever Congress passes there are going to be some edge cases where
    the CFTC and the SEC either don't agree or have difficulty getting to
    agreement. And so the more precise, the more quantitative, like
    Congress has done with security futures, the more accurate wording that
    you use, the less opportunity there is for fights between the agencies
    to happen in the future. There are going to be disagreements, but
    Congress can do a great job in this bill of really narrowing the area
    of disagreement by making as clear as possible where those
    jurisdictional lines are.
        Mr. Rose. And I know we want to do that, but as I am sure you
    appreciate, the more specific we are, the greater the potential that we
    wall off the opportunities for future innovation that might be beyond
    those rules. So it is kind of a delicate balance to strike, and we
    appreciate your input.
        Many traditional financial firms have expressed interest in
    becoming involved in the digital asset ecosystem. I talk to these
    businesses on a regular basis. A key objective of any digital asset
    market structure regulation should be, in my view, to put these more
    traditional entities on an equal playing field with the crypto native
    firms.
        Mr. Davis, what is necessary, from a regulatory and legislative
    perspective, to create a level playing field for traditional as well as
    new market entrants?
        Mr. Davis of Washington. I think, again, clarity, so that smaller
    entities have an easier time entering the ecosystem. I also think the
    CFTC registration system right now for current registrants is clear
    about what you need to do and not to do, to get registered with the
    CFTC. I think applying that same type of registration principles, and
    coming up with a process that is efficient. It is important that
    registrants, that those registrations not be delayed, because delay
    impacts the ability of certain participants to weather that process and
    to be able to get registered.
        So it is important to have an efficient process where any type of
    registrant who can satisfy the core principles is allowed a
    registration.
        Mr. Rose. Thank you, and thanks to all of our witnesses, and I
    yield back, Mr. Chairman.
        Mr. Steil. The gentleman yields back. The gentleman from
    California, Mr. Liccardo, is recognized.
        Mr. Liccardo. Thank you, Mr. Chair. Thank you to all the witnesses
    for sharing your insights. I appreciate learning here.
        I do join in the frustration expressed by the Ranking Member. We
    can't ignore the elephant in the room. There is an emoluments clause in
    the Constitution for a reason. There have been anti-bribery statutes
    for decades for a reason. And since apparently we need more, I
    introduced, a couple of months ago, the Modern Emoluments and
    Malfeasance Enforcement Act, which is H.R. 1712, and I encourage my
    colleagues to join as cosponsors and join the couple dozen folks who
    have already joined in, because apparently we need a law to tell the
    President and other Federal officials that they cannot get engaged in
    issuing digital assets or commodities or securities or anything else
    that, of course, would have been obvious to us before any of us ran for
    office.
        I would like to get to the gist here, because I think there is some
    really important testimony. We obviously just saw yesterday, for the
    first time, a draft of very important legislation that I know we will
    be considering in a matter of days for markup. And I guess, Chair
    Behnam, have you had a chance to review the draft? I know it is quite
    lengthy.
        Mr. Behnam. Yes, Congressman, thanks for the question. I think I
    received it about 3 or 4 o'clock yesterday. So I did review it section
    by section, and I went through a little bit of the text. So I have a
    general idea but there is more work to be done.
        Mr. Liccardo. I won't hold you to the detail, but you mentioned six
    recommendations, in particular, in your testimony. I appreciate that--
    the anti-money laundering, the KYC, the customer ID program. Based on
    your review, do you believe that this draft addresses some of those
    core concerns?
        Mr. Behnam. Short answer is yes because giving the authority to the
    CFTC to register some of the intermediaries in the digital asset space
    in a traditional way, that are based off of the core principles of the
    Commodity Exchange Act would mandate and permit also the CFTC to create
    a regulatory structure that does all that I have said and that you
    repeated, around AML, KYC, CIP, cyber, conflicts of interest, and other
    very important core principles.
        Mr. Liccardo. Are there any shortcomings or gaps that you believe
    need to be addressed?
        Mr. Behnam. At my first reading, in terms of the core principles
    and how they would apply to the digital assets, there are no major
    gaps. There are some other issues that I probably identified that I
    think are worth a conversation. But with respect to your specific
    question, nothing glaringly stood out at me as I reviewed it last
    night.
        Mr. Liccardo. Then with regard to the other five recommendations,
    was there one or two that stick out that you think we need to be
    attending to as we are considering a markup of this draft?
        Mr. Behnam. Well, ultimately the thing that concerns me is, and I
    mentioned this in my written testimony and oral testimony, as well, we
    have these two market regulators, and they have historically functioned
    quite well together over many, many decades. It is not an ideal
    situation, I understand, for registrants who play in both markets. I
    suggested that you have dual registration in many circumstances, in
    traditional securities markets and derivatives markets.
        I don't think, as much as there will be people who oppose this
    path, I don't think it is one that we want to stray from. There will be
    circumstances where participants in the digital security space and the
    digital commodity space should be dually registered. If you don't go
    down that road--and the exact words I used is if you have a model where
    there a deferral or a notice filing to another agency--you create gaps,
    and the market will then start to observe and identify these gaps and
    exploit those gaps.
        So it might be hard to imagine what those circumstances are
    precisely, today, but given my experience I have no doubt that if there
    are situations where there is not comprehensive, exclusive licensing
    authority for each agency in their distinct jurisdiction, you may be
    creating unintended risks that will ultimately come back to hurt us.
        Mr. Liccardo. Mr. Tusar, as you think about Coinbase's many
    customers, do you share concerns of Chair Behnam about the possibility
    of those gaps existing in ways that could harm investors?
        Mr. Tusar. We do worry about gaps, yes, and thank you for the
    question, Congressman. In addition, however, I would say we also worry
    about the fact that digital assets are unique in that unlike futures
    and equities, users may not distinguish between what is a digital asset
    commodity and what is a digital asset security, and the various forms
    of token classification that the bill lays out very successfully.
        And, therefore, from the end-user's perspective, we think it is
    important that these two regimes are as harmonized as possible so that
    the same sorts of protections are afford, because that will be sort of
    the expectation of those that are using digital assets. So to the
    greatest degree possible, while respecting the unique lanes that each
    agency lives in, to the degree that the mechanics of how trading and
    custody and those sorts of things can be harmonized, I think that will
    be critically important for the bill.
        Mr. Liccardo. Thank you, gentlemen. I yield.
        Mr. Steil. The gentleman yields back. The Chairman of the Financial
    Services Committee, the gentleman from Arkansas, Chairman Hill, is
    recognized.
        Mr. Hill. Well, thank you, Chairman Steil, and thank you again for
    your joint leadership of this effort. Under the Biden-Harris
    Administration the SEC used a whole, wide range of interchangingly and
    interchangeably terms for digital assets, confusingly interchangeably
    terms, that were arguably, but most of them were themselves not
    securities, creating a lot of legal uncertainty. I mean, it just went
    around and around. I felt like for 4 years we went around in circles on
    that. And the lack of clarity made it practically impossible for any
    market participant to come in and register under the rules at the SEC.
    It was confusing to Congress. It was confusing to law firms. It made a
    lot of money for law firms, I assume, here in Washington, D.C.
        So in light of all that confusion, market participants developed
    processes to analyze and classify assets under their own rulemaking. So
    Mr. Tusar, you certainly are one of those that, at Coinbase, you all
    created your own listing standards. Could you explain how you navigated
    that as a public company and a registered firm? How did you navigate
    that listing process?
        Mr. Tusar. Yes, thank you for the question, Mr. Hill. Coinbase has,
    today, a very rigorous listing standard that looks at a variety of
    qualitative and quantitative factors. We have listed approximately 300
    assets for trading on our centralized exchange out of the thousands and
    thousands that we evaluate, so we have about a 90 percent rejection
    rate.
        The sorts of factors that we look at are, is it secure? Is the
    underlying blockchain on which this is built secure? How does the asset
    fare under our interpretation of the Howey rubric? Is there an active
    development community? So there is a whole host of factors that we look
    at. And after that, we look at is this an asset that customers want and
    are asking us for, and subject to those things we will go ahead and
    list it.
        But we have this standard in place that we have developed over a
    number of years, and we feel very good and strongly about.
        Mr. Hill. How would you feel about nothing having uniform listing
    standards that you would find in a regulatory framework approach? Does
    that hurt the ecosystem's development? Has it driven business offshore?
    You may be doing a good job of it, but has it been confusing and not
    productive for other people who are trying to perform an exchange type
    function?
        Mr. Tusar. Thank you for the question. I think one of the most
    important elements of this bill is providing that clarity. Out of all
    of the things in the bill, the token classification is probably the
    single most important element, because that is precisely, to your
    point, what will decide whether somebody feels comfortable and safe
    doing their project and development here in the U.S. or will move it
    overseas. So I think it is critically, critically important.
        Mr. Hill. Would you say for global leadership in the U.S. where on
    a bicameral, bipartisan basis, that it important that we craft a
    regulatory framework and have a dollar-backed stablecoin regime in the
    U.S.? Do you think both are important?
        Mr. Tusar. Both are critically important.
        Mr. Hill. Which one is more important, in your view, big picture-
    wise, for the ecosystem?
        Mr. Tusar. Oh, that is a good question, Chairman.
        Mr. Hill. You don't want to be pinned down?
        Mr. Tusar. I think they are both equally important.
        Mr. Hill. Okay. I will take that as a good answer.
        Mr. Rathmell, you have done so much work in the early emerging
    stage in the digital asset space. How important is it to have a
    regulatory framework so that you know what the governance token sales
    and blockchain system rules are to you for all your emerging companies?
    I can't imagine they even know how to undertake their projects. How do
    you know what to invest in without a framework?
        Mr. Rathmell. Thank you, Chairman. You are exactly right. This is
    one of the great challenges we have run into in this space. I have
    advised companies for the better part of a decade in this space, and I
    have never seen so many seed-stage founders who are so curious about
    the current state of policy and legislation, and they probably all
    could take the California bar if they wanted to. It is quite
    impressive.
        But it is also distracting. It is incredibly distracting from
    founders who want to build the future of capital markets, the future of
    digital infrastructure, the future of financial infrastructure here in
    America, that they have to become armchair lawyers and pay, again,
    millions of dollars in legal fees to try to make sense of the current
    law, which is inherently unclear.
        Mr. Hill. I appreciate the whole panel. Chairman Behnam, it is so
    good to see you, and thank you for your leadership on the Commission
    and for your continued advice and counsel to our Members on both sides
    of the Capitol.
        And with that, Mr. Chairman, I yield back.
        Mr. Steil. The Chairman yields back. The gentlewoman from Maryland,
    Representative McClain Delaney, is recognized.
        Mrs. McClain Delaney. Thank you, Mr. Chairman, and thank you to our
    witnesses again for being here today. I found each of your testimonies
    really illuminating, and I really look forward to working more on this
    issue.
        As was discussed, we are in the middle of a digital revolution
    where assets no longer need to be physical to have value. And this
    presents great opportunity and serious risks, especially with the
    anonymity of digital assets being exploited for potential illegal
    activities. Fraud, volatility, scams, money laundering are all threats
    that an unregulated and unchecked system allow to thrive. And without
    oversight we invite chaos in our financial systems and in harm's way.
        I am deeply supportive, however, because I sit on the Ag Committee,
    of the innovation that digital assets can offer in so many different
    fields. But I do have real concerns, and in particular, about the deep
    concerns about actors that are drawn to markets that lack a fundamental
    regulatory framework. And a lot can happen on the Dark Web, including
    human trafficking and money laundering and other illicit activities,
    and that is why I think it is so important that we have smart, nimble,
    market-driven innovation regulations, not to stifle innovation but to
    shape it, but to weed out bad actors, protect consumers, and ensure
    transparency and stability.
        So I have so many questions to focus on, but I am going to start
    with this first one about maybe some illicit financing. Yesterday, the
    Financial Services Committee and Ag Committee released this draft bill
    to establish a regulatory framework, and for both Mr. Behnam and Mr.
    Miller, could you share any preliminary thoughts you had on what this
    bill does right and how we can make sure it relates to anti-money
    laundering and where it can be strengthened? And just how prevalent are
    risky digital asset exchanges, such as those that lack know-your-
    customer, CYC rules, or are connected to the Dark Web? And are there
    any lessons from the EU's MiCA regulatory regime?
        Mr. Miller. Sure. So I will agree with what Mr. Davis and Behnam
    both said in that giving clear authority for overall trading to the
    CFTC, I think it is a huge advancement here. As we have said,
    regulatory unclarity or ambiguity gives gaps that bad actors can
    exploit and makes it harder for those who are trying to enforce the
    laws to actually get in and do that.
        So I think the fundamental structure offered here of we are clearly
    making these as digital commodities, and if you are very early on and
    need to pre-sale some of those in order to raise the funds to build the
    network, that becomes under the SEC authority. I think that general
    concept, we just got the bill so still working through some of the
    details there, but I think that fundamental structure is very good and
    allows kind of the expertise when it comes to exactly preventing bad
    actors from exploiting the system, the same way that they do every
    other monetary system that exists, right, like people, like bad actors
    especially like money. They are going to try and take advantage of
    anything that is there.
        So I think by creating the really clear structure that is being
    proposed and that we are talking about today is the number one thing
    that we can do to----
        Mrs. McClain Delaney. To weed out bad actors.
        Mr. Miller.--to weed out bad actors.
        Mr. Behnam. Thanks, Congresswoman. I will point out one specific
    thing because I suggested this earlier, to an earlier question. Within
    the core principles, a lot of the issues you raise, which are
    critically important, will be addressed, just by default of what the
    core principles require.
        But from a CFTC perspective, relative to other agencies within the
    U.S. Government, AML is a key one that I think would have to be more
    prescriptively outlined in the legislative text. Again, I haven't had a
    full chance to read through it so it may, in fact, be there. But there
    was always a delta between the U.S., CFTC, and the Treasury Department
    within FinCEN and the authority that they have around anti-money
    laundering.
        Know-your-customer is a very key component, certainly at the
    Federal level but also, Mr. Tusar mentioned, the state-level
    requirements that many of the intermediaries have to follow. There are
    so many requirements along the state lines. But I say within the
    Federal regime, AML is a key component, where it can be strengthened
    within the market regulator requirements.
        Mrs. McClain Delaney. That is great. I am going to reference
    something that Congressman Rose said earlier about consumer protections
    and a level playing field. Creating safe harbors or special exemptions
    for digital assets risk is great, but we could disadvantage players
    like community banks that do a lot of financing for farmers. In this
    new legislation discussion draft on digital asset market structure, how
    can we make sure that there is an even playing field, and again, are
    there any lessons learned from the EU's structure. I am diving deep,
    and I still haven't looked at all 212 pages yet, so I am trying to
    figure out from you all how you all are seeing in terms of this other
    competitors and making sure that there is an even playing field.
        Mr. Behnam. Congressman, very briefly I would say in terms of your
    first question and level playing field----
        Mr. Steil. Cognizant of the time, I would ask maybe you would just
    offer the reply in writing to the gentlewoman's question. We will
    reclaim the time. We just want to make sure we get through all of our
    questions here today.
        We will now recognize the gentleman that we see in stereo, both in
    the portrait on the wall and here in the flesh, Mr. Lucas, from
    Oklahoma.
        Mr. Lucas. That is a lovely face on the wall, isn't it, Mr.
    Chairman? Thank you.
        [Laughter.]
        Mr. Lucas. I want to start with my good friend, Mr. Behnam. Would
    the bill we are considering today appropriately account for the risk
    management strategies of digital assets covered by both the regulators,
    and along that line, how should we think about cross-margining for
    transactions under the CFTC and the SEC?
        Mr. Behnam. Thanks, Congressman, and I did mention this in my
    written testimony as a benefit of cross-agency collaboration, where I
    think the initial reaction is always burdensome, duplicative regulation
    by multiple agencies is a challenge. I think it is important to be
    comprehensive, as I alluded earlier to Mr. Liccardo, and I think in
    balance we should lean towards comprehensive regulation to avoid those
    risks, which can cause unintended consequences.
        That said, to your question, there are mechanisms within the two
    agencies, like portfolio margining, like other netting mechanisms, that
    would enable market participants to manage their balance sheets and
    their capital requirements if they have exposure to products that do
    have symmetries along risk lines.
        Mr. Lucas. Continuing with you, Mr. Behnam, on a related topic that
    is near and dear to my heart, sitting on both the Financial Services
    and the Ag Committee, should we apply this same logic to the clearing
    of U.S. Treasuries and their derivatives? We have discussed this
    before, but it is worth repeating. How can we incentivize clearing and
    making it a more friendly, regulatory environment, particularly for
    clearing of our most critical asset class?
        Mr. Behnam. Thanks, Congressman, and you and I have probably had
    this discussion in the past, and as the clearing mandate begins to roll
    out over the next 12 to 24 months, if not sooner, clearing is a healthy
    component of market infrastructure. We learned that after the financial
    crisis in 2008, and I think that is a reason the SEC made steps in the
    Biden Administration to mandate clearing. But we do have to incentivize
    it and make sure that folks want to be in that market. We have seen
    high periods of volatility in the Treasury market over the past few
    years because of COVID and some other sort of mini-flash crashes, and
    we want as many people in there as possible. Capital restraints are one
    of the biggest barriers to entry into the Treasury market, and I do
    think what you suggested, different mechanisms to allow netting across
    different products, whether it is cash in futures or otherwise, will
    create incentives, but also if well thought out, will also be protected
    by smart regulation and not create unintended consequences.
        Mr. Lucas. Turning with my remaining time to Mr. Davis, in my view
    the draft we are considering today is a good start to creating a simple
    regulatory framework for digital asset markets. However, even the most
    simple framework must include clear revenues for market participants to
    get technical assistance and feedback. And that is why my bill, the
    Securing Innovation in Financial Regulation Act codifies LabCFTC and
    the SEC's FinHub. Both of these offices make the Commissions more
    accessible to market participants and foster fintech innovation.
        Mr. Davis, can you speak to the benefits for market participants of
    having a responsive and accountable regulator?
        Mr. Davis of Washington. Yes, greatly beneficial. LabCFTC is near
    and dear to my heart. When Chairman Giancarlo created LabCFTC he had it
    report to me as the general counsel, which was a great benefit to me
    and I think to the agency. It was eventually moved to report to the
    Chairman, and then Chairman Behnam made it the Office of Technology
    Innovation, I believe. So it has been a great progress across
    Administrations.
        So I am a big advocate of having a portion of the agency being
    focused on innovation and focused on engaging with the public. During
    my tenure at the CFTC, LabCFTC met with hundreds of people who were
    interested in CFTC space. They were interested in fintech. They were
    interested in digital assets. And LabCFTC didn't give advice per se,
    but was able to give information, to give some ideas about where
    entrepreneurs and other interested parties could go to help navigate
    the regulatory structure that we have here.
        And again, that internal entity was able to advise the agency about
    what it was seeing out in the market. It was really an attempt to help
    the agency have its finger on the pulse of what was going on with the
    public.
        So I think that type of outreach, that type of activity is critical
    for any agency.
        Mr. Lucas. Seems like my bill might be on the right track. With
    that, Mr. Chairman, I yield back.
        Mr. Steil. The gentleman yields back. The gentleman from Alabama,
    Mr. Figures, is recognized for 5 minutes.
        Mr. Figures. Thank you, Mr. Chair, and thank you to the witnesses
    for your time here today.
        Look, I think it would be remiss not to, as we are seeking out
    answers and a pathway forward on further legitimizing this very
    innovative industry, I think it would be remiss not to mention the
    impact that the President's own action in this space is having on these
    efforts, when this would be something that we can come to agreement on.
    But when we see the decay, the erosion of ethical standards and norms
    of just acceptable conduct from government officials using their
    position for personal gain, that is dangerous. It is dangerous and it
    is not helpful to what we are seeking to do in this industry. I mean,
    can you imagine an environment where President Obama said, ``I am only
    meeting with people who buy my cryptocurrency''? Or President Biden.
    Can you imagine what the reaction would have been? It certainly
    wouldn't be silence. It certainly wouldn't be saying, ``Oh, that is
    okay.'' We cannot continue to go down this road, certainly not at a
    time where we are on the precipice of doing something that is much
    needed.
        Mr. Tusar, I want to start with you. In the absence of an
    environment where we have had clear regulation, can you talk to me a
    little bit about the steps that Coinbase has taken? Because I can
    remember a world where Coinbase was at the frontier of essentially
    begging for regulation in this space, and you guys have gone above and
    beyond in terms of trying to enhance public confidence and trust and
    guard against scams and fraud. Can you talk a little bit about the
    efforts that Coinbase has engaged in over the past several years in
    this space?
        Mr. Tusar. Thank you for the question, Congressman. Coinbase, as
    you say, has been leaning into trust and compliance from its outset and
    using that to differentiate ourselves in a space that sometimes has
    been challenged in that regard. And that has taken a few different
    forms.
        Number one, as I mentioned today, we are a money services business
    under FinCEN. We apply the same KYC and AML standards that banks do
    today. We are registered in any place that we can. Today we operate a
    designated contract market with the CFTC. We are registered as a
    registered investment advisor with the SEC. So we have really leaned
    into, wherever possible, registering under the appropriate authorities.
        And I think, most importantly, have been advocating, through policy
    efforts and others, for Federal-level regulation, precisely what this
    bill aims to accomplish. And I think we are quite excited about the
    potential for this bill to pass and move forward with Federal-level
    regulation.
        Mr. Figures. Thank you. I look forward to continuing to work with
    you guys.
        One of the benefits of cryptocurrency has often been financial
    freedom, access to financial resources, particularly for marginalized
    communities. It is something that we consistently hear about and
    consistently hope that we can further that goal.
        Can you guys talk to me about how a more clearly define coordinated
    regulatory framework gets us closer to that end, and making sure that
    we are expanding access of financial resources and tools to communities
    that don't typically have them or communities that typically face
    significant barriers in accessing it, and making sure that this is not
    just an industry that benefits Wall Street but also hits the everyday
    person in terms of accessing its full potential.
        And we can start, left to right.
        Mr. Rathmell. Thank you, Congressman. It is a great question.
    Financial inclusion is absolutely part and parcel of the promise that
    the digital asset industry has promised to bring. It has already had
    great success on that front.
        I think, most crucially, in looking at the draft legislation today,
    is ensuring that we bake in some of the core promises of digital assets
    as a technology. So disintermediation between consumers, kind of free
    and fair access to open-source software, transparency, auditability,
    accountability. That is really how we are going to realize the promise
    of financial inclusion that this technology can bring.
        Mr. Figures. Mr. Miller?
        Mr. Miller. Yes. The current gap in regulation and clarity has kept
    a lot of players out of the space, folks who do have existing
    relationships with members of the communities that you are talking
    about, where if they were able to leverage those relationships they
    would let those members of those communities and the underserved
    communities get access to these.
        So I think by creating clear structure for them, by creating a
    clear set of rules, we are going to bring in a lot more players to the
    space, which obviously gives consumers a lot more choices to work with,
    as well.
        Mr. Figures. Thank you. I yield back, Mr. Chair.
        Mr. Steil. The gentleman yields back. The gentleman from Ohio, Mr.
    Davidson, is recognized.
        Mr. Davidson. Thank you, Mr. Steil. Thank you, Chairmen. I thank
    our colleagues for sticking around and making the most of this
    gathering. It is a shame it is not a hearing, and I hope we don't lose
    the momentum that we need to finally get something done in this space.
        I have been working since I got to Congress in 2016, to provide
    some form of legal clarity. We thought we had momentum in 2018 on the
    Token Taxonomy Act, to just define really one of the most fundamental
    questions, a bright-line test for what is and what is not a security.
    It is crazy that we don't yet have that. I mean, you think of a sport.
    Usually that is one of the first things that you do is you define,
    well, what counts as a score? You get it across the end line, you get
    it across the goal, through the net, who finishes the race first--and
    that is part of why people love it. You know for sure. Even with that
    there is debate every now and then. Some umpires miss balls and strikes
    from time to time. But we have added technology to make it so it is
    almost impossible, whereas a viewer, watching it on TV, you don't know
    whether it was a ball or a strike, and batters have homed in on that in
    baseball.
        But a lot of this space is more like modern art or interpretive
    dance, where it is all in the eye of the beholder. You guys have all
    developed your own tests and been able to operate in the market, to
    some extent, in the context where you have dealt with this uncertainty,
    and frankly, at great risk to you and your investors.
        So Mr. Tusar, as you have all kind of highlighted, getting this
    bright-line test is vital. Do you think all five of you, given the text
    that we currently have before us, would apply that test and get the
    same answer?
        Mr. Tusar. That is an excellent question. Thank you, Congressman.
    The token taxonomy and classification in the bill is not really my area
    of expertise. My hope would certainly be yes, and my sense is this is a
    significant step forward from what existed before.
        Mr. Davidson. Thank you. Mr. Davis, do you feel, having read the
    text, that everyone would get the same answer?
        Mr. Davis of Washington. I think we would be close. I think we
    would be close.
        Mr. Davidson. Hopefully, we want 5 and 0. I mean we certainly don't
    even really like the idea, with a sample size of only 5, that there
    would be a 20 percent risk of missing. So we would love to see it be 5-
    0, and I hope we continue to refine it so we are positive everyone is
    going to look at the same thing and get the same answer.
        So I think that is the kind of clarity the market needs. That is
    what is going to attract capital investment in this space. And I think
    a lot of people really just moved on and said, ``Yes, I'm not going to
    risk all my stack over this.'' And certainly when you look, Mr.
    Rathmell, Andreessen Horowitz has done that to some extent, and looked
    at other sectors, and made comments about it.
        I think one of the other things that has held a lot of interest is
    self-custody. I mean, if you really just change who the account-based
    relationships are, you really haven't radically changed the market. The
    tech is kind of interesting. But the space isn't even really
    interesting without self-custody. And I think about self-custody in
    relation to the Second Amendment. I mean, the Second Amendment widely
    known, whether people like it or hate it, it says the right to keep and
    bear arms shall not be infringed. But think if it said the right to
    keep and bear arms shall not be prohibited. Think of all the layers
    that could be put onto that.
        So when we think about the text here today, before us, it says,
    ``The head of a Federal agency may not prohibit,'' whereas my Keep Your
    Coins Act, that I have introduced, says, ``The head of a Federal agency
    may not prohibit, restrict, or otherwise impair.'' It doesn't say
    ``infringe,'' but it is essentially ``impair.'' You can't limit it. So
    one word, ``prohibit'' versus ``impair,'' you think about the
    difference there.
        Mr. Miller, could you highlight what is at risk with the inclusion
    or exclusion of one word?
        Mr. Miller. Absolutely, and it is not just the Second Amendment. It
    is the First Amendment. It is the Fourth Amendment. ``Prohibit'' is a
    much less protective term than ``impair,'' ``infringe,'' ``abridge,''
    any of those.
        And I think the entire point of what we are talking about with this
    industry is decentralization, and without the ability for people to run
    their own software, to self-possess their own assets, in their own
    wallets, on their computers, we lose a lot of that decentralization. As
    you said, you are just moving to a different centralized authority.
        And so to me, yes, it is absolutely critically important that we
    preserve the right and access to self-custody, and the protections for
    developers who build those self-custodial laws. If you are not actually
    holding on and possessing the private keys for someone, then no, you
    aren't controlling that.
        Mr. Davidson. Right, and you shouldn't be regulated as a custodian.
    So those are important distinctions. I wish I had about a half hour of
    your time, personally, but thank you for what you do, and may God bless
    you all with great success, and I yield back.
        Mr. Steil. The gentleman yields back. We will go from the state of
    Ohio to the state of Indiana. Mr. Messmer is recognized for 5 minutes.
        Mr. Messmer. Thank you, Chairman. The digital asset ecosystem in
    America is operating under a reign of terror, as I think each one of
    your testimonies have pointed out. It is ironic because the heavy blank
    of regulations, litigation that are meant to protect consumers is
    suffocating the very innovation that can improve safety.
        Mr. Tusar, can we agree that the enforcement-first approach to
    regulating digital assets has, on aggregate, been harmful to the
    digital asset industry in America?
        Mr. Tusar. Thank you for the question, Congressman. A hundred
    percent yes, and it has also harmed competitiveness of America on the
    global stage.
        Mr. Messmer. Okay. Thank you. And Mr. Tusar, also, you drew the
    conclusion that industry is incentivized to set up shop outside the
    American borders due to the current disjointed regulatory framework.
    What safety risks does this present for American consumers?
        Mr. Tusar. Thank you for the question, Congressman. In the end,
    consumers want and should be afforded the same protections as they get
    today when they hold futures or equities or these sorts of things, and
    bringing it to a Federal-level regime would afford those protections,
    where today those don't exist. And it is critically important.
        Mr. Messmer. Thank you, and I agree. Americans are always safer
    when regulations are built in D.C., not in the EU or Singapore or
    anywhere else.
        As a principles-based regulator, the CFTC offers flexibility and
    outcome-driven compliance. The SEC, on the other hand, is a rules-based
    agency emphasizing prescriptive compliance frameworks. This contributes
    to the regulatory tension in emerging markets like digital assets,
    where we are still fighting to figure out what is the best regulatory
    approach. Clear guidelines are, without a doubt, necessary, but we have
    to thread the needle. They can't be so prescriptive that they become
    obsolete as technology evolves.
        Mr. Davis and Mr. Rathmell, I know it has been asked, but it is
    important enough to ask again. In your view, is either the SEC or CFTC
    approach a better fit for regulating digital assets?
        Mr. Davis of Washington. As I noted in my comments, I think for the
    secondary market transactions and for a lot of the commodity market
    activity that is happening right now, the CFTC is the natural
    regulator. They already have a lot of experience in the area, and core
    principles is very consistent with the growth of the digital asset
    market. I do agree that there are some circumstances initially in the
    development of certain coins that you may want to do a capital-raising
    activity. That type of activity is more within the purview of the SEC.
        Mr. Messmer. Thank you. Are there specific needs for prescriptive
    rules, and if so, how can Congress best future-proof those?
        Mr. Davis of Washington. Yes, I mean, I think Chairman Behnam
    talked a little bit about this with like anti-money laundering, for
    example. AML/KYC is an important aspect of any regulatory ecosystem, so
    that might be an area where you might want to give a little bit more
    specifics about how to proceed.
        But I think a number of things, like reporting and cybersecurity
    and operational resilience are the types of things where we need to
    have a productive discussion with the industry about what the
    technology is and what the technology can do. And only through that
    mutually beneficial relationship can both the regulator of the industry
    determine the best courses to meet the goals that a core principle
    regime has.
        So I would err on the side of flexibility at the beginning, and
    then the regulators have the opportunity, under core principles, to
    make more prescriptive rules, if circumstances require.
        Mr. Messmer. As needed. Thank you. Mr. Tusar, Mr. Davis, earlier
    Chairman Johnson got each of you on record as saying the lack of a
    regulatory framework is a threat to consumers. Can you give specific
    examples of a risk consumers will face if the flaws in the current
    regulatory structure aren't resolved?
        Mr. Tusar. Thank you for the question, Congressman. I think we have
    referenced consumer asset protection, for example, the sorts of regimes
    both on the CFTC and the SEC side, that clearly delineate the assets
    that belong to the customer and the assets that belong to the entity,
    in the event of insolvency or bankruptcy. Those kinds of protections
    are critically important to engendering the trust that we have talked
    about quite a bit in this hearing, and ultimately to protecting
    consumers in the face of issues. And that is critically important.
        Mr. Messmer. Thank you. Mr. Davis, anything to add?
        Mr. Davis of Washington. I don't have much to add. It is a part of
    both the SEC and the CFTC regimes for vibrant customer protections.
    They take slightly different forms, depending on the nature of the
    market. But, for example, giving the CFTC authority over the spot
    market will extend those customer protections to customers who want to
    buy Bitcoin and Ether and those other digital assets.
        Mr. Messmer. Thank you. I yield back my time.
        Mr. Steil. The gentleman yields back. The gentleman from Florida,
    Mr. Haridopolos, is recognized.
        Mr. Haridopolos. Thank you, Mr. Chairman. I appreciate everyone
    coming in today and once again highlighting the fact that we lost 4
    years of reality, and the capital markets have gone elsewhere because
    of this uncertainty. And it is frustrating as we go through meeting
    after meeting, hearing the horror stories of the last 4 years, where so
    many folks want to do business here in the United States and basically
    are turned away or led the wrong way by the previous Administration.
    And I very much love the fact that the Ag Committee and, of course, our
    Financial Services Committee is working in tandem here to get this
    done, in the place of playing some politics, which always happens in
    this building too often.
        That said, it would help me if we could just kind of go down the
    list, and I apologize, I have been kind of in and out of meetings
    today. Could you walk me through, maybe in just a brief way, starting
    with you, James, when you were negotiating or talking with the SEC
    prior, trying to figure out this regulation, walk me through how much
    time you spent with each of the folks at the SEC and what they are
    telling you along the way, and then what the end result was. So if we
    can just kind of walk down that, that would be great.
        Mr. Rathmell. Yes, so the history of the industry's engagement with
    the SEC is how many years, the better part of a decade. And so I think
    it has changed and evolved over time, under various Administrations. I
    can say that the challenge that we have consistently run into is
    recognizing the need that the existing rules are not a perfect fit for
    the industry and for the flourishing of this industry in the United
    States, and inaction, unfortunately, meeting over meeting, consistent
    inaction to actually move the ball forward.
        Mr. Haridopolos. Mr. Miller?
        Mr. Miller. I think one of the big challenges is the SEC is built
    to deal with much larger, more established companies than the startups
    who are working here. So as an example, when you are a company of our
    size, you don't talk to the SEC. Your expensive lawyers talk to the
    SEC, right. They don't answer questions, really. They ask you
    questions. You have to try and interpret them. So it just means that
    every interaction you have, and there are, obviously, some very good
    people at the SEC, who try and work with folks. But it just means that
    everything is weeks and weeks of turn, tens of thousands of dollars for
    a single question when it comes up, if not more, and it comes back to
    why we are asking for purpose-fit, clear regulation, instructions for
    these folks. They have made attempts such as with FinHub to do this.
    But the more we can move to that, so that the cost of engaging in this
    kind of process approaches that of a Reg D exemption, where you are
    spending $100,000 to do a deal instead of what we experience with a Reg
    A, where you are spending millions to do a deal, like that is what it
    is going to take to bring back the certainty and predictability that
    entrepreneurs need to start their companies here.
        Mr. Haridopolos. Thank you.
        Mr. Davis of Washington. Most of my interactions with the SEC over
    the past 4 years have been on the enforcement side in defending crypto
    companies who either approached the SEC about trying to figure out
    something or were met with a subpoena by the SEC. My clients have been
    spending a lot of money on their litigation costs as opposed to kind of
    developing regulatory solutions to the types of puzzles that we have in
    this space.
        Mr. Haridopolos. Thank you. Mr. Tusar?
        Mr. Tusar. Thank you for the question. Our experience has been one
    of attempting to come in and register, really only to find that there
    was not a path, and that was years of attempting to find such a path
    and then pursuing the litigation that we had. I will say that that has
    changed quite a bit now, and there is more engagement, which we are
    very grateful for. And I think that engagement from the agency, as we
    have also seen from the CFTC for quite some time, is critical to
    finding the right rules of the road and providing the clarity that is
    needed.
        Mr. Haridopolos. Thank you.
        Mr. Behnam. Not sure I am fit to answer this question perfectly,
    but I will say, Congressman, in response, this is a growing industry
    and there are a lot of novel legal questions and policy questions and
    risk questions. So as much as the past may have not been ideal, I think
    it is encouraging the direction of travel for the committees and
    Congress, and I think providing this clarity is obviously critical for
    folks sitting at this table. But as I have said many times, my focus is
    always customer protections and market resilience, and I think that
    should be the priority of the Committee, as well.
        Mr. Haridopolos. I appreciate it. And one last thing, Mr. Chairman.
    We had a wonderful meeting last week with the CFTC and the SEC, and
    some Members of the Financial Services Committee have expressed
    concerns that only the SEC can handle this new issue. I happen to think
    that the CFTC has the capability, given the work that they have done,
    of course, in the commodities and handling billions of dollars.
        Are there any reservations any one of you five have about the
    capabilities at the CFTC to handle this type of issue.
        Mr. Davis of Washington. None.
        Mr. Miller. No.
        Mr. Tusar. No.
        Mr. Behnam. Congressman, I am going to add a little bit. I know we
    are out of time, but this is an important point, and I did submit it in
    my written testimony so I would encourage you, if you have time, to
    read it. It is more than just a question about resources and size.
        Mr. Haridopolos. I agree.
        Mr. Behnam. I talked about this in terms of when there is a
    Congressional mandate, appropriators appropriate money that is
    commensurate with the mandate. So if Congress does pass a law and the
    President signs it, the expectation should be that there will be
    additional funds.
        Mr. Steil. The gentleman's time has expired. You can offer more in
    written testimony.
        Mr. Haridopolos. Thank you. I appreciate the indulgence.
        Mr. Steil. The gentleman yields back. The gentleman from Iowa, Mr.
    Nunn, is recognized.
        Mr. Nunn. Well, thank you, Mr. Chair, and I want to say thank you
    to the bipartisan nature of this conversation. This is bigger than any
    one party. This is going to be the future of where our nation is going
    forward together. So thank you for leading the charge and making sure
    that these conversations happen.
        One of the biggest challenges in the digital asset space, as we all
    know, is the overlapping claims of authority between both the
    Securities and Exchange Commission and CFTC. Being a guy from Iowa, we
    know CFTC very well. As a Member of both the Financial Services and the
    Ag Committee, I think that we saw conflicts occur firsthand when the
    SEC, under its previous leadership, attempted to take control of nearly
    all digital assets and effectively sideline the CFTC. That is now how
    this is designed, and it should not be how it is going forward.
        So I would like to consider an analogy. My kids got a chocolate
    coin for Easter, and in this, on its own function, it can also be like
    a commodity with a wrapper around it. Similar to corn or soybean on how
    it happens, it can then be traded, when it has this wrapper around it,
    like a security.
        When first offered through an ICO, a funding mechanism as it is, it
    is wrapped in a structure that resembles a security offering. The
    underlying Ether, in this case, was still chocolate, but because of the
    wrapper, Ether was part of the securities transaction at the time, in
    this case the gold foil.
        This wrapper now has come off for Ether, and it is traded and
    functions like a commodity. And I would like to offer this discussion,
    Mr. Chair, that blockchain projects need the option to raise capital
    and grow, but the current landscape is still too complex, and prior
    Administrations actually only added to the confusion, making the
    ability for this gold coin never to have come into existence if it had
    been left.
        Look, Mr. Tusar, you have been the Vice President, you are
    currently the Vice President of Coinbase. What are some of the key
    characteristics that distinguish the digital asset functioning as a
    commodity versus one that would function as a security?
        Mr. Tusar. Thank you for the question, Congressman. I will say that
    not being a lawyer and not really going deep on sort of the exact
    interpretation of Howey, it is not my area of expertise, but my hope is
    that this bill makes clear the distinction between those so that we can
    choose the appropriate regime and regulatory authority to apply.
        Mr. Nunn. And would you agree that legislation would help with
    that, coming out of this Committee?
        Mr. Tusar. Yes, Congressman.
        Mr. Nunn. Absolutely. Chairman Behnam, we have had conversations
    before. I appreciate your service again on both sides of the aisle
    here. But your leadership at CFTC really helped establish this in a
    lasting opportunity for us. Last Congress, we publicly discussed how
    Ether was either a commodity or wasn't. Do you still believe CFTC is
    the right regulator to take Ether, after it is wrapped, back in the
    community space?
        Mr. Behnam. Congressman, thanks for the question, and the short
    answer to that question is yes. We had discussions about some of the
    components of Howey and the decentralized nature of Ether and other
    tokens, and ultimately that is where the line needs to be drawn. It is
    not a perfect analysis, certainly with a 100 year old test, but I do
    think, as I said in my written testimony, it is a pretty durable
    precedent that we should base the analysis on, and I do think the draft
    bill does that, as well.
        Mr. Nunn. I would agree with you. Mr. Rathmell, you have identified
    here that the lack of clear Federal framework has driven developers to
    avoid launching new tokens out of fear that they will be retroactively
    labeled securities by the SEC. Are you seeing any change now that the
    Trump Administration has prioritized digital asset legislation?
        Mr. Rathmell. Thank you, Congressman. We have seen a change in the
    general attitude in the market. I think there is a lot of hope. There
    is a lot of enthusiasm that there is going to be market structure
    legislation, but the rules have yet to be written. And so we really do
    need to pass legislation to provide that crystal-clear clarity for
    founders to have the certainty they need to pursue token projects and
    decentralization.
        Mr. Nunn. And then, Mr. Tusar, I would like to go back here. When
    you are providing the CFTC with spot market authority, would that give
    your clients greater confidence to support U.S. capital formation,
    having it come back here to the U.S.
        Mr. Tusar. Thank you for the question, Congressman. It absolutely
    would. I think that is exactly the sort of clarity, clear rules of the
    road that people would feel more comfortable and not at risk for being
    able to develop their projects, and we think it is critical for U.S.
    competitiveness, going forward.
        Mr. Nunn. So, Mr. Chair, what I am hearing, and I think this has
    happened across the board, we believe that we have the opportunity now
    to bring digital assets back into the United States. We have the
    opportunity to create legislation that forms clear regulation. We have
    an opportunity to take a digital asset, in this case chocolate, wrap it
    in a way that the SEC has a partnership so they can go [unclear], and
    then still take it back to the CFTC so it can be traded in an effective
    way. And I will just say, Mr. Chairman, it is a pretty sweet deal, if
    you don't mind me saying so.
        I really appreciate the Committee coming forward on this. Thank
    you.
        Mr. Steil. The gentleman from Iowa will present the candy to the
    chair for further review, to be held on the record.
        The gentleman from Montana, Mr. Downing, is recognized.
        Mr. Downing. Thank you, Mr. Chair, and I will share in that
    chocolate, as well.
        Thank you, Mr. Chair, for holding this, and thank you to the
    witnesses for being part of this incredibly important roundtable. I
    really appreciate your time here.
        I also sit on the Capital Markets Subcommittee, and we spend a lot
    of time talking about how to raise capital, how businesses can go
    public, a lot of that sort of stuff. And unfortunately, the Gensler SEC
    made it really difficult for innovators and entrepreneurs to raise
    capital, especially in the digital asset space.
        And Mr. Miller, from my home state of Montana, thank you for being
    here. I know you talked about it a little bit before, but I am just
    curious, if you were to do it again would you do another Reg A offering
    in this environment, and why or why not?
        Mr. Miller. Thank you for the question, and we would not opt to do
    that. So as I mentioned during my opening statement, we ended up likely
    spending more on all of our compliance with the Reg A, the filing, the
    ultimate investigation by the SEC, than we actually raised from it. So
    there is really no way to do it, and this is what does have me hopeful
    about what we are seeing in the bill that came out, is that is exactly
    what we tried to do. Let's do an offering and then decentralize the
    network, and it becomes a commodity. And it is when we tried to take
    that step, because there was no framework, because there was no basis
    in the law for it, we were just left to the whim of the interpretation
    of the SEC, who is responsible, as let's launch an enforcement
    investigation and cost you another $3 million.
        Mr. Downing. Do you think it would be helpful if Congress created a
    specific digital asset exemption?
        Mr. Miller. I think there is no other option than for Congress to
    create a specific digital asset exemption.
        Mr. Downing. Thank you. I am going to go to Mr. Rathmell. The
    previous Administration sought to treat every digital asset, regardless
    of its purpose, as a security, and actually, as a former regulator, it
    made it difficult for me as a regulator. Somebody was mentioning the
    Howey Test earlier, and just understanding that, and the ambiguities of
    actually running a business and not knowing where that bar was I think
    is incredibly disadvantageous for digital assets in this space.
        And I was hoping you could explain to me why it is a bad idea to
    treat every digital asset the same.
        Mr. Rathmell. Thank you for the question, Congressman. A digital
    asset is ultimately a computing primitive, so much like the chocolate
    coin example, the wrapper can contain many different assets. It is
    multimodal. It can evolve over time, has many different attributes. And
    therefore, having a uniform application is (a) undermining the promise
    of the asset class, and (b) making it absolutely impossible to comply
    with the law.
        Mr. Downing. So would that promote or hinder U.S. innovation?
        Mr. Rathmell. Having regulatory clarity would promote U.S.
    innovation, absolutely.
        Mr. Downing. Thank you. Mr. Tusar, many digital asset skeptics have
    expressed concerns that consumers and investors are at a heightened
    risk of being scammed or losing money in the crypto industry. At the
    same time, many crypto companies have stayed away from doing business
    in the United States due to opaque regulations.
        So would consumers be better protected if more digital asset
    companies were encouraged to do business, with some commonsense
    consumer protections, in the United States?
        Mr. Tusar. Thank you for the question, Congressman. There is no
    question that it would be the case that there would be more confidence
    and more consumer protections if something like the bill under
    discussion here were passed and we had clear rules of the road for
    Federal-level regulations, and importantly, for Federal-level
    regulations here.
        Mr. Downing. I think it is important that we get this right, that
    we are innovating in the United States of America, that we make it
    clear where the bar is set when digital assets are coming, and make it
    clear how it is being treated in a regulatory framework. So I really
    appreciate you all sharing your perspectives with this, and I will say
    roundtable--I am not sure what to call it at this point. I appreciate
    it. I think this is an exciting time in the United States of America to
    create some clarity so that we can innovate and make sure that people
    understand what the rules of the road are so that we continue to grow,
    obviously, this incredible opportunity for us.
        So on that I yield my time. Thank you, Mr. Chairman.
        Mr. Steil. The gentleman yields back. The gentleman from Illinois,
    Mr. Foster, is now recognized.
        Mr. Foster. Thank you, Mr. Chair, and to our witnesses, and my
    apologies. I had to calm a set of scientists who are pretty much
    panicked at what is happening in our scientific enterprise in this
    country these days.
        When I have described to my staff the 212 page bill under
    discussion, it strikes as more or less 212 pages of regulatory
    arbitrage, that when I talk to foreigners, foreign financial people,
    about the United States, they think it is, frankly, insane that we have
    two regulators, CFTC and SEC, that often end up regulating
    indistinguishable products, or almost indistinguishable products, with
    endless time wasted in courts trying to split hairs on this.
        This does not happen in countries that have a unified market
    regulator. And when I first came to Congress, gee, 17 years ago, I read
    this big blueprint for financial modernization by, I think it was Hank
    Paulson and friends back then, and high on that list were references
    going back to the past of the need to merge the regulation of the two
    operations.
        And it strikes me that crypto may be an opportunity to begin that,
    that even if you believe that the path towards formally merging the
    regulators may take decades to complete, that there may be an
    opportunity to make a unitary crypto regulator, that is a joint project
    of both, joint project of these committees, and that would actually
    allow a single point of contact for crypto startups, which is one of
    the things they complain to me all the time, and I am sure they
    complain to everyone else.
        So I was wondering, I am sure you have all heard of proposals of
    various kinds to do this, and if you could just sort of go down the
    line and describe what are the aspects of that that you think might be
    feasible, might be attractive, and any advice you would have to Members
    of Congress that might be interested in finally listening to the advice
    we have gotten from everybody for the last 30 years and starting down
    this road.
        So if we just start on the left and march down.
        Mr. Rathmell. No, thank you Congressman. It is a very thoughtful
    question. You are absolutely right. There is incredible fragmentation
    both at the Federal and state level in terms of our market regulation.
    I can't speak to the particular opportunity over the coming decades to
    merge the SEC and CFTC, or other Federal market regulators, but what I
    can say is that digital assets are, in many ways, kind of a forcing
    function to unify regulation in that our belief at Haun Ventures is
    that digital assets and blockchain technology will be the underpinning
    of the future capital markets, global financial system, and the
    [unclear] internet.
        And so there is very much a unique opportunity here to, through the
    unifying nature of this technology, bring some unifying principles to
    the market.
        Mr. Foster. But principles, not an organization. That doesn't give
    you a single point of contact. Mr. Miller?
        Mr. Miller. Yes. I think the clarity and simplicity is the biggest
    thing I would ask for there. I think there are other folks here who are
    much more experienced on the internal workings of agencies and how to
    maybe best set it up. But I think as long as whoever is designated as
    regulator has the expertise to understand the crypto market and what
    they are dealing with and looking at, and I think understands the
    importance of, again, we are not talking about these large public
    companies with $1 billion a year in revenue who can afford $10 million
    a year in compliance cost. We are talking about people who maybe raised
    a couple million dollars, or even bootstrapping it, and where the
    compliance costs and the engagement needs to be in the five, maybe six
    figure range. As long as whatever set-up we come up hits that, I think
    that is the most important thing.
        Mr. Foster. Mr. Davis?
        Mr. Davis of Washington. It is very tricky because both the SEC and
    the CFTC have different regulatory philosophies, different mandates,
    different organizations, and different areas of focus. So I know this
    idea, it seems to recycle all the time, and it is worth discussing. But
    as someone who has been in the middle of the CFTC and has worked with
    the SEC on a number of issues, it is very difficult for me to see
    practically how the mergers of those two agencies would be accomplished
    without a lot of unintended consequences.
        Mr. Tusar. Congressman, I am not sure that I have a lot to say on
    the benefits of merging the two, but I would reflect back on my remark
    at the very opening in my statement, which is this bill is a once-in-a-
    generation opportunity to think from first principles about all of our
    market structures, be they on the CFTC side or the SEC side. Digital
    assets today, in the way that they settle, for example, and the real-
    time nature of their settlement, means that we don't have credit risks
    and other things building up in our system in a way that our current
    market structure, on both the equities and the futures side, are
    intended to deal with. And I think that is a once-in-a-great-while
    opportunity to think, from first principles, about how we create
    consumer protection, fair and orderly markets, and all these things,
    taking advantage of some of the real efficiencies of the digital asset
    space.
        Mr. Behnam. Congressman, I think it is easy to make a comparison
    across borders about why we are unique relative to other jurisdictions,
    having two market regulators. Some even have a single central bank and
    market regulator. But the missing factor or assumption there is that
    there is a distinct, comparable size in markets, and that is what truly
    sets America apart and why two market regulators are critical.
        Adding to what Mr. Davis said, if you look at the size of the
    securities market alone and the derivatives market alone, they are, by
    multiple factors, greater than any other jurisdiction in the world. So
    merging the agencies or any suggestion otherwise, which wouldn't
    surprise me for a registrant to suggest that, and I believe pretty
    strongly given my former role, would be a disservice to the American
    public and American investors.
        Mr. Foster. Okay. So it will just persist for another 30, 50 years
    until we have another really big crisis that we can't let go to waste.
    During Dodd-Frank we got rid of one banking regulator, and that was
    sort of the limit of what we had political muscle to do.
        Okay, well, anyway, thank you for this.
        Mr. Steil. Thank you very much, Mr. Foster. The gentleman from
    Ohio, Mr. Taylor, is recognized for 5 minutes.
        Mr. Taylor. Thank you, Chairman Steil and Chairman Johnson for
    holding this hearing today, and thank you to all the witnesses for your
    time and insight and sacrifices to be here.
        I must say, I am struck by what happened here today. Our Democratic
    colleagues have made serious allegations about the President's misuse
    of cryptocurrency, and their solution seems to be sabotaging a hearing
    dedicated to establishing a framework to prevent abuses in
    cryptocurrency. If they believe President Trump is wrongly benefitting
    through malfeasance, surely it would be their duty to do all they can
    to advance a regulatory framework so that it doesn't happen again.
    Apparently it is not that urgent.
        I have lived in rural southern Ohio my entire life. When I decided
    to run for office I did so primarily because I wanted to help enact
    policies that would spur economic growth across the country, and
    particularly in the communities I represent. As a small business owner,
    I ran into several regulatory and bureaucratic hurdles that impeded
    growth due to, in my opinion, overregulation.
        Mr. Miller, in your testimony you mentioned how, in Hiro's case,
    efforts to comply with unclear digital asset regulations ended up being
    extremely time-consuming and costly. Can you tell us where your
    resources and time might have been directed had those hurdles not been
    in the way?
        Mr. Miller. Thank you for the question, Congressman. Fundamentally,
    we are a developer tools company, right. We build the infrastructure
    and the tooling that builders need in order to go build this next
    generation of technology and applications. So every dollar of ours,
    every hour of ours that got spent on sitting in rooms with lawyers and
    trying to guess at what the law might be or what it might become one
    day was just one more minute we couldn't spend trying to enable folks
    to build.
        Mr. Taylor. Mr. Rathmell, the United States has long been a pioneer
    in innovation and entrepreneurship. In order to continue to be a leader
    in this place we need to create an environment that is both an
    attractive place for startups and one that encourages our best and
    brightest to take risks. Without a clear framework it sounds like the
    U.S. is in danger of falling behind the rest of the world.
        Can you speak more about how you think entrepreneurs and innovators
    will respond if the United States continues without a regulatory
    framework?
        Mr. Rathmell. Thank you, Congressman. It is a great question. My
    primarily concern would be that we have already seen a flight from the
    United States as the premier market and innovation, and that without
    correcting course that we would see further flight.
        Mr. Taylor. Could you tell me a little bit about what other
    countries have done with their regulatory framework that encourages
    innovation in the digital asset industries?
        Mr. Rathmell. We have seen, in the EU, and we have seen in the
    U.K., and we have seen in other jurisdictions that they moved quickly
    with a unifying framework that is workable, that works for token
    launches, addresses consumer protection, addresses market integrity.
    And it is the inaction in the United States that has caused so much
    trouble.
        Mr. Taylor. Thank you. Any framework that we put into place for
    digital assets will likely require the cooperation of the SEC and the
    CFTC, as we discussed a few moments ago. Mr. Davis, what are some
    examples where the SEC and CFTC have had to work together, and what
    lessons can we learn from those experiences to apply to market
    structure legislation in the digital asset space?
        Mr. Davis of Washington. An excellent example is security futures.
    That was a new product that came online a couple of decades ago. And it
    wasn't clear from statutory text on which side the line was. In that
    circumstance, the then two Chairmen of the respective agencies got
    together and hammered out a mostly quantitative process for determining
    when a future was just a future and subject to CFTC jurisdiction, and
    when something should be considered a security future and subject to
    both agencies' jurisdiction.
        That was the Shad-Johnson Accord. That was presented to Congress,
    and Congress implemented that. I think that is a great example of
    success of the agencies working together to come up with--and there are
    still debates about some aspects of that test. But a lot of that test,
    it is very clear one way or the other whether you are meeting one of
    the standards or not. So the agencies have certainly shown that.
        I think you have also seen that early on after Dodd-Frank. Both
    agencies had to a lot of joint rulemakings, in a very short period of
    time. I was not there at the agency at the time. I am told it was an
    incredibly busy period, and there was a lot of work with the SEC.
        So the agencies have definitely demonstrated the ability to work
    collaboratively together. It helps when you get good marching orders
    from Congress.
        Mr. Taylor. Thank you, and thank you to all of you. Chairman, I
    yield back.
        Mr. Steil. The gentleman yields back. The gentleman from South
    Carolina, Mr. Timmons, is recognized for 5 minutes.
        Mr. Timmons. Thank you, Mr. Chairman, and I want to thank all of
    you for being here today. It is unfortunate that our colleagues across
    the aisle have not made full use of this time. I am glad that we have
    not wasted your time and that we have been productive with this, not
    hearing, roundtable today.
        It is really important because your insights are essential as we
    work to pass a comprehensive market structure bill for the digital
    asset sector. Today I want to highlight the transformative potential of
    blockchain technology in not only reshaping our financial systems but
    in redefining how we interact with government itself. For that
    innovation to take root and thrive here in the United States, we need
    clear, effective legislation that end to the regulatory uncertainty
    developers face today. For too long, digital asset innovators have
    taken their business abroad, to places like Hong Kong and the EU. They
    have clearly defined rules, and other jurisdictions with more favorable
    regulatory environments, such as the Caribbean or the Middle East.
        But now, for the first time, the industry has a champion [audio
    distortion] and a Congress ready to act. And we have a real opportunity
    for a framework that supports innovation while providing the clarity
    and oversight needed to protect consumers and ensure market integrity.
    This is not a partisan issue. Republicans and Democrats have been
    working on this for years, and we are ready to get the job done.
        I would like to start with you, Mr. Rathmell. In your testimony you
    stated that clarity isn't about giving digital assets special treatment
    but rather about establishing a consistent set of rules so that you
    build confidence here in the United States. I completely agree. When it
    comes to pioneers in this space, in your view how does not having a
    clear legal framework hold back their inability to innovate,
    particularly in reference to the tokenization space?
        Mr. Rathmell. Thank you, Congressman. It is a great question. The
    primary way in which it hinders American innovation is that it is a
    misallocation of time and resources. We have seed-stage founders--I
    have also represented many seed-stage start-ups outside of the crypto
    industry, and those founders are not spending their days and nights
    worried about enforcement actions, concerned about the regulatory
    framework, and on the phone hours and hours and hours with very
    expensive lawyers, try to read the legal tea leaves. And so that
    misallocation of time, away from building products that consumers and
    enterprises are using, away from thinking about how they can be
    innovating and bringing value to the American market, it is waste.
        Mr. Timmons. So I have a question specifically with regard to
    [audio distortion] market structure there is a bipartisan bill that has
    been filed regarding NFTs. I view those three as all important.
    Obviously, they are not going to go together. But this proposed
    legislation has studied grantees. Do you think that the [audio
    distortion] proposed bill, by a year plus, would that be--how would
    that impact the overall development of this ecosystem?
        Mr. Rathmell. Well, certainly digital assets can take many forms
    and functions, as we have talked about at length today. I think one of
    the greatest challenges in moving these pieces of legislation together
    is going to be ensuring that all of those different use cases are
    covered under reasonable framework that is applicable to the use case
    of that digital asset.
        Mr. Timmons. Thank you. [Audio distortion] process of passing laws
    and regulations to govern digital asset markets. One consistent theme
    across many of these efforts is how they treat decentralized finance,
    or DeFi. For example, in the EU, U.K., and Hong Kong, they have all
    [audio distortion]. Mr. Rathmell, in your view, why do these
    jurisdictions take that approach, and do you think Congress should
    consider doing the same?
        Mr. Rathmell. Yes, and thank you, Congressman. The DeFi space is a
    particularly interesting and complex corner of our industry. An
    interesting element of DeFi is that it is really a realization of kind
    of one of the core promises of crypto, which is that it is
    fundamentally a disintermediated technology. And the existing kind of
    global market regulations really do focus on, generally do focus on
    intermediaries as a core regulatory hook. And so addressing DeFi on its
    own grounds and making sure that it has the space to flourish and
    actually generate the incredible value that it can for consumers and
    the public and enterprises is very important.
        Mr. Timmons. Thank you, Mr. Chairman. I yield back.
        Mr. Steil. Microphone issues here. The gentleman yields back. Would
    Mr. Stutzman like to be recognized, or would Mr. Moore like to be
    recognized? Mr. Stutzman is recognized.
        Mr. Stutzman. Thank you, Mr. Chairman, and thank you to each of the
    witnesses here today for your expertise and sharing with us your
    perspective and testimony. As was mentioned, this is obviously, I think
    one of the issues that could be bipartisan, and if there is anything
    that is new to Congress, this is one of those issues that is kind of
    new to all of us, and we are trying to understand and wrap our heads
    around the direction of a very exciting technology, and very innovative
    and important not only to the United States but to the world. And this
    is an amazing piece of technology that could be an economic development
    tool to emerging countries and others around the world that are truly
    trying to find stability and currency issues, and also with, of course,
    the governance in other parts of the world that are just, frankly,
    criminal, that this could really be a helpful tool. So I appreciate
    your expertise and what you are discussing today.
        Mr. Tusar, I would like to talk with you just a little bit. In your
    testimony, it is time to update the system, you mentioned in your
    testimony that the legislation would be built on a foundation
    established by FIT21, and then you said, ``this effort should clarify
    asset classifications defining which digital assets are securities and
    which are commodities, and empowering the CFTC. We talked about this a
    little bit the other day in another meeting, but these are really, I
    mean, it can be both, right? It depends on how you want to use the
    tool.
        What are some of your thoughts further on how do we clarify? And so
    you mentioned addressing emerging challenges. What other challenges
    would you suggest, or have you dealt with? Because I know security for
    Coinbase and any other company is highly important and it also gives
    confidence to the users.
        Mr. Tusar. Thank you for the question, Congressman. Yes, security
    for digital assets is probably the single most important thing we do
    for consumers and it gives people confidence in Coinbase. I think that
    some of the other issues, I think the number one most important thing
    to come out of this bill is classifications. We are excited for some of
    that to provide the necessary clarity going forward.
        Mr. Stutzman. Thank you. I guess I am having some mic issues here.
    I want to jump back to Mr. Miller. Capital raising is a critical
    component of both the traditional security markets and the digital
    asset ecosystem. In the traditional security markets, investors provide
    capital in exchange for legal claims and ownership repayment or income
    streams.
        In the digital asset ecosystem, do investors receive the same
    rights from their participation in a capital raise, and are the
    proceeds of the raise used in the same manner as the proceeds from
    traditional securities offerings?
        Mr. Miller. So in short, no. They look definitely very different.
    In the traditional capital raise, you have very established structures
    around equity, whether the rights of shareholders are governed by the
    corporate laws of whatever state you were formed in.
        The digital asset world and blockchain, it looks very different for
    these folks. It can also vary by exactly [audio distortion] simply that
    there can be more direct engagement through government mechanisms that
    are built into blockchain. The tokens that you are holding almost
    always are going to have a facility and a purpose to it, what is being
    used to pay for and create the transactions on the network. And most
    importantly, it is the incentive mechanism for a network. You cannot
    have a decentralized interaction with all these different parties
    without some sort of incentive mechanism, the same way that we have
    dollars in much of the economy.
        So it is simply very different and it comes back to why we are
    coming here today and asking, and saying yes, a purpose-fit structure,
    legislation, that creates a category that would be necessary for us to
    really have [audio distortion] that people need.
        Mr. Stutzman. So comparing your more traditional pitch deck and
    disclosures and the language that investors would have access to
    through a particular capital base, how would you compare that to a
    crypto piece, where it seems like an investor may be doing it at 10:00
    at night, before they go to bed, and it is a little bit more cavalier.
    I mean, are there enough safeguards in place and explanations in place
    for the more, I guess, amateur investor? [Audio distortion] into the
    game.
        Mr. Miller. Yes, absolutely. I think we might have the idea of
    someone just hitting ``Buy'' on their phone, while lying in bed, but
    you also see in this industry a huge number of people--again now that
    it is decentralized on a distributed basis, to do really incredible
    research. They will go through the white papers. They will look into
    these things. They will check the code. It is all published on GitHub.
    These are open-source blockchains where the code is freely available.
        Mr. Steil. The gentleman's time has expired. Thank you very much.
        Mr. Stutzman. Thank you.
        Mr. Steil. The gentleman from North Carolina, Mr. Moore, is
    recognized for 5 minutes.
        Mr. Moore. Thank you, Mr. Chairman. I am not sure if this mic is
    working or not. I don't know that it is working or not. I have never
    been accused of being a quiet guy, so either way I think we will be
    fine.
        So I guess you will just have to hear me this way. Thank you, Mr.
    Chairman. At some point, by the way, Mr. Chairman, I am going to have
    to understand the rules, how two or three people that are having a
    meltdown for some reason can disrupt a Committee and make it a
    roundtable. But I am going to read up on that at some point later on.
        I do want to thank our witnesses who have been very generous with
    their time to be here today and to provide very helpful information to
    this hearing today. And what it seems to me is that, frankly, our
    country really is at a crossroads right now when it comes to the
    regulation of digital assets. Frankly, the lack of framework that we
    have in the country really seems to have pushed everything offshore and
    allowed businesses, of course, to be based offshore. That is how
    capital is going to flow, and that is what is happening.
        But it seems to me that if we want to try to keep moving things
    back to the United States, that is certainly what the President is
    wanting to do, do manufacturing here, I think it is incumbent upon us
    as the world power, the world-dominating power, economically,
    militarily, you name it, that when it comes to digital assets that we
    have more of that here in the U.S. So I applaud, Mr. Chairman, the
    leaders of the respective committees, both the Ag as well as Financial
    Services, in taking this seriously.
        But I will ask a question first to Mr. Rathmell, and I will just
    simply say this. What does it mean for the U.S. that, as has already
    been alluded to, even Representative Taylor mentioned this, that the EU
    and the U.K.----
        Mr. Steil. The gentleman will suspend for just a minute. Some of
    these mics are cutting out. We are going to continue to try to do this.
    I know a lot of people are watching on a livestream and unfortunately
    aren't able to hear. [Audio distortion.]
        Mr. Moore. They are kind of flickering. They look like Christmas
    lights. They are green and red, and they flicker off and on over here.
    I don't know. Maybe the mics are tired. I don't know.
        Let me just say, here is the question. What are the long-term
    consequences, frankly, if we simply allow digital assets, and this
    whole capital as a result, to be offshore instead of here in the United
    States?
        Mr. Rathmell. Thank you, Congressman. First and foremost, it means
    that we are ceding leadership in the digital assets industry and all of
    the next generation of innovation that entails. More critically, we
    believe that the future of everything from consumer technology to the
    global financial system to global capital markets is going to be
    leveraging this technology in the future. It is not just about ceding
    future innovation over the coming decades, but it is also ceding kind
    of a leadership role with respect to the areas that we traditionally
    have been leaders on.
        Mr. Moore. Okay, and I agree with you, frankly. But, this isn't a
    new issue. I think in 2020, my understanding is the Federal Reserve
    Bank in San Francisco determined that one in eight Americans purchased
    digital assets. I believe that number now is one in three. That is a
    tremendous increase. And the notion that we would allow \1/3\ of our
    population to not be able to fully participate in an environmental
    regulatory arrangement in the United States just is confounding. So
    digital assets are not going away. It is not only the future but it is
    also the present.
        Mr. Tusar, I will ask you a question, as well. By the way, thank
    you for being here today. Given this, how important is it that Congress
    act to establish the well-regulated digital asset marketplace.
        Mr. Tusar. Thank you for the question, Congressman. I think it is
    critically important, and I think as Mr. Rathmell said, not just the
    importance of having consumers be protected, all the things that we
    have talked about, but I think the point that was just made is
    critical, that this is really the future of capital markets, and for
    the U.S. to continue to be the envy of capital markets around the world
    with respect to how collateral is moved, and all of the things are sort
    of critically important to well-functioning markets.
        This bill is the foundation of a lot of that technology that will
    be in place. So for the U.S. to continue to be the capital market
    leader around the globe, this is critically important.
        Mr. Moore. I agree with those comments, as well. Again, the mics
    are doing all sorts of great stuff over here right now. You don't know
    the chair of the Administration Committee do you?
        [Laughter.]
        Mr. Steil. There is an engineer on the way.
        Mr. Moore. For what it is worth, they do work better than the heat
    in my office. I will just say that.
        [Laughter.]
        Mr. Moore. Let me just wrap up with this and say this. I want to
    thank each and every one of you for testifying today. I think your
    testimony is extremely helpful, and it does show the opportunity that
    we have to get serious folks in the room and enact a bipartisan piece
    of legislation. I hope that some of the folks who decided to do
    something different this morning may at some point come back to the
    table. Regardless of whether they do, I think both these committees are
    going to move in a very serious way to really try to address this, and
    I just thank you all for taking your time today to be here, before
    Congress.
        And with that, Mr. Chairman, I yield back.
        Mr. Steil. The gentleman yields back. We are in the Agriculture
    Committee room, not Financial Services, so maybe--no, I am teasing to
    our good friends at Ag. But the gremlins are at work. We do have an
    engineer on the way.
        The gentleman from Michigan, Mr. Huizenga, is recognized.
        Mr. Huizenga. Thank you, Chair Steil. And while this may have
    started off a little awkwardly I am hoping we are finishing strong
    today, because this is so important what we are dealing with here.
    Having now in Congress, this is my eighth term, having been on the very
    front end of digital asset discussions for a very long time on this,
    this day has been long coming, and it is necessary.
        I am going to try to hit a couple of things here. Many digital
    asset projects reach the point where they are no longer reliant on a
    group or an organization but rather their success is contingent on the
    collective contributions of a dispersed network of users. Mr. Miller
    and Mr. Rathmell, can you address why this is a key point in the
    development of a digital commodity project?
        Mr. Miller. Sure. I think it is relevant for two purposes. One,
    obviously, when we are looking at current securities law, the current
    regulatory regime is all based on someone having control over this
    thing, so that is really one of the points at which the current regime
    breaks and really needs something new.
        But just fundamentally, those are two very different pieces. One
    organization or one entity has the ability to make changes and issue
    things to create. That is a very different environment than when you
    have [audio distortion] centralized group of people who are
    participating in an open economy. And there is really no way for that
    to thrive here without the [audio distortion] legislation to it. And
    since that is really where the world is going, what is happening one
    way or another, I very much want to see it happening here.
        Mr. Huizenga. Mr. Rathmell?
        Mr. Rathmell. Thank you, Congressman. Fundamentally, the securities
    laws are based on the principle of information asymmetries existing out
    in the marketplace, where you have a certain set of participants who
    have specialized information about their company. And digital asset
    projects, especially once you have reached decentralization, you should
    be much more focused on market integrity, efficient price discovery,
    broad-based participation in the markets, to ensure that efficient
    price discovery, and anti-fraud provision and the like.
        So once you achieve that point at which the token is effectively
    decentralized, it is critical that you shift your regulatory focus, as
    well.
        Mr. Huizenga. And it really is talking about changing the risk for
    the holders. Correct?
        Mr. Rathmell. Correct, yes.
        Mr. Huizenga. Okay. How should we, or how should a regulatory
    regime for digital assets recognize that transition?
        Mr. Rathmell. The transition is really when we think about those
    information asymmetries no longer being a driving force of the value of
    the asset. So when an asset is primarily----
        Mr. Huizenga. It is mature.
        Mr. Rathmell. It is mature. Correct. When it is primary determined
    by supply and demand dynamics, the use on the blockchain network,
    security of the blockchain network, that is when you achieve a point at
    which market integrity is the primary driver and the primary regulatory
    focus.
        Mr. Huizenga. I am going to stick with you. In my various roles on
    this Committee I have been Chairman and Ranking Member of the Capital
    Markets Subcommittee, primarily with the Securities and Exchange
    Commission. And whether it was Jay Clayton, Gary Gensler over the last
    number of years I think we saw some very different approaches to the
    use of the SEC. The Gensler-Biden Administration chose to regulate
    digital assets by enforcement, and the SEC, under the Trump
    Administration, has taken a very different approach. Crypto task force,
    they have really had just a different attitude at the SEC.
        So Mr. Rathmell, can you some of the actions that the current SEC
    has already taken with respect to digital assets and explained the
    impact of what this activity has had for digital asset projects and the
    markets that have been built around.
        Mr. Rathmell. Absolutely. I will highlight three quick things, very
    briefly. First is just engagement with industry, really understanding
    the concerns of industry and not having market participants who don't
    feel like the door is being shut in their face. That is very important.
        Second is really actually putting out--obviously, the market
    structure legislation will be the ultimate driver of how these markets
    are regulated, but putting out, under existing law, clear legal
    analysis and clear legal guidance that is publicly available to
    entrepreneurs is a really incredible step forward. And I think the
    amount of legal guidance that we have seen, and legal analysis that we
    have seen coming out CorpFin, coming out of the SEC broadly, just in
    the past couple of weeks, has far outpaced what we have seen in the
    preceding 5, 6, 7 years.
        Mr. Huizenga. I am going to submit some questions, as well. But if
    you could give me, each one of you, a super quick answer to this
    question. If Congress were to not pass a digital asset market structure
    legislation, what would be your biggest concern? Just give me your top
    concern if we don't actually get this done.
        Mr. Rathmell. The loss of American innovation.
        Mr. Miller. Complete loss of competitiveness in the international
    economy on this.
        Mr. Davis of Washington. Fighting things out in the courts instead
    of developing here.
        Mr. Tusar. I agree with the point on competitiveness and U.S.
    capital fleeing elsewhere.
        Mr. Huizenga. Okay. That is a key. Okay. Mr. Behnam?
        Mr. Behnam. Continued unchecked fraud and manipulation of markets.
        Mr. Huizenga. All right. Well, with that, Mr. Chairman, I know my
    time has gone over, and I yield back.
        Mr. Steil. The gentleman yields back.
        I want to thank all of our participants. I think what we heard
    today is the need to move forward on a market structure bill. We began
    this by trying to have a joint Subcommittee hearing between Agriculture
    and Financial Services, an open, public dialogue on incredibly critical
    and important legislation. Disappointing, a small number of Members
    chose to protest and walk out. But what I think we actually saw today
    was a large number of Members from both the Majority and the Minority
    side engage in the substance of the topic, because that is what the way
    calls for.
        I think in the closing question from my colleague, Mr. Huizenga, I
    think what we actually laid out is failure to act has consequences, and
    if we fail to act and seize this moment, we will find ourselves in a
    situation where we are being outcompeted by other countries like China.
        This is an opportunity for the United States to seize the moment,
    to step up, to lay out a framework so that innovation in development is
    occurring here in the United States of America and not abroad, to
    provide clarity so that the new inventors, creators, innovators, and
    developers are here and working and finding themselves with their ideas
    in basements and dorm rooms, not in boardrooms and law firms.
        This is an opportunity for us to seize the moment. It is
    disappointing that a small number of individuals chose to put their
    head in the sand and exit the room and prevent us from having a
    hearing. But I think today's roundtable, with your testimony, with the
    questions and the comments provided here in this room, provide us with
    a clear path forward, and shows the importance of the market structure
    legislation introduced this week by Chairman French Hill and Chairman
    GT Thompson. And I thank all of you for participating today.
        I know there may be some additional questions submitted to our
    experts here at the roundtable. I would ask that you would provide
    comments back to the Committee with short notice.
        So we appreciate all of you being here today. We thank everyone for
    their participation, and the roundtable is concluded.
        [Whereupon, at 12:58 p.m., the roundtable was adjourned.]

                                      [all]