    [Senate Hearing 119-115]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 119-115

                         STAKEHOLDER PERSPECTIVES ON FEDERAL
                           OVERSIGHT OF DIGITAL COMMODITIES

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

                                    HEARING

                                   BEFORE THE

                           COMMITTEE ON AGRICULTURE,
                            NUTRITION, AND FORESTRY

                              UNITED STATES SENATE

                        ONE HUNDRED NINETEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 July 15, 2025

                                   __________

                           Printed for the use of the
               Committee on Agriculture, Nutrition, and Forestry

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                      Available on http://www.govinfo.gov/

                                    __________

                       U.S. GOVERNMENT PUBLISHING OFFICE
    61-175 PDF                  WASHINGTON : 2025

    -----------------------------------------------------------------------------------

               COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

                        JOHN BOOZMAN, Arkansas, Chairman

    MITCH McCONNELL, Kentucky            AMY KLOBUCHAR, Minnesota
    JOHN HOEVEN, North Dakota            MICHAEL F. BENNET, Colorado
    JONI ERNST, Iowa                     TINA SMITH, Minnesota
    CINDY HYDE-SMITH, Mississippi        RICHARD J. DURBIN, Illinois
    ROGER MARSHALL, Kansas               CORY BOOKER, New Jersey
    TOMMY TUBERVILLE, Alabama            BEN RAY LUJAN, New Mexico
    JAMES C. JUSTICE, West Virginia      RAPHAEL WARNOCK, Georgia
    CHARLES GRASSLEY, Iowa               PETER WELCH, Vermont
    JOHN THUNE, South Dakota             JOHN FETTERMAN, Pennsylvania
    DEB FISCHER, Nebraska                ADAM SCHIFF, California
    JERRY MORAN, Kansas                  ELISSA SLOTKIN, Michigan

                   Fitzhugh Elder IV, Majority Staff Director
                        Jessica L. Williams, Chief Clerk
                    Lauren Santabar, Minority Staff Director
                     Chu-Yuan Hwang, Minority Chief Counsel

                               C O N T E N T S

                                  ----------

                             Tuesday, July 15, 2025

                                                                       Page

    Hearing:

    Stakeholder Perspectives on Federal Oversight of Digital
      Commodities....................................................     1

                                  ----------

                        STATEMENTS PRESENTED BY SENATORS

    Boozman, Hon. John, U.S. Senator from the State of Arkansas......     1
    Klobuchar, Hon. Amy, U.S. Senator from the State of Minnesota....     2

                                    WITNESS

    Kim, Ji, Chief Executive Officer, Crypto Council for Innovation,
      New York, NY...................................................     4
    Behnam, Rostin, Distinguished Fellow, Psaros Center, Georgetown
      University, Washington, DC.....................................     6
    Massad, Timothy, Research Fellow and Director of Digital Assets
      Policy Project of the Mossavar-Rahmani, Center for Business and
      Government, Kennedy School of Government, Harvard University,
      Washington, DC.................................................     8
    Sexton, Tom, President and Chief Executive Officer, National
      Futures Association, Chicago, IL...............................    10
    Lukken, Walt, President and Chief Executive Officer, Futures
      Industry Association, Washington, DC...........................    11

                                 ----------

                                    APPENDIX

    Prepared Statements:
        Kim, Ji......................................................    38
        Behnam, Rostin...............................................    50
        Massad, Timothy..............................................    55
        Sexton, Thomas...............................................    80
        Lukken, Walt.................................................    86

    Question and Answer:
    Behnam, Rostin:
        Written response to questions from Hon. Amy Klobuchar........    94
    Massad, Timothy:
        Written response to questions from Hon. Amy Klobuchar........    96
        Written response to questions from Hon. Michael Bennet.......    97
    Lukken, Walt:
        Written response to questions from Hon. Amy Klobuchar........   101
        Written response to questions from Hon. John Hoeven..........   102
        Written response to questions from Hon. Raphael Warnock......   103

      STAKEHOLDER PERSPECTIVES ON FEDERAL OVERSIGHT OF DIGITAL COMMODITIES

                                  ----------

                             TUESDAY, JULY 15, 2025

                                            U.S. Senate
              Committee on Agriculture, Nutrition, and Forestry
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 3:33 p.m., in
    Room 106, Dirksen Senate Office Building, Hon. John Boozman,
    Chairman of the Committee, presiding.
        Present: Senators Boozman [presiding], Hoeven, Ernst,
    Marshall, Tuberville, Hyde-Smith, Justice, Klobuchar, Smith,
    Lujan, Fetterman, Durbin, Booker, Bennet, Schiff, and Warnock.

       STATEMENT OF HON. BOOZMAN, U.S. SENATOR FROM THE STATE OF
     ARKANSAS, CHAIRMAN, U.S. COMMITTEE ON AGRICULTURE, NUTRITION,
                              AND FORESTRY

        Chairman Boozman. Good afternoon. It is my privilege to
    call this hearing to order. I thank my colleagues for joining
    us today. We are here to talk about digital commodities and
    hear from a range of stakeholders on what this Committee needs
    to do with respect to legislation.
        It has been reported that the current market cap for the
    digital asset market exceeds $3.5 trillion. Approximately 70
    percent of digital assets are traded digital commodities, and
    roughly 55 million Americans own or use crypto. The U.S.
    currently lacks comprehensive federal regulation of the digital
    commodity markets, which means a significant percentage of
    Americans trade with crypto with very limited federal customer
    and market risk protections. This has been referred to as the
    digital commodity regulatory gap. While the regulatory gap has
    not stifled consumer interest in crypto, we know from past
    experiences what can happen when crypto intermediaries operate
    outside of a regulated framework. Without clear and
    comprehensive digital commodity market regulation, Americans'
    economic interests are at risk.
        The lack of comprehensive federal regulation in the U.S.
    has created significant regulatory uncertainty among
    innovators, developers, and market participants. Not knowing
    the rules of the road, U.S. businesses have moved overseas,
    leaving U.S. consumers vulnerable. This is why we must act on
    digital assets legislation to protect customers and ensure
    innovation and growth remain in the U.S.
        I have said it before but will say it again. The CFTC and
    only the CFTC should regulate the spot trading of digital
    commodities. The CFTC currently has enforcement authority over
    these markets. We should build upon that authority, not
    distribute it among different regulators. Let me be clear.
    Entities that list or facilitate the trading of digital
    commodities should not be exempted from CFTC regulation simply
    because they are registered with another federal agency.
        The U.S. financial capital markets stand as the deepest and
    most liquid in the world. It is largely a byproduct of the
    Federal Government's bifurcated approach to regulating those
    markets, with the SEC regulating the securities market and the
    CFTC regulating the commodity derivatives market. This
    longstanding American approach to financial market regulation
    was at the core of the Dodd-Frank Act's regulation of the swaps
    and security-based swaps market and should be the foundation
    upon which we build a comprehensive regulatory framework for
    digital assets markets.
        This is not to pit regulators against one another. It is
    the opposite. We draw inspiration from the agency's past
    regulation of the swaps market as we entrust the CFTC and the
    SEC with the authority to collaboratively regulate the digital
    asset markets. We must act expeditiously to develop a
    comprehensive regulatory framework for the trading of digital
    commodities, but we must ensure we get this right. We must also
    support our colleagues in the Banking Committee as they work on
    a regulatory framework for the trading of digital assets in
    securities transactions. As with the CFTC and the SEC, while
    there are clear lines of jurisdictions between our Committees,
    we are committed to working collaboratively on a comprehensive
    bill for the digital asset marketplace.
        I, alongside Ranking Member Klobuchar and all Members of
    the Committee, will work in a transparent and bipartisan manner
    to develop this regulatory framework. This task requires
    hearing from everyone who wants to be heard and for all
    Committee Members to work together to create a framework that
    allows for liquid and resilient spot digital commodity markets,
    strong retail protections, and rules that give American
    businesses confidence to continue to innovate and grow in the
    United States.
        Today, we will hear from former CFTC Chairman, the head of
    the derivative self-regulatory organization, and the head of an
    association representing a diverse group of crypto
    stakeholders. I look forward to hearing their thoughts as we
    contemplate legislation.
        With that, I now turn to our Ranking Member, Senator
    Klobuchar, for her opening statement.

      STATEMENT OF HON. KLOBUCHAR, U.S. SENATOR FROM THE STATE OF
                               MINNESOTA

        Senator Klobuchar. Well, thank you so much, Chairman, and
    thank you to all our witnesses for being here today.
        Over the past decade and a half, as the Chairman just
    noted, we have seen the increasing use of and investment in
    digital commodities like Bitcoin. What was once a niche market
    for early adopters and cryptography enthusiasts is now a
    swiftly growing market that is increasingly interconnected with
    traditional financial markets and institutions.
        When we met in July of last year, I noted that the market
    capitalization of digital assets was over $2 trillion. It is
    now more than $3 trillion. The price of Bitcoin then was
    $73,000. It is now more than $100,000. Yet oversight and
    regulation of this market has not evolved to keep up with the
    growth.
        The Commodity Futures Trading Commission has long played a
    vital role in ensuring the integrity of our financial and
    agricultural derivative markets. That includes protecting
    market participants from fraud and manipulation; maintaining
    orderly markets; and enabling farmers, ranchers, manufacturers,
    and small businesses to hedge against risk. We are honored to
    have two former Chairs here with us today.
        As early as 2015, the CFTC determined that digital assets
    could be commodities and found that Bitcoin, the largest such
    asset, was a commodity. Derivatives on Bitcoin and other
    digital commodities have been listed on CFTC-regulated
    exchanges, and the CFTC has full regulatory authority over
    these products. It has only anti-fraud and anti-manipulation
    authority over the underlying spot markets, a regulatory gap
    that has resulted in untold losses to customers and the
    increasing risk of contagion to traditional financial markets
    as digital commodity markets grow in size and are integrated
    into the existing financial system.
        If Congress gives the CFTC the authority and the resources
    to step in and oversee these spot markets, it would be well
    positioned to do so, given its existing role. That role is
    overseeing the digital commodity derivative markets and the
    enforcement authority it has exercised over the underlying spot
    markets. Providing regulatory certainty and oversight to these
    markets can encourage responsible innovation and the adoption
    of new technologies.
        At the same time, we have to ensure a level regulatory
    playing field so that crypto market participants are subject to
    standards as rigorous as those applied to traditional financial
    institutions. If Congress is to do this, it must do so without
    compromising on crucial customer protections with safeguards to
    prevent illicit finance and with provisions to address market
    integrity concerns. It also means putting in place guardrails
    to address conflicts of interest in the digital assets sector,
    preventing exchanges and issuers from using their position to
    favor affiliated actors or exploit customers. If Congress is
    going to establish a new financial regulatory framework, it
    must strengthen our system, not weaken it, by putting
    safeguards in place to prevent corruption or self-dealing by
    federal officials, including those in positions of power who
    might sponsor, issue, or profit from digital tokens.
        I look forward to hearing from our witnesses on how they
    believe regulation of the digital commodities spot market can
    responsibly encourage innovation while ensuring our financial
    markets continue to be the safest in the world for market
    participants. This is a big job we have, but I look forward to
    hearing your testimony and working with you. Thank you.
        Chairman Boozman. Thank you. We will now introduce our
    panel of witnesses. I am pleased to introduce Mr. Ji Kim. Mr.
    Kim currently serves as President and Acting Chief Executive
    Officer of the Crypto Council for Innovation. Mr. Kim has over
    15 years of experience in the digital assets sector, and before
    being named CEO, served as Chief Legal and Policy Officer for
    CCI. Mr. Kim, thank you very much for being here today.
        I think Senator Klobuchar is going to introduce Russ.
        Senator Klobuchar. Thank you very much. We are pleased to
    welcome back Russ Behnam. Many of you know him from his years
    of service on the Committee staff and most recently as both
    Commissioner and Chairman of the CFTC.
        Mr. Behnam is a distinguished fellow at the Psaros Center
    for Financial Markets and Policy at Georgetown University's
    McDonough School of Business. From 2021 to 2025, he served as
    Chairman of the CFTC following his service as a Commissioner.
    Before joining the Commission, he was Senior Counsel on this
    Committee to then-Chairwoman Debbie Stabenow.
        During his tenure at the CFTC, Mr. Behnam oversaw the
    significant expansion of digital commodity derivative markets
    and led the agency's enforcement activity in spot markets for
    digital assets. We welcome you back to the Committee.
        Chairman Boozman. Mr. Massad.
        Senator Klobuchar. We are also pleased to welcome back
    Timothy Massad. Mr. Massad is a research fellow at the
    Mossavar-Rahmani Center for Business and Government at the
    Harvard Kennedy School of Government where he directs the
    center's Digital Assets Policy Project.
        From 2014 to 2017, he served as Chairman of the CFTC.
    During his tenure, he oversaw the implementation of Dodd-Frank
    reforms in the over-the-counter swaps market, worked to
    harmonize cross-border regulation, and led the CFTC in becoming
    the first U.S. regulator to take action on cryptocurrencies.
        Previously, he served as Assistant Secretary for Financial
    Stability at the U.S. Treasury Department, and that was from
    2010 to 2014.
        Mr. Massad, welcome back to the Committee. I am sure you
    remember many happy moments here before this Committee. Thank
    you for your testimony.
        Chairman Boozman. I am happy to introduce Mr. Tom Sexton.
    Mr. Sexton is the President and Chief Executive Officer of the
    National Futures Association, the self-regulatory organization
    for the U.S. derivatives market. Mr. Sexton joined NFA in 1991
    and is on the Commodity Futures Trading Commission Global
    Markets Advisory Committee and is a board member of Futures
    Fundamentals.
        Mr. Sexton, thanks again very much for being here.
        I would also like to introduce the Honorable Walt Lukken,
    former Acting Chairman and Commissioner of the U.S. Commodities
    Futures Trading Commission from 2002 through 2010. Mr. Lukken
    currently serves as the President and Chief Executive Officer
    of Futures Industry Association, a position he has held since
    2012. Prior to his time at the CFTC, he served as counsel for
    this Committee under Chairman Lugar.
        Welcome back, Mr. Lukken, and thank you for being here.
        Again, we appreciate all of you being here. This really is
    a ``who's who'' of the industry, and we are very anxious to
    hear from you. Let's start out with you, Mr. Kim.

     STATEMENT OF JI KIM, CHIEF EXECUTIVE OFFICER, CRYPTO COUNCIL
                      FOR INNOVATION, NEW YORK, NY

        Mr. Kim. Thank you, Chairman Boozman, Ranking Member
    Klobuchar, and Members of the Committee for the opportunity to
    testify today on how best to strengthen United States'
    leadership in digital asset innovation. I believe this can best
    be accomplished through comprehensive federal oversight of
    digital commodities. I am pleased to represent the Crypto
    Council for Innovation, a global alliance of industry leaders
    across the digital asset space.
        I respectfully submit that it is critical for Congress,
    following this Committee's leadership, to urgently pass
    legislation providing the CFTC with oversight over the trading
    of digital commodities. This will provide necessary regulatory
    clarity and certainty, protect consumers, and ensure continued
    U.S. leadership over digital assets.
        For years, the digital asset industry has requested clear
    rules of the road and a coherent federal framework to operate
    within the U.S. Such a framework, which is in the national
    interest, will benefit users and consumers, foster industry
    growth, and strengthen U.S. markets by preventing fragmentation
    and regulatory ambiguity. Now is the time for Congress to act
    to secure this future.
        Today, roughly 28 percent of American adults, about 65
    million Americans, own digital assets. The reasons and benefits
    are many. Individuals and businesses use them to make
    transactions more efficient. Humanitarian groups use them to
    deliver aid in high-risk regions, setting their speed,
    transparency, and reliability. Decentralized finance is
    expanding access to economic services. Beyond payments,
    tokenization of real-world assets, securities, real estate, and
    even agricultural commodities has the potential to make markets
    more liquid, accessible, and inclusive.
        Given the many benefits and expanding real-world
    applications of digital assets, we commend this Committee for
    pursuing a legislative framework to guide further development.
    From a consumer protection standpoint, clear federal
    supervision of market activity is essential. The industry is
    committed to building necessary guardrails so that consumers
    can participate in marketplaces that are fair and secure.
        With that backdrop, a significant portion of the digital
    asset ecosystem, including widely used assets such as Bitcoin
    and Ether, function like commodities rather than traditional
    securities. These assets are not issued by centralized entities
    to raise capital and lack profit-sharing rights. In fact,
    courts and regulators, including the CFTC, have affirmed that
    such assets fall under the Commodity Exchange Act, depending on
    their structure and use.
        Most digital asset trading volume occurs in secondary
    markets, where participants treat these assets as store of
    value, not as equity stakes. Recognizing the commodity-like
    nature of these assets is essential to crafting a regulatory
    framework. A comprehensive framework can provide essential
    consumer protections, including business conduct standards,
    disclosures, segregation of customer funds, minimum capital
    requirements, trade surveillance, and more. Digital asset firms
    in the U.S. are already subject to AML compliance, sanction
    screening, and suspicious activity reporting, and these
    requirements should be confirmed and codified in any new
    comprehensive framework.
        In addition to its oversight of the digital asset
    derivatives market, the CFTC already has enforcement authority
    over spot commodity markets, but this must be matched by a
    broader federal framework that addresses how Americans use
    digital assets today.
        The CFTC is well-situated to play a central role in
    overseeing the spot digital asset commodity market. It is a
    principles-based regulator with a mandate to deter price
    manipulation, ensure financial integrity, protect market
    participants, and promote responsible innovation. The agency
    has extensive experience in supervising large and complex
    markets and maintains a robust enforcement capability.
        The U.S. is in a global race for leadership in digital
    asset innovation. It is a true race to the top. We have seen
    other jurisdictions, including the EU, the U.K., Japan, and
    Singapore, recognizing the importance of this technology by
    actively engaging with industry to consider and implement
    tailored regulatory regimes.
        While many of the best minds, technology, and resources
    still exist in the U.S., we can further establish U.S.
    leadership by way of a comprehensive legislative framework.
    Indeed, legislation is the most effective way to ensure long-
    term stability and guard against future policy volatility that
    may otherwise repeatedly shift the goalpost. This important
    work, squarely within the domain of this institution, Congress,
    and this Committee, will unleash powerful potential, enhance
    clarity, ensure consistency, and best protect consumers.
        Thank you again. I look forward to answering your
    questions.
        [The prepared statement of Mr. Kim can be found on pages
    38-49 in the appendix.]
        Chairman Boozman. Thank you. Mr. Behnam.

    STATEMENT OF THE HONORABLE ROSTIN BEHNAM, DISTINGUISHED FELLOW,
         PSAROS CENTER, GEORGETOWN UNIVERSITY, WASHINGTON, D.C.

        Mr. Behnam. Chairman Boozman, Ranking Member Klobuchar,
    Members of the Committee, thank you for the opportunity to
    testify before you today on this important topic.
        Between 2017 and 2025, I served first as CFTC Commissioner,
    then Chairman. During that more than seven-year period, I
    observed the significant growth of the digital asset market.
    While I served at the CFTC, the digital asset market endured
    multiple periods of dramatic volatility. Throughout this time,
    I publicly stated one consistent message to Congress. Under
    U.S. current law, there is a gap in regulation for the digital
    commodity asset market. The regulatory gap remains today and
    must be filled with targeted legislation. It has facilitated
    countless scandals and fraudulent activity, some very small in
    typical and 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 financial markets regulated
    by the CFTC and the SEC. Further, I do not believe public
    interest for digital assets will wane. Inaction will only
    result in greater risk to our financial markets and investors
    through lack of market transparency, fraud, market
    manipulation, corruption, and conflicts of interest.
        One common refrain in connection with past legislative
    efforts to fill the digital commodity gap suggests that a U.S.
    regulatory framework will legitimize the digital asset market,
    creating regulatory loopholes. 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.
        I believe the CFTC is the appropriate regulator to oversee
    the digital commodity asset market because of its expertise
    regulating commodity markets, including digital asset
    derivatives since 2017, and its enforcement experience in the
    underlying digital commodity market. Unique characteristics of
    digital asset trading, including decentralized finance,
    custody, and market structure, demand specific focus to ensure
    broader policy outcomes, and all investors deserve access to
    material information about a financial asset to ensure an
    informed decision.
        Market structure in traditional finance has evolved over
    many decades. I urge the Committee to carefully examine how
    current unregulated digital asset market structure differs from
    traditional market structure and consider where there may be
    opportunities for change and where existing market structure
    requirements should be preserved.
        The CFTC has a longstanding and productive partnership with
    the SEC. In a situation where a regulated digital asset market
    participant handles both security and non-security tokens in
    the underlying market, separate and exclusive jurisdiction for
    each agency is critical. Any regulatory system that includes
    deference or exempted authority will be an incomplete effort.
    Further, any framework where each agency does not retain its
    exclusive licensing authority portends a future of blurred
    jurisdiction across digital assets and possibly physical
    commodities.
        The CFTC's principles-based oversight model has served its
    regulated markets well, striking an appropriate balance between
    clear outcomes-based requirements and measured flexibility to
    meet those outcomes. In light of the novel nature of digital
    assets, market regulators, consistent with a legislative
    mandate, could tailor rules to meet the risk and profile,
    leaving flexibility to adapt with a changing market landscape
    as the digital market itself evolves.
        Second, regulations are only as strong as the agency and
    personnel that enforce them. Appropriate funding is necessary
    to meet the mandate of any regulatory program.
        Third, a reliable self-regulatory organization has been
    critical to the success of the CFTC. The National Futures
    Association has served as an effective partner for the CFTC for
    more than five decades. An effective legislative effort must
    include a role for the NFA.
        Fourth, it is essential that legislation provide
    comprehensive authority for anti-money laundering, ``know your
    customer,'' and customer identification program.
        Finally, given the broad adoption of digital assets by the
    American population, a comprehensive education and outreach
    program is critical as well.
        Domestically, federal law enforcement relies heavily on
    state and local partners to identify and combat civil and
    criminal misconduct, which often targets society's most
    vulnerable. I encourage this Committee to ensure state and
    local law enforcement remain a key partner.
        The principles and regulatory foundations that make U.S.
    capital markets and derivatives markets the deepest, most
    liquid, and most resilient in the world provide an effective
    model for digital asset market structure. We need to act
    thoughtfully but with urgency to fill this gap. I am supportive
    of recent steps the U.S. House Committee on Agriculture and
    Financial Services have taken in a bipartisan manner to fill
    this gap.
        That said, there is more work to be done to ensure
    congressional market structure legislation is comprehensive,
    does not undermine existing law, and addresses the unique
    characteristics of the ecosystem. Today's hearing is a critical
    step to achieve that goal.
        I thank the Chairman, Ranking Member, and Members of the
    Committee for your focus in this area and look forward to
    answering your questions.
        [The prepared statement of Mr. Behnam can be found on pages
    50-54 in the appendix.]
        Chairman Boozman. Thank you. Mr. Massad.

    STATEMENT OF THE HONORABLE TIMOTHY MASSAD, RESEARCH FELLOW AND
       DIRECTOR OF DIGITAL ASSETS POLICY PROJECT OF THE MOSSAVAR-
    RAHMANI, CENTER FOR BUSINESS AND GOVERNMENT, KENNEDY SCHOOL OF
            GOVERNMENT, HARVARD UNIVERSITY, WASHINGTON, D.C.

        Mr. Massad. Thank you. Mr. Chairman, Ranking Member
    Klobuchar, Members of the Committee, and staff, thank you for
    inviting me to testify. The views I express are my own and do
    not represent the views of the Kennedy School of Government.
        I hope this hearing gives us an opportunity to rethink how
    we should regulate digital assets. The Clarity Act, like many
    earlier proposals, has the right goals--address the regulatory
    gap, provide clarity--but the wrong approach. We need to keep
    in mind a few basic facts.
        First, this is a technology; it is not an asset class. It
    will be used in many ways, and the most valuable use cases may
    be tokenizing securities.
        Second, we cannot define whether something in digital form
    is a security, a commodity, or neither with a few paragraphs in
    a statute. Appropriate regulation depends on what the token
    represents, whether there is an issuer, whether capital is
    being raised, and other factors, and the technology is evolving
    rapidly. Therefore, we should not lock in definitions that will
    fail to bring clarity, nor should we tie regulators' hands.
        Third, a principal reason for the lack of clarity is our
    fragmented regulatory system. We have two market regulators,
    neither of whom has jurisdiction to regulate the spot market
    for digital assets that are not securities. I believe this
    solution should bring the agencies closer together.
        Finally, we are in a different place than the last few
    years. The primary regulatory response to date, court cases
    that sought to interpret the Howey test, was not sufficient,
    but the SEC has already abandoned regulation by enforcement and
    is actively working to provide necessary guidance. Congress
    should not fight the last war.
        All of these factors argue for a different approach, one
    that establishes regulation over the spot market without
    rewriting the securities laws and one that mandates the SEC and
    CFTC work together, not just on a few rules, but overall
    because both agencies have significant stakes and expertise in
    these matters.
        Regulation of the spot market needs to draw on the
    expertise of both agencies. Classification issues can best be
    addressed by the agencies working together to implement general
    principles, not prescriptive rules provided by Congress.
    Customization of rules to make sure they work for digital
    technology in recordkeeping, custody, clearance, and
    settlement, or otherwise, must be as consistent as possible
    between the agencies.
        Former SEC Chair Jay Clayton, who was appointed by
    President Trump, and I proposed essentially this approach two
    years ago. We said Congress should mandate that the SEC and
    CFTC work together to develop joint rules that would apply to
    every intermediary that trades or handles Bitcoin or ETH. That
    approach establishes jurisdiction over the market without, as
    we said, ``debating classification of each token or Congress
    pursuing tortured rewriting of existing definitions of
    securities and commodities.'' We added that ``Rewriting
    existing law might fail to bring clarity and inadvertently
    undermine decades of regulation and jurisprudence as they apply
    to traditional markets.''
        Unfortunately, the Clarity Act does the things we warned
    against. It will not provide clarity, but it will undermine
    regulation. Let me briefly note a few of its weaknesses.
        It addresses classification with a tortured definition that
    rewrites existing law.
        It provides exemptions from securities laws such as for
    raising funds if one has the intent to build a mature
    blockchain system that are unnecessary and will be misused.
        It creates a broad exemption for decentralized finance
    activities, which will lead to migration of regulated activity
    into an unregulated sphere. Indeed, a large intermediary like
    Robinhood or Goldman Sachs could operate a software protocol
    for the trading of tokenized securities that would then be
    exempt from the Securities Exchange Act.
        It will not require crypto trading platforms to own the
    digital assets their customers purchase, and it will permit
    them to engage in their own proprietary trading and have other
    conflicts of interest.
        Finally, it will provide many opportunities for smart
    lawyers to find ways to manipulate its provisions to achieve
    lesser compliance burdens for their clients. I was a corporate
    lawyer for 25 years with one of the best firms in the world,
    and I know how that works. We can and must do better, and I
    describe how in my written testimony.
        Finally, I just wish to agree with and underscore the
    Ranking Member's comments about the importance of addressing
    the activities of government officials in this sector.
        Thank you again for inviting me. I look forward to your
    questions.
        [The prepared statement of Mr. Massad can be found on pages
    55-79 in the appendix.]
        Chairman Boozman. Thank you. Mr. Sexton.

    STATEMENT OF TOM SEXTON, PRESIDENT AND CHIEF EXECUTIVE OFFICER,
               NATIONAL FUTURES ASSOCIATION, CHICAGO, IL

        Mr. Sexton. Good afternoon, Chairman Boozman, Ranking
    Member Klobuchar, and Members of the Committee. Thank you for
    the opportunity to testify at this important hearing to explore
    a legislative framework for the federal oversight of digital
    commodities.
        Over 50 years ago, Congress enabled the creation of a
    Registered Futures Association, or RFA, to support the CFTC's
    oversight of the commodity futures markets. NFA is the
    industry-wide independent self-regulatory organization for the
    derivatives industry and is an RFA. NFA is solely a regulatory
    body. We do not operate a market, and we are not an industry
    trade association.
        NFA's and the CFTC over 40-year public-private partnership
    overseeing the derivatives industry has been a tremendous
    success, and we recognize the CFTC's commitment and significant
    efforts in promoting the integrity, resilience, and vibrancy of
    the derivatives markets. Today, I would like to address three
    main points that may be helpful as this Committee continues to
    work on market structure legislation for the federal oversight
    of digital commodities.
        The first point is to introduce NFA and its critical role
    in protecting customers and ensuring the integrity of the
    derivatives markets. NFA has a clearly defined mission:
    Safeguard the integrity of the derivatives markets, protect
    investors, and ensure that NFA members meet their regulatory
    responsibilities. We optimize the self in self-regulation. Our
    board is primarily composed of representatives from NFA member
    firms, and we leverage industry expertise in every aspect of
    our work.
        Our activities are closely overseen by the CFTC. The CFTC
    provides frontline regulatory oversight of exchanges,
    clearinghouses, and swap execution facilities. NFA provides
    frontline oversight of our global membership of CFTC-registered
    market participants, including FCMs, swap dealers, IBs, RFEDs,
    CPOs, and CTAs.
        NFA's primary responsibilities include registering all
    firms and professionals on behalf of the CFTC, developing rules
    for fair dealing with customers and counterparties, monitoring
    members' compliance with those rules, taking enforcement
    actions when members violate those rules, offering an
    arbitration forum to resolve customer disputes, and providing
    investor protection and educational resources.
        The second point is to discuss some key principles for the
    effective oversight of digital commodities. NFA firmly believes
    that the CFTC is well-equipped to take on the oversight of
    digital commodities, given its core principles, regulatory
    approach, experience over the years integrating new asset
    classes into its oversight framework, and its current
    experience gained from having anti-fraud jurisdiction over spot
    digital commodities and supervisory oversight of related
    derivatives products, including Bitcoin and Ether futures.
        In establishing a federal oversight framework, we recommend
    the Committee focus on the following: Number one, clear lines
    of jurisdiction. We recommend that Congress provide the CFTC
    with exclusive authority over digital commodities and the SEC
    with authority over digital securities. We should avoid a
    framework in which jurisdictional lines become blurred, and we
    have two market regulators writing rules for the same activity.
    This will be confusing for market participants, create blind
    spots in the oversight of this market, and lead to regulatory
    arbitrage.
        Number two, strong customer protections. We advise Congress
    to look to the time-tested robust customer protections that
    have served the derivatives industry extremely well, which
    include customer fund safeguards, customer disclosures,
    business conduct standards, and anti-money laundering
    protections.
        Number three, flexibility to keep pace with innovation. We
    encourage Congress to rely upon the CFTC's significant
    experience with innovative products and retain its core
    principles, regulatory approach.
        The last point is to underscore that self-regulation
    provides many benefits to customers and the industry. As the
    derivatives markets have evolved over the years, Congress and
    the CFTC have entrusted NFA with additional responsibilities.
    Our coordination with the CFTC has resulted in a strong track
    record of protecting retail customers and prosecuting retail
    trading abuses and fraud. Today, customer complaints and
    single-event customer arbitrations followed at NFA, as well as
    the CFTC's reparation cases remain at all-time lows.
        Importantly, NFA is adaptive and proactive. We currently
    have numerous NFA member firms engaged in spot digital
    commodity activities. To enhance oversight of these firms, we
    adopted a rule in early 2023 that imposed its anti-fraud, just
    and equitable principal trade, and supervision requirements on
    them.
        Fifty years ago, Congress had the wisdom to establish a
    public-private oversight framework, which the CFTC and NFA have
    effectuated to form a strong oversight partnership. We strongly
    recommend that Congress, in any market structure legislation,
    retain a significant role for an RFA to partner with the CFTC.
        Thank you again, and I am happy to take any questions.
        [The prepared statement of Mr. Sexton can be found on pages
    80-85 in the appendix.]
        Chairman Boozman. Thank you. Mr. Lukken.

      STATEMENT OF THE HONORABLE WALT LUKKEN, PRESIDENT AND CHIEF
     EXECUTIVE OFFICER, FUTURES INDUSTRY ASSOCIATION, WASHINGTON,
                                  D.C.

        Mr. Lukken. Chairman Boozman, Ranking Member Klobuchar, and
    Members of the Committee, I appreciate this opportunity to
    testify. I am President and CEO of the Futures Industry
    Association, which represents the futures, options, and cleared
    derivatives markets globally. As was mentioned, I had the honor
    of working for this Committee during the passage of the
    Commodity Futures Modernization Act of 2000 and was able to go
    on to serve as Commissioner and Acting Chair of the agency for
    seven years, which included leading the agency during the
    financial crisis of 2008.
        The digital asset industry and, importantly, its customers
    deserve a proper regulatory framework that will keep these
    markets safe, innovating, and growing. The U.S. has two strong
    market regulators in the CFTC and the SEC. Collectively; they
    can bring digital commodities and digital securities into a
    proper regulatory framework. Given my background, I want to
    share my views on the Commodity Exchange Act and the CFTC and
    why this agency is well suited for the oversight of digital
    commodities.
        The CFTC's regulatory framework has five strengths worth
    highlighting. The first involves the agency's principles-based
    regulation, which ensures the CFTC can keep pace with
    technological changes and advancements in market dynamics. This
    will be key for the evolving digital commodity markets.
        The second strength is the agency's support of innovation.
    The CEA explicitly and uniquely requires the CFTC to promote
    responsible innovation in fulfilling its duties. The agency has
    done this for 50 years, allowing innovative new asset classes
    to be listed, including futures on cryptocurrencies eight years
    ago. Today, more than 60 cryptocurrency futures and options
    trade on seven CFTC-registered exchanges.
        A third strength is the agency's customer protections,
    which have safeguarded investors for years. These require
    futures commission merchants, or FCMs, to segregate and confirm
    customer balances every day. FCMs, those intermediaries who
    serve as agents for their customers, also provide a guaranty
    against customer shortfalls. FCMs contribute to a ``break-the-
    glass'' default fund at every clearinghouse should a single
    clearing member not be able to cover losses. This FCM model of
    protections has provided critical resilience and risk
    management over the years.
        A fourth strength is enforcement. Strong enforcement in
    combination with robust customer protections has shown to be a
    powerful one-two punch for the agency. The CFTC has
    aggressively used this enforcement authority from LIBOR to
    retail forex to energy market manipulation to bring actions
    against those who seek to swindle investors or manipulate
    prices.
        The last item I will mention is the CFTC's approach to
    cross-border trading, given the global nature of traditional
    commodities as well as digital assets. The CFTC's cross-border
    recognition framework, which it pioneered in the 1990s, strikes
    the right balance of protecting U.S. participants while
    providing access to markets globally. These five strengths will
    enable the CFTC to take on increased responsibilities in
    digital commodities and provide these innovative markets with a
    sound regulatory framework.
        I also want to highlight a couple of other key stakeholder
    recommendations for your consideration. The first involves
    recognizing the risk-reducing positions of customers for margin
    and capital. Farmers and other end users utilize our markets to
    hedge the price risk of assets, whether it is corn, oil, or
    financial products. When these offsetting products are
    regulated by different agencies, customers may be forced to pay
    double margins because of a lack of recognition of these
    offsetting trades. FIA supports statutory language that
    instructs the CFTC and SEC to allow for cross-margining between
    offsetting positions in these respective markets.
        FIA also supports legislative language that instructs
    prudential regulators to recognize these offsetting risk
    positions through cross-product netting. These two actions will
    free up capacity for these growing markets and incentivize
    strong risk management.
        The last item I will mention relates to the need for clear
    rules around managing conflicts of interest. We support
    legislative language that requires the CFTC to conduct a
    rulemaking on managing conflicts of interest when entities
    combine exchanges, clearinghouses, FCMs, and trading arms all
    within the same legal structure. We believe the development of
    consistent rules around conflicts will ensure customers can
    utilize innovative new structures without facing differing
    customer protections due to market structure design.
        Again, thank you for the opportunity to testify, and I look
    forward to your questions.
        [The prepared statement of Mr. Lukken can be found on pages
    86-91 in the appendix.]
        Chairman Boozman. Thank you. Let's go ahead and start with
    our questions. Mr. Behnam, Mr. Lukken, as former CFTC Chairmen,
    can you describe why you believe the CFTC and only the CFTC is
    the right regulator for spot digital commodity trading? Can you
    also speak to concerns with allowing entities to list or
    facilitate trading in digital commodities without having to
    fully register with the CFTC?
        Mr. Behnam. Thanks, Mr. Chairman. I would say the number
    one thing--and there are a few reasons why I have stated this
    in the past. You and I have had this conversation. I will start
    first with the experience, and this goes back to Chairman
    Massad's time in the mid-2010s when we had a determination of
    Bitcoin as a commodity, and you started to see enforcement
    actions coming out of the CFTC around digital assets. That is a
    long time ago, and over that 10-year period, the CFTC has been
    at the forefront of enforcement both on the fraud and
    manipulation side of crypto.
        Enforcement does not just mean an enforcement action. There
    are staff within the agency that are conducting research. They
    are doing surveillance of both the derivatives markets and the
    underlying physical market itself. The agency has developed,
    over this course of time, a really distinct and unique
    expertise in the digital asset market.
        The second thing I will say is the expertise in the
    commodity market. The CFTC is over 100 years old, the CFTC as
    an independent agency is 50 years old, and it understands
    commodity markets, and these are very distinguishable from
    securities markets, the way the markets are structured, and the
    regulation over them.
        Lastly, I will say it is extremely important the CFTC
    become the primary regulator of any commodity asset. As you
    have noted, two market regulators, it is important we have two
    market regulators because they are independently very large,
    unique markets that demand different sets of regulation. I
    believe if there is any agency that starts to regulate
    commodity tokens, it becomes and potentially creates a blurred
    line of what is jurisdiction between the CFTC, commodity
    markets, potentially physical commodities themselves, and other
    regulators.
        Chairman Boozman. Very good. Mr. Lukken.
        Mr. Lukken. I would echo my colleague. I think, really,
    three strengths that really give the CFTC unique ability to
    oversee the digital commodity markets, as Russ mentioned,
    expertise. I mean, the agency for 50 years has been, you know,
    developing the ability to look at secondary markets for
    commodities, and that expertise, you know, whether it is
    surveillance, manipulation of those markets and how best to
    ensure that those markets are not taken advantage by those
    trying to manipulate prices.
        Regarding cryptocurrencies, as was mentioned, the CFTC
    already has experience in this. The CFTC regulates 60 products
    currently, futures on those derivatives and all that goes with
    it from, you know, all the core principles that go with that
    regulatory expertise. They already have experience in the
    digital commodity space.
        The second is in their mission. In Section 3 of the
    Commodity Change Act, it is unique in that it says that the
    CFTC should be promoting responsible innovation as an agency.
    That is something that Congress had the wisdom to put in in
    1974. That allows these products, as they get listed for them,
    to be thinking about ways that it can promote these new
    innovative technologies that are coming in. I think that is an
    important top-down mission of the agency. They are going to
    help these products evolve and develop.
        Then lastly, it is just flexibility. The agency has
    principles-based regulation, as I mentioned, but other parts of
    the act foresee authority that allows it to carve out certain
    things that may not justly be in their jurisdiction, exemptive
    authority. I think the CFTC has the tools to exclusively
    oversee these markets, but also with some flexibility that will
    allow these markets to evolve.
        Chairman Boozman. Very good. Mr. Kim, can you talk about
    the importance of avoiding applying centralized intermediary
    regulatory requirements to decentralized software and
    technology?
        Mr. Kim. Thank you very much, Mr. Chairman. This is a very
    important question. Decentralized finance in its purest form
    allows individuals to transact with one another peer-to-peer by
    the use of software and code without reliance on centralized
    intermediaries. Notably, the software and code do not take
    control or custody of the funds. Of course, we regulate
    exchanges, not the matching engine. We regulate brokers, not
    the trading screens. We regulate the centralized
    intermediaries, which take control and custody of the funds,
    Mr. Chairman. It is important to keep that in mind as we look
    to establish a comprehensive framework for the United States to
    keep innovation here in the U.S.
        Very briefly, Mr. Chairman, of course, as Congress has been
    contemplating a broader market structure framework, the focus
    has been on centralized intermediaries that do take control or
    custody of funds. Right now, as my colleagues have mentioned,
    there is a regulatory gap. There is no federal framework for
    the supervision of digital commodities. That means there is no
    business conduct standards, no conflicts-of-interest
    provisions, no consumer education. It is important, in order
    for us to cement U.S. leadership and best protect consumers,
    that we address this gap by providing the CFTC with
    supervision, Mr. Chairman.
        Chairman Boozman. Very good. Senator Klobuchar.
        Senator Klobuchar. Thank you very much, Mr. Chair.
        I will start with you, Mr. Massad. You talked about the
    CFTC having a role and a clear one with regulating digital
    assets. Then you also talked about how you and the former Trump
    Chair have suggested doing something where the SEC does some of
    it and the CFTC does some of it. Mr. Sexton raised this issue
    that he is concerned. I do not want to put words in your mouth,
    right? That there would be vagary or two, you know, that are
    regulating the same thing. Could you talk about how you think
    this could work in today's environment in terms of making those
    kinds of suggestions or including that in legislation? Because
    I found that interesting.
        Mr. Massad. Certainly. The first thing is that Mr. Clayton
    and I were suggesting that if we were trying to establish
    jurisdiction over this spot market without rewriting securities
    laws, without rewriting the definition of security, that is why
    we argued for joint rules.
        Second, this is a different market, and I think we have to
    recognize that. It is much more retail than what the CFTC has
    regulated in the past. I have great respect for the agency's
    abilities and expertise, but we need to keep that in mind.
        We also need to keep in mind that this will be an
    exception, a very big exception, in that the CFTC does not
    regulate other spot markets, and we do not want that exception
    to grow. I would not want to see other constituencies come and
    say, well, why shouldn't the CFTC regulate this spot market?
        Finally, it is an unusual technology in that you are going
    to have things that start out as securities and then become
    commodities. That is the reason why they have to work together.
        How would it work? It would involve some joint rulemaking.
    It would certainly involve one of the agencies taking the lead,
    and I think in terms of implementing rules, enforcing rules,
    that could certainly be the CFTC with respect to this digital
    commodity spot market. I think it should also involve an SRO, a
    self-regulatory organization. I have great respect for the work
    of the NFA. I think that could be jointly supervised, as the
    Lummis-Gillibrand proposal advocated.
        I think it would be a combination of joint rulemaking,
    perhaps a joint SRO. You could even have common Commissioners.
    I realize that would be a big step. I have not advocated
    merger. I am not advocating merger. I think this is an unusual
    situation that we are in, and this is a technology that is
    going to have multiple uses, and it is necessary that we
    approach it in a way that we have consistency across the board.
        Senator Klobuchar. Thank you.
        Mr. Behnam, Mr. Massad just talked about that concern on
    the retail and how uniquely retail this is in terms of all the
    people that have purchased this, and it is part of their
    savings. What specific approaches would you recommend to ensure
    that innovation in crypto does not come at the expense of basic
    safeguards and customer protections for the public? Would there
    be specific marketing, disclosure rules? What would you see?
        Mr. Behnam. Thanks, Senator. I think it is important to
    note--and I have said this many times, probably before the
    Committee--yes, in fact, Chairman Massad, I agree with him. A
    lot of the market is retail-oriented, unlike the typical CFTC
    market, which is more institutionally oriented. We have to look
    really at the asset itself, as opposed to the constituency that
    is investing.
        Commodities versus securities are regulated in very
    different ways. Securities are regulated in a way to bridge
    information gaps between an issuer of security and investor
    because you have centralized individuals and audited financial
    statements that need to be disclosed to investors. That is not
    the case with commodities. I do not think you are going to need
    to build, and quite frankly, I do not think you can build an
    investor disclosure regime at the CFTC like you have one at the
    SEC, because you cannot simply disclose something about Bitcoin
    that you can about a share of a stock.
        Second, I advocated this. I said this in my testimony. Yes,
    the CFTC will absolutely need to increase its ability to get
    information out about the risk of loss associated with
    investing in digital assets. The CFTC has a very well-built-out
    customer education program, but I believe the Committee should
    think about investing in----
        Senator Klobuchar. Okay.
        Mr. Behnam [continuing]. that program to further it.
        Senator Klobuchar. Thank you. I will get more from you
    personally, so thank you for your ideas.
        Just one last question, Mr. Massad. In considering any
    legislation to regulate these digital markets, we cannot ignore
    the numerous ways that President Trump has sought to profit
    from digital assets and influence. His Trump meme coin offers a
    non-transparent backdoor for those seeking Presidential favors
    or attention, including the recent crypto dinner he sponsored
    that put money directly in his pocket. His World Liberty
    Financial issued stablecoin, USD1, only recently entered the
    market, but it has already skyrocketed to be one of the top
    five stablecoins.
        What effect do these activities have on the crypto industry
    and on efforts to regulate it? If you and I seem to agree in my
    opening and your comments that this has to be part of any
    regulation.
        Mr. Massad. I think it is a black eye for the industry, and
    I know a number of people in the industry that have expressed
    that but are afraid to speak out. I think it gives the wrong
    impression of what this sector is about, and that is why it is
    so important to address it through rules on conflicts,
    divestment, and so forth. I hope also I can come back on the
    disclosure point later.
        Senator Klobuchar. Okay. Well, I am sure I will have a
    second round or someone else----
        Mr. Massad. Thank you.
        Senator Klobuchar [continuing]. one of my colleagues will
    ask you. Thank you.
        Mr. Massad. Thank you.
        Chairman Boozman. Senator Marshall.
        Senator Marshall. Thank you, Mr. Chairman. It is great to
    see everybody. Mr. Behnam, welcome back. You look great, so
    life must be treating you well.
        [Laughter.]
        Senator Marshall. I will give you my first question. The
    crypto industry seems to use a lot of synonyms. You know, since
    the first time we met, I have been concerned about anti-money
    laundering and know-your-customer rules, that the crypto
    industry be held to the same standard as banks. How can we stop
    these black markets from happening and using this type of
    activity? How should we handle potential deficiencies moving
    forward to address these issues?
        Mr. Behnam. Thanks, Senator. It is great to see you as
    well. You know, I do think, and as I have said in my written
    testimony, as you and I have discussed over many years at this
    point, whatever efforts the Committee makes around anti-money
    laundering and know-your-customer should be grounded in
    existing law and existing law around both of those things that
    Treasury mostly implements, but the agencies will need to also
    have increased authority around anti-money laundering and know-
    your-customer.
        Much of this industry is about anonymity. I think why we
    are here today is to bring that anonymity into light, to bring
    transparency around it, and regulation serves that purpose.
    Comprehensive regulation around the entities, the
    intermediaries, will provide the tools that Congress needs and
    the law enforcement agencies to prevent anti-money laundering
    and know-your-customer issues that, unfortunately, support a
    lot of the illicit activity, potentially terrorist activity,
    terrorist financing that I know has been a big issue that you
    have addressed, but something that has to be addressed very
    specifically----
        Senator Marshall. Certainly, in your estimation, this
    remains a little concern, it is a big concern. How concerned--
    --
        Mr. Behnam. I think this is a primary concern that needs to
    be top of mind for all of you as you consider legislation, but
    I do not think it is reinventing the wheel. I think a lot of
    the AML/KYC law that has been developed over time is a good
    framework to build off of for this industry.
        Senator Marshall. Okay. Mr. Kim, I will come to you next.
    It is kind of the same basic question. What specific guardrails
    could be implemented to make sure that crypto markets are not a
    haven for bad actors who want to use crypto for money
    laundering and financing terrorism?
        Mr. Kim. Thank you for your question, Senator. Countering
    illicit finance is extremely important for the industry. No
    amount of illicit finance is acceptable in any industry or
    technology, including digital assets. As my colleague Mr.
    Behnam mentioned, FinCEN starting from 2013 has required
    digital asset exchanges to have SARS reporting, AML compliance,
    sanction screening, and I believe that providing the CFTC with
    oversight over the spot trading of digital commodities and
    allowing the CFTC to come up with additional necessary rules
    and guardrails to best protect the industry is something that
    would benefit industry, consumers, and that will allow
    innovation to grow in the United States because the only way
    for our industry to keep on growing is to best protect
    consumers.
        Senator Marshall. Okay. All right. Thank you, Mr. Chairman.
    I yield back.
        Chairman Boozman. Senator Smith.
        Senator Smith. Thank you, Mr. Chair, Ranking Member, and
    welcome to the Committee, everyone.
        I come at this from the basic perspective that people
    should be able to invest their money in any way that they
    choose, and they ought to also be able to count on free markets
    and markets that work well because there is a regulatory
    structure in place that protects them from unfair and rigged
    environments.
        I am going to just start with you, Mr. Massad, because I
    could tell you wanted to follow up on this issue of sort of
    CFTC versus SEC. I do not think it should be a versus or an
    either/or. I do believe that there is an important role for
    both agencies and also an important--our job here should be
    figuring out how to fill the gaps that exist when it comes to
    regulation regarding crypto assets. Would you just follow up
    about this issue----
        Mr. Massad. Sure.
        Senator Smith [continuing]. of disclosure----
        Mr. Massad. Yes.
        Senator Smith [continuing]. that was raised?
        Mr. Massad. Thank you, Senator. I agree with Mr. Behnam
    that generally on commodities we do not worry about a
    disclosure framework in the context of commodity futures. We
    just worry about whether the contract is susceptible to
    manipulation. This is different. It will be different. If you
    look at the Clarity Act, if you look at Lummis-Gillibrand, if
    you look at any of these proposals, they provide for disclosure
    regarding so-called digital commodities. We will have to build
    out some kind of disclosure framework. Again, I am fine with
    the CFTC being the lead authority on overseeing these markets,
    ideally with the work of an SRO. I think the development of the
    rules is going to require cooperation.
        Senator Smith. Thank you. I appreciate that. That is
    helpful. You know, we do not have legislation here in the
    Senate. As you know, we have the Clarity Act, which the House
    will be taking up as soon as this week, so I want to dive into
    some of the issues on the Clarity Act. We just had a chance to
    speak about this last week in the Banking Committee as well.
        Here is the first thing. Securities brokers are required to
    get their customers the best possible trade, right? They have
    to look across multiple exchanges. This is not happening for
    crypto trading right now. At best, the law is unclear, as I am
    understanding that. Would you agree with that? Would the
    Clarity Act do anything to address that issue?
        Mr. Massad. No, I do agree with your point, and no, it
    would not. Again, I think Americans, you know, think that our
    financial markets are well regulated because they are with
    respect to securities and commodities, but this one is
    different. There is no best-execution obligation. There is no
    prevention of conflicts of interest on the part of brokers or
    crypto exchanges.
        Senator Smith. Is there any reason that a crypto broker
    could not or should not be required to execute trades in the
    best interest of their customers? Is there anything that is
    intrinsic in the technology----
        Mr. Massad. No.
        Senator Smith [continuing]. or anything that would make
    that not reasonable?
        Mr. Massad. Not to my knowledge, Senator.
        Senator Smith. Okay. It seems to me, I would agree with
    you, that customers deserve to know that when they are buying
    or selling an asset, that their broker is trying to get them
    the best possible execution on their trade and not somehow
    profiting without them knowing about it. I think this is a
    place, colleagues, where we could look at how to improve the
    Clarity Act as we go forward.
        I want to ask you a bit about tokenized stocks, which I
    think is another very challenging issue. The trading platform
    Robinhood recently announced that it was going to start
    offering tokenized stocks to European investors, I believe.
    These are not actual shares in a company, but they are digital
    assets that, at least in theory, derive their value from the
    real thing, the real stock. They do not provide any ownership
    stake in the company or any rights that would come with being a
    shareholder, for example.
        Mr. Massad, proponents of these tokens claim that they
    would expand investment opportunities for folks, but I do not
    know that that really tells the full story. I mean, could you
    just address what risks these tokenized stocks would pose to
    investors and to the broader market?
        Mr. Massad. Yes, Senator. I think it will be a situation
    where there could be a lot of confusion and a failure to
    protect investors. It will not be clear exactly what this
    tokenized thing is. Does it pass through all the rights, or
    does it just represent trading on the price? There could be
    fragmented disclosure. There could be less transparent trading.
    There is a big risk with the decentralized finance exemptions
    in things like the Clarity Act.
        Senator Smith. You could own a tokenized stock, but you
    would not have any of the protections that you would have if
    you were purchasing a stock with all of the protections that
    the SEC would provide.
        Mr. Massad. It would depend, again, on what it meant.
        Senator Smith. Right.
        Mr. Massad. Again, that is why I think we need, you know,
    some joint rulemaking and some coordination between the
    agencies. It could represent something where it is a pass-
    through, but it might not.
        Senator Smith. It is open. Just in the seconds I have left,
    how could the Clarity Act provide--I am concerned that there is
    going to be sort of an incentive to move to one regulatory
    structure versus another, which is going to be the best for the
    company and not the best for the investor. Couldn't we address
    that from a policy perspective if we chose to?
        Mr. Massad. Oh, absolutely, we could. We would not have
    exemptions that encourage that kind of migration of activity.
    That is what we are seeing right now in the Clarity Act and
    some of these other proposals.
        Senator Smith. Thank you very much.
        Mr. Massad. Thank you.
        Chairman Boozman. Thank you. Senator Tuberville.
        Senator Tuberville. Thank you. Mr. Kim, you touched on this
    very briefly in your opening statement. The EU and U.K. are
    moving quickly to attract, you know, blockchain-based
    innovation. What risk are we at in the United States? What are
    we going to face if we do not get more urgent about what is
    going on? I recently talked to some exchanges, and they are
    freaking out basically about, hey, we have got to do something
    or we are going to have to move out of the country. What are
    your thoughts?
        Mr. Kim. Thank you very much for your question, Senator. As
    I mentioned in my testimony, it is a global race to the top, so
    other jurisdictions have not been waiting for the U.S. to lead.
    You have the EU, Singapore, Japan, U.K. all looking to attract
    technology resources. I see blockchain development and digital
    assets as the plumbing and infrastructure for the second half
    of the 21st century. We need the U.S. to lead.
        That said, despite the progress in other jurisdictions,
    everyone is watching the U.S. now. They are seeing the Senate
    having passed GENIUS. They are seeing development of a market
    structure bill, including in this Committee. Even the U.K. is
    actually a really good example, Senator, where they have been
    taking a very modular, patient approach, but recently, they
    announced an all-at-once approach. I believe that there is an
    opportunity for the U.S. to cement its leadership and make sure
    this innovation stays here in the U.S., and that starts with a
    comprehensive legislative framework, as I discussed, Senator.
        Senator Tuberville. Thank you. Mr. Sexton, do you have a
    follow-up on that? You got anything on that about us dragging
    our feet?
        Mr. Sexton. Senator, I encourage this Committee and the
    House to continue to work on legislation in this area. I think
    it is very important. I can tell you that from our perspective,
    we have, as I indicated, member firms already engaged in this
    activity. To the extent that the CFTC would be provided with
    not only anti-fraud, but also regulatory oversight over digital
    commodities, I think it would be very helpful as far as our own
    regulatory structure here.
        Senator Tuberville. Thank you. Mr. Behnam, the U.S. model
    of having two regulators--and we touched on this briefly--only
    works if they are clear jurisdictions. You are very familiar
    with that. Can you talk about the need to clear up, you know,
    this regulatory definition between the CFTC and the SEC?
        Mr. Behnam. Senator, thanks for the question. It is the
    first and most important step because, from that point, the two
    agencies will be able to really start to develop rules either
    distinctly and uniquely or in a joint fashion. This is
    certainly a new asset that has a lot of characteristics that
    are similar to other assets but also have a lot of
    characteristics that are novel and new and are going to require
    a different way of thinking about, so I do think it is
    critically important.
        I also think, putting myself in my old shoes, it is
    important that the agencies get a bit of a steer from this
    Committee and Congress because there are lines that I think
    this Committee and the Congress can draw to help the agencies
    start to really define the landscape of what tokens are
    securities and what tokens are commodities.
        Senator Tuberville. Thank you. I yield back.
        Chairman Boozman. Senator Lujan.
        Senator Lujan. Thank you, Mr. Chairman, and thank you for
    holding this hearing and an opportunity to have this particular
    discussion about digital asset market structure. One of the
    concerns I think has been brought up today and that many have
    had throughout the years is what happened with FTX, with
    Celsius, with a few others like Terra Luna when there was a lot
    of concern and devastation. What I have appreciated most
    recently is everyone's willingness to come and have more
    conversations and say, no, there needs to be rules. I
    appreciate the bipartisan nature of how this has been taking
    place as well, so just thank you so much for this particular
    conversation.
        Now, Mr. Massad, it is widely understood that Bitcoin is a
    commodity, not a security. Now, if I wanted to buy or trade a
    Bitcoin, a meme coin, or another commodity, I could log on to
    an exchange to do that. However, I could also buy and trade
    tokens that look much more like securities on the same platform
    right next to each other. My question is, sir, what are some of
    the differences in the protections for consumers between a
    commodity like a meme coin versus a security like a stock?
        Mr. Massad. Well, today, they are huge because we do not
    have any regulation of this spot market for so-called digital
    commodities. That is what we need to put into place. Your
    question also really goes to the fact that, you know, when we
    think about how to make that regime work, we are going to need
    things that are unusual for commodity markets. We are going to
    need disclosure rules, as well as trading rules, as well as
    conflict rules, and so forth. That is why, again, I think we
    are going to have to have some coordination between the
    agencies.
        Senator Lujan. With that being said, is it reasonable for
    customers to be confused about the differences in their
    protections when they are listed next to one another? Does it
    increase the risk of something called rug pulls and pump-and-
    dump schemes, things of that nature?
        Mr. Massad. Absolutely. For example, under the Clarity Act,
    it is not even clear that those meme coins would be regulated.
    Now, I think they have recently put out a revision that maybe
    they would be, but, you know, we should have a framework where
    anything that is traded on these platforms is subject to the
    regulatory framework. They cannot just list something else that
    is not, and then those rules have to be very clear so that
    customers are not confused. We should not have securities
    trading on the same platform.
        Senator Lujan. What are your thoughts, your expertise here
    with what Congress needs to do to protect consumers from
    fraudulent schemes while still allowing Americans to access and
    benefit from cryptocurrencies?
        Mr. Massad. Well, again, we need to put in a good
    comprehensive framework. You know, the measures that are
    proposed so far have some of those elements but not sufficient
    ones. I think they are too lax in a lot of the requirements. I
    think they, you know, do not address conflicts of interest
    sufficiently. I think they undermine securities laws by
    creating some exemptions from those laws. You know, it requires
    a comprehensive framework that will create investor protection
    standards that are comparable to what we have in the securities
    markets today.
        Senator Lujan. Appreciate that. Mr. Behnam, one issue here
    is that the CFTC does not have clear regulatory authority over
    spot crypto markets. As past CFTC Chair, how would you protect
    consumers from fraud like those rug pulls that I just asked
    about and pump and dumps and meme coins where there are clear
    issuers, unlike other commodities like oil where there is no
    central issuer?
        Mr. Behnam. Senator, thanks for the question. I do think
    before we get to a point where you are deciding which agency
    has jurisdiction, if we can get lines drawn around definitions
    between commodities and securities, the whole premise and
    thesis behind the commodity tokens is that they are, in fact,
    maybe an issuer at some point in the evolution of the token,
    but when it is trading on a CFTC exchange, it is decentralized
    enough or at some point where it is sufficiently decentralized
    where there is no central institution, group of individuals, or
    individual that is controlling or impacting the price of the
    asset. If it is sufficiently decentralized, which works off of
    a lot of the legal precedent that is built around our
    securities laws and our commodities laws, you really would not
    have that issue where you have individuals pulling off
    manipulative trading activities that could hurt investors.
        Senator Lujan. Is it fair to say that the definition
    section of this legislation matters?
        Mr. Behnam. The definition section of any legislation this
    Committee puts out is arguably the most important part of the
    legislation.
        Senator Lujan. I appreciate that.
        Mr. Chair, as my time expires, that is one of the issues
    that I and my staff raised during the markups with the GENIUS
    Act as well, and so, I certainly hope that we can pay
    particular attention to the expertise from the staff that we
    have around us and others coming in when we are looking at that
    definition section and just highlight your testimony today.
        Thank you for the time today, Mr. Chairman.
        Chairman Boozman. Thank you. Senator Justice.
        Senator Justice. Thank you, Mr. Chairman, Ranking Member.
    Thank all you guys for being here.
        Now, from my side, you know, I speak really plainly, okay?
    I would say just this. For God's sakes a living, do we not have
    enough smarts in the room to figure this out? I mean, when it
    really boils right down to it, do we not have the smarts in the
    room to figure it out? I really believe we do. I really believe
    hands down, too, that the upside potential is off the chart.
    Almost every country on the entire globe is scrambling like
    crazy to get a piece of the puzzle. You know, that is all there
    is to it. Why in the world are we so afraid of the dark? Why in
    the world are we so afraid of something that has the potential
    beyond belief, and do we not just figure it out?
        Now, let me just tell you just this, just two or three
    things. Today, Bitcoin is trading in its own little hemisphere,
    you know, and it is trading at $117,000. Forty-five days ago,
    at the summit in Las Vegas, it was trading at $110,000. For all
    practical purposes, to make it real easy, 7 percent in 45 days.
    Now, lots and lots and lots of folks, whether we want them to
    or we do not want them to, lots of folks are saying, I want in.
        Now, with all that being said, what we need to do is we
    need to have a framework that allows innovation, period. Do we
    not? Great big b-u-t with Jim Justice saying, great big, we
    have got to have an enforcement arm that protects the consumer.
    Without any question, we have got to protect Toby and Edith.
    Now, I always call Toby and Edith the voters, but Toby and
    Edith want in, but they do not have any idea how to understand
    this. You know what they do? They ask us to protect them. That
    is what they do.
        They do not ask us to do this to--and I have said this a
    bunch of times, but in my world, I can remember my dad saying,
    just count the egg-sucking cows. You do not need to count the
    legs and divide by four because they are moving their legs all
    the time. You cannot ever, ever figure out how many cows are in
    the field.
        Now, come on. We are really smart, and we are a country
    that ought to be leading the way in every way. What are we
    doing? Why are we so scared of the dark? Why are we so
    committed to counting the legs and dividing by four?
        Listen, we passed GENIUS. It is good. Now, we have to some
    way acknowledge legitimacy, market structure. We have to have
    regulated clarity. We have to have clarity. We have got to
    protect Toby and Edith all the time, 100 percent. We have got
    to have real live enforcement that absolutely eliminates your
    bad actors.
        You are really smart people, super smart people. You have
    got some really smart people here on this Committee. Maybe not
    me, but you have got some really smart people. I am here to
    tell you, we need to move and move now. Now, we are going to
    sit around and twiddle our thumbs, and a lot of people are
    going to have a leg up on us like we cannot imagine. That is
    not doing Toby and Edith right. Toby and Edith want to play the
    game. They want to be involved. They want to be the next
    innovation. They ask us one simple thing, protect them.
        I am almost out of time. You have got to go real fast, 10
    seconds a piece. Tell me, how can we pull it off? How can we
    pull the innovation off? How can we protect them? Real simple.
        Mr. Kim. I believe that when the U.S. puts its mind to
    something, that we can accomplish great things. I think, like
    you said, Senator, we do need a comprehensive legislative
    framework to allow for responsible innovation, a principles-
    based approach, while best protecting consumers, and I think
    now is the time to do so, Senator.
        Mr. Behnam. Senator, I think, number one, just we have
    great capital markets and derivatives markets. Start with that
    as a foundation, and then we can figure it out.
        Mr. Massad. I would say, keep a couple principles in mind.
    Do no harm to the existing markets. Keep it relatively simple
    in the legislation and rely on the expertise of our regulators.
    They do have expertise, and we should draw on it and not fight
    the last war when they were not doing enough, perhaps, to
    customize rules.
        Senator Justice. Thank you.
        Mr. Sexton. Use the time-tested structure that has already
    been in place and has been in place for years. The CFTC
    regulates commodities. The SEC regulates securities. Use that
    structure. Congress gives some definitional support to what is
    a security, what is a commodity, and you go from there. It has
    worked in the past. It is simple. It will work again. There are
    SROs underneath that that support the SEC and the CFTC in their
    work.
        Senator Justice. Thank you.
        Mr. Lukken. Senator, your description of the volatility of
    Bitcoin reminded me of other commodities like oil, gold,
    production crops that farmers that talk to you all the time are
    dealing with. The CFTC is a natural home for these types of
    commodities that are dealing with volatility, the fact that
    they can trade the derivatives to help to hedge that
    volatility.
        My advice to this Committee is to give exclusive
    jurisdiction over digital commodities to this agency and to
    give digital securities to the SEC and to give clear lines of
    jurisdiction to both agencies.
        Senator Justice. I want to thank all of you and thank you,
    Mr. Chairman, because you have led the charge and everything,
    and I am right with you, sir.
        Chairman Boozman. Thank you. Senator Durbin.
        Senator Durbin. Thank you, Mr. Chairman. We have said over
    and over again we have securities and commodities, and we have
    got to make careful definition, but I think there is more to
    the story. In the Clarity Act, which will receive a vote in the
    House this week, they created a loophole for crypto tokens
    known as collectibles. That means those crypto tokens will not
    have to register with financial regulators and would benefit
    from a lighter-touch regime. In fact, collectibles are not even
    considered digital commodities in the bill and are basically
    exempt from most requirements.
        When Coinbase, one of the largest crypto exchanges, went to
    court with the SEC, Coinbase--I believe he is a member of your
    organization, Mr. Kim. Coinbase argued that the tokens listed
    in the SEC's complaint were neither securities nor commodities.
    Coinbase's lawyer argued in court these tokens were like Beanie
    Babies, meaning just trading collectibles. These collectibles
    can involve multi-millions of dollars. Just ask President
    Donald Trump, who listed his own meme coin on exchanges like
    Coinbase and Kraken, two exchanges that are part of the Crypto
    Council for Innovation.
        President Trump's meme coin has no real use and trades its
    values basically on popularity and hype, just like a Beanie
    Baby. That did not stop President Trump from auctioning off his
    meme coin and giving top investors--get this--access to a face-
    to-face dinner with the President of the United States. Not
    only did President Trump make $315 million in fees by selling
    his meme coin--get this now, too--764,000 unique wallets lost
    money to the President's scheme. Talk about Toby and Edith. All
    the while, crypto exchanges like Coinbase and Kraken claim they
    had a robust listing process and continue to perform due
    diligence, on and on.
        Mr. Massad, let's start with you. What concerns, if any, do
    you have about a huge exception for collectibles in any crypto
    market structure legislation, number one? Number two, you
    talked about a black eye to the industry, this transaction
    involving the President. I think it is more than a black eye. I
    think it is evidence of corruption. The question, the bottom
    line, as far as I am concerned is, what does the industry do if
    they are afraid of the President when it comes to regulation?
        Mr. Massad. Thank you for the question, Senator. First, on
    the collectibles, I agree with you. The Clarity Act does
    exclude those as commodities, and I think the rule should be
    that digital commodity exchanges cannot trade anything unless
    they are covered by these rules. What I would suggest to you,
    Senator, is why don't you write all the big platforms,
    Coinbase, Kraken, Gemini, if it is so clear--if the Clarity Act
    is so clear as to what is a digital commodity, ask them to tell
    you of the hundreds of things they list which ones are digital
    commodities and see what answers you get.
        Senator Durbin. Mr. Sexton, what do you think?
        Mr. Sexton. Senator, with regard to those types of tokens,
    coins, I can tell you that we approach it from a slightly
    different angle, and that is, we regulate the conflicts that
    may be embedded within our members.
        Senator Durbin. I will have to ask you to make a brief
    conclusion to your answer so I can ask one other question.
        Mr. Sexton. Go ahead.
        Senator Durbin. In 2024, the FBI reported that Americans
    lost $16.6 billion to crypto schemes, 33 percent increase over
    the previous year. The type of scam I am concerned about
    involves a machine called a crypto ATM. Mr. Sexton, do you know
    how many we have in our state of crypto ATM machines?
        Mr. Sexton. I could tell you I do not know the exact
    number, Senator, but quite a few.
        Senator Durbin. I can tell you. It is 1,600. What happens
    with a crypto ATM? They put them in grocery stores and shops.
    They are basically the way they victimize senior citizens and
    people in minority communities. Once a victim places their
    hard-earned cash in one of these machines, it disappears into a
    criminal's wallet, almost impossible to get back. Here is how
    it works. Scammers call an unsuspecting victim, tell them they
    owe taxes to the IRS or a penalty for failure to appear for
    jury duty. Not to worry, they can pay it off at a crypto ATM.
    They direct them to the nearest crypto ATM. These people put
    their life savings, in some instances, into the criminal's
    digital wallet. In 2024 alone, scammers stole nearly $250
    million from Americans, and the stories are heartbreaking.
        This industry ought to wake up to this reality. There is a
    misuse of one of their operative machines to scam people over
    and over again with huge sums of money. Want to be known as a
    reputable industry? Do something reputable like protecting
    consumers. About 15 states have done it. All of them should,
    and we should put something in the federal bill. When the
    GENIUS Act came before the Congress, I wanted to offer this
    amendment. No amendments. Take it or leave it on the GENIUS
    bill. Well, if we have a second chance, whether it was clarity
    or GENIUS returning, let's at least think about the consumers
    for a few minutes.
        Thanks, Mr. Chairman.
        Chairman Boozman. Thank you. Senator Booker.
        Senator Booker. I am grateful. I think, if anything, we are
    hearing in this Committee is the urgency for a market structure
    bill that provides the appropriate regulation. I want to jump
    in right away, though.
        Mr. Massad, you said something that to me maybe was an
    understatement. I never imagined in my life I would see the
    President of the United States create a digital asset that is
    open to being purchased, a meme coin that could be purchased by
    anybody, anywhere, from our adversaries, our rivals, from
    people trying to curry favor with the United States, from
    people who are looking for military deals, and to literally
    sell seats to a dinner at the White House, at one of America's
    more sacred civic spaces. To me, this amounts to a level of
    galling corruption never, ever before imagined that could
    happen in our country, and we are normalizing it.
        It is corrupt, it is dangerous, it is an attack on our
    democracy, it is a violation of the Emoluments Clause, and it
    is undermining this industry as a whole. Would you agree with
    me that my language is perhaps more appropriate?
        Mr. Massad. I would totally agree with you, and I have said
    similar things. The meme coins are a perfect bribery tool
    because they are out there, someone can buy them and,
    therefore, you know, provide essentially money to the
    President, yet still claim, well, I am just speculating on a
    meme coin.
        Senator Booker. Would you agree that the way our
    Constitution was designed, the legislative branch is supposed
    to provide checks and balances and oversight, and the fact that
    the United States Senate has not had one oversight hearing of
    this corruption is a surrendering of our obligations and duties
    under the Constitution?
        Mr. Massad. It is shocking to me. I mean, he is making
    billions of dollars, not just from the meme coin, but from his
    own stablecoin. Even the meme coins have been called by the
    creator of Ethereum--the creator of Ethereum has called them a
    bribery tool.
        Senator Booker. I think it is appalling that Congress has
    laid down. I think it is extraordinarily dangerous----
        Mr. Massad. I would agree.
        Senator Booker [continuing]. and I am beyond frustrated
    that we are normalizing this level of corruption in America and
    have the most corrupt President imaginable, who is making
    hundreds and hundreds of millions, if not billions of dollars,
    profiting off of the Presidency at the very national security
    risk that it poses to our country when he can make decisions
    that affect truly the safety and security of our country, as
    many of these countries are trying to curry favor and have
    deals. That does not even begin to mention the Trump hotels and
    all the other things that he is doing that truly undermine any
    idea of what it means to operate in the Presidency with
    integrity.
        I want to jump really quick, Mr. Behnam, because I am very
    deeply engaged and involved in trying to make sure that we land
    something that could deal with a lot of the challenges. The one
    thing that has not been discussed, as you and I talked about
    this ad nauseum, is the CFTC's capacity to regulate this area.
    Right now, we have seen budget requests for a 2.9 percent
    decrease in funds from its 2024 request and a 5.1 percent
    decrease in personnel, which is on top of cuts made earlier
    this year by DOGE that threatens the CFTC's ability to oversee
    the $120 trillion equity and debt markets it is already
    responsible for, without even adding the growing crypto market
    into the equation as is envisioned. The House's Clarity Act
    would expand the CFTC's jurisdiction without a single
    additional dollar. It will create chaos for retail consumers in
    our markets, I believe both crypto and in traditional finance.
        Am I right to be outraged that this is how we are starting,
    without understanding the resources that would be necessary to
    do what a lot of us are envisioning?
        Mr. Behnam. Senator, short answer is yes. I mean, the
    number one priority, if we are going to authorize new authority
    for an agency, the CFTC here, is funding and resources so that
    it can execute those responsibilities.
        Senator Booker. Well, I will tell you this right now. I
    want to lean in in a bipartisan way and craft market
    regulation. This is what I see right now. I see Senators and
    Congresspeople trading stocks and bonds, people who are
    involved in the crypto world. Again, I have legislation with a
    number of other Senators that really say very clearly that we
    should be doing everything we can as a matter of integrity to
    stop corruption, that we should introduce and pass the End
    Crypto Corruption Act, which would make sure the President,
    Vice President, Senior Executive Branch Members of Congress and
    immediate families, that stops them from financially benefiting
    from issuing, endorsing, or sponsoring crypto assets such as
    meme coins.
        We have this air of corruption that undermines the
    integrity of Congress and the Presidency at a level of
    corruption we have never seen before. The very regulatory
    bodies that should be overseeing these massive markets is being
    starved of resources to even do the jobs they are doing right
    now. Any serious effort to engage in the kind of market
    structure bill we are having without putting the resources that
    we have discussed in the past, in the bill that we had in the
    last Congress, a bipartisan bill, we had a way of addressing
    this.
        There are a lot of structural problems I have right now.
    The level and possibility of corruption, of scams, of people
    that could get hurt if we do not do this right, is stunning to
    me, not to mention the very foundations of our democratic
    system so that we do not become some corrupt banana republic
    where Presidents and Senators and Congresspeople can bilk the
    American people by bending the rules, corrupting the rules for
    their own benefit. We have got to do things different.
        Chairman Boozman. Thank you. Senator Bennet.
        Senator Bennet. Thank you, Mr. Chairman. Thank you for
    holding this hearing. Thank you to the witnesses for being
    here.
        Mr. Massad, President Trump earned about $57 million from
    his stake in World Liberty Financial last year, according to
    the most recent disclosure forms. In the last few months, World
    Liberty Financial launched a stablecoin, which was used by an
    Abu Dhabi-backed investment company for a $2 billion investment
    in finance. Just before the inauguration, President Trump
    issued a meme coin, which surged in price in May. President
    Trump hosted a dinner, as has been said, for the 220 biggest
    holders of his Trump coin, further juicing the value of that
    coin. About 80 percent of the tokens are held by Trump-
    affiliated entities.
        I do not think we should have to wonder if the President of
    the United States is favoring the interests of a foreign nation
    or a private crypto exchange like Binance because he stands to
    personally profit.
        That is why, last month, I took over the Senate Floor to
    directly add an amendment to a piece of crypto legislation that
    we were considering, the so-called GENIUS Act, which was on the
    Floor of the Senate. My amendment, the only Democratic
    amendment that was pending, would have prevented the President
    and the Vice President from issuing stablecoins. I would be
    surprised to know that there are a smaller percentage than 95
    percent of the American people who would not have agreed with
    my amendment. Yet it was thrown out of the bill, and Democrats
    and Republicans voted for that bill without demanding that the
    President and the Vice President, and Members of Congress, not
    issue these currencies.
        Today's conversation does not only address stablecoins, but
    the entire ecosystem of digital assets, and it is really
    important for us to get it right. I believe, really strongly,
    that the--and I believe, again, 95 percent of the American
    people, if not 98 percent of the American people, would agree
    that the President, the Vice President, a Member of Congress,
    high-ranking officials of our government, should not be in the
    business of issuing any cryptocurrency.
        Mr. Massad, as a former federal regulator, should federal
    elected officials be prohibited from issuing or endorsing
    digital assets while they are in office?
        Mr. Massad. Absolutely, Senator.
        Senator Bennet. What kind of market manipulation might
    result from that? We have had some discussions today about why
    these are like other commodities, like wheat or like--but how
    is it maybe different in this case?
        Mr. Massad. The meme coins are a perfect example. They have
    been called a classic pump-and-dump scheme by a number of
    commentators. They were issued. People rushed to buy them. He
    made a lot of money off of that, and then the price fell, and a
    lot of people then had losses. You know, he is investing in not
    just a stablecoin. They are now doing things with Bitcoin
    mining and other business ventures. I agree with you totally.
    You should be prohibited from doing those things and required
    to divest.
        Senator Bennet. Can you imagine any benefit to the American
    people of allowing the President or Vice President to
    speculate----
        Mr. Massad. None.
        Senator Bennet [continuing]. in this currency?
        Mr. Massad. None whatsoever, Senator.
        Senator Bennet. Yet the U.S. Senate has passed a bill that
    allows them to do it. I offered an--I had an amendment pending
    that said the President or Vice President should not do it. I
    would be shocked if I lived long enough to have an amendment
    pending that would be more popular with the American people
    than the one that I had in there, and yet the Senate threw it
    out before they blithely passed the legislation.
        Mr. Massad. We have never imagined that a President would
    do these kinds of things, and therefore, you know, we do not
    have the rules in place to prevent it, but we need them now.
        Senator Bennet. I would think the industry would want these
    rules in place.
        Mr. Massad. I think they do. They are just afraid to say
    it. I have had a----
        Senator Bennet. Why are they afraid to say it?
        Mr. Massad. Because they are afraid that it might hurt
    their business interest. I have had so many people in the
    crypto industry come up and tell me that.
        Senator Bennet. Well, we are going to have to figure out as
    the elected leadership of this Nation to do better than that
    somehow.
        Mr. Massad. I would agree, Senator. If you do not do it,
    who will?
        Senator Bennet. Exactly.
        Mr. Chairman, thank you very much. I will submit my other
    questions for the record, but I appreciate--I think you shed
    some important light here.
        Chairman Boozman. Thank you.
        Senator Bennet. Thank you.
        Chairman Boozman. Thank you, Senator Bennet. Senator
    Schiff.
        Senator Schiff. Thank you, Mr. Chairman, and thank you all
    for being here to testify.
        I think it is very important that we have good, strong, and
    sound regulation of this whole industry to protect consumers,
    to make sure that there are clear and understandable rules of
    the road, that there is some certainty for investors, for
    consumers, that there are protections in case of bankruptcy or
    fraud.
        I am also deeply concerned, as Senator Bennet just alluded
    to, to the prospect of high Administration officials
    manipulating digital currencies or their ability to influence
    enforcement actions and being very interested in your thoughts
    about how to address these conflicts, potential and real
    conflicts of interest when you have people who are in positions
    of dominant influence like the President or others issuing,
    endorsing, sponsoring their own digital currencies, how we can
    ensure that we either prohibit such actions completely or that
    we make sure that people who are engaging in them are subject
    to laws against market manipulation and self-dealing.
        Let me start, if I can, Mr. Behnam--good to see you again--
    by asking you, I know you have spoken directly about the need
    to maintain public confidence and integrity in these markets.
    Do you think public officials that have any kind of supervisory
    or influential role should be permitted to issue their own
    currencies or endorse their own currencies or would it be the
    most basic and fundamental provision that that should simply be
    banned?
        Mr. Behnam. Senator, thanks for the question. Short answer
    is yes, it should be banned. I will say as a former regulator,
    you know, just five or six months removed for seven years at
    the Commission, I took that responsibility very seriously, the
    weight of the responsibility as a regulator over markets and
    ensuring there was no conflict of interest or exposure that me
    or my family had to the markets I regulated.
        Senator Schiff. Does anyone testifying here today think it
    is okay, good practice, nothing to see here for high
    Administration officials who have influence over these markets
    to be able to issue or promote their own personal stablecoins,
    digital currencies of any kind?
        Mr. Massad. Just to be clear, Senator, I agree that it
    should be banned, should be prohibited.
        Senator Schiff. I would go further, the Administration
    officials, I would say ban all those actions from any Members
    of the House or Senate. Anyone disagree with that proposition?
        Mr. Kim. Senator, I know this has been a discussion among
    policymakers. I just wanted to note that for myself, this is
    admittedly outside my area of expertise, and I see this as a
    decision for Congress. I just wanted to say that respectfully,
    Senator.
        Senator Schiff. Well, I appreciate that. I hope we will
    make that very decision because I think it is vitally important
    that we regulate this area. I think the current unregulated or
    regulation-by-litigation posture we are in is undesirable for
    everyone, does not protect consumers, does not help legitimate
    actors in the industry, does not provide any certainty or
    ability to plan or predict or invest. At the same time, the
    most basic protections we might put in place to protect
    consumers will be undermined if those that can influence the
    whole market are in business themselves and able to enrich
    themselves.
        Let me move on from the problems that have been documented
    by the First Family's involvement in this business. In what
    other respects--and I open this up to any of our participants--
    can we help ensure that consumers are protected? Obviously,
    there have been some catastrophic failures of companies in this
    space engaged in fraud. What is the best way to protect
    consumers so that in the event of a catastrophic failure, they
    are protected?
        Mr. Lukken. Maybe I will start off. I think the first is
    acting. I think the Congress needs to act to fill this
    regulatory gap. This Committee is starting that process of
    doing that. We are going to have to, as was mentioned, make
    sure that we have strong, clear lines between the CFTC and SEC
    on how you think the jurisdiction should go. Importantly, each
    agency brings unique customer protections and important market
    integrity issues that are going to help fix the problems that
    you are identifying. I think you are preaching the choir here.
    Everybody on this panel wants to fill this gap right now, and
    it is up to Congress to act quickly.
        Mr. Behnam. Senator, I will add in December 2022, I
    testified before this Committee shortly after FTX failed. FTX
    had one entity that was registered with the CFTC. It had a
    number of entities globally, over 125. I said to this
    Committee, of the 125-plus entities, about two or three, two I
    think in Asia and one here in the U.S., LedgerX, which was
    registered and regulated by the CFTC, was viable, well-managed,
    and had value after that bankruptcy. After that fantastic
    bankruptcy, this entity that had regulation, that had
    supervision, that had oversight, had a future because of
    regulation. That is the point that I think is most important
    for this Committee to take away. As much as there are many
    issues to resolve and discuss and deliberate, regulation works,
    and it ultimately will protect customers.
        Mr. Massad. I would agree with what former Chair Behnam
    said. I think the other entity of the FTX family was one in
    Japan that was also subject to pretty good regulation.
        Mr. Kim. If I may very briefly, Senator, I agree with the
    need to address the regulatory gap, as I mentioned, by
    providing the CFTC with comprehensive oversight over digital
    commodities. It is just taking us on a slightly different
    angle. I know for CCI, a lot of what we do is consumer
    education, Senator, so we would love to be a resource to you
    and your office. We have different workshops making sure that
    there is scam awareness campaigns. A lot of our members do that
    as well because even though we are here to talk about the need
    for market structure, there is a need to just educate a lot of
    consumers about the fraud and scam out there, and CCI is
    committed to coming up with policy solutions, Senator.
        Mr. Sexton. Last, to keep it short, Senator, and thank you
    for the question, I agree with all my panelists. Look, this is
    not difficult. There are longstanding safeguards in place to
    protect retail customers. The CFTC and NFA have adopted them
    over the years with regard to derivatives. Those should be
    applied also to the digital commodity markets to protect retail
    customers, safeguarding customer funds, market practice rules,
    business conduct rules, disclosures. There is a whole litany of
    them. I think it is extremely important that this Committee
    look to those time-tested requirements and safeguards, and they
    go a long way to accomplishing what we are trying to do, and
    that is protect retail customers with regard to digital
    commodities.
        Senator Schiff. Thank you. Thank you, Chairman.
        Chairman Boozman. Thank you. Senator Klobuchar.
        Senator Klobuchar. Thank you very much, Mr. Chairman. I
    just have a few questions as promised at the end.
        I hope that the world watching here sees that we are not
    going to be rolled here on this bill, on the Clarity Act, and
    that you have a lot of Members who want to see a piece of
    legislation that truly protects consumers, people who have
    worked with the industry in the past on our side that are
    interested in working on this but really want to see some
    serious changes and are concerned both about the conflicts
    issue, are concerned, as Senator Booker--I am going to ask my
    first question on this--about the funding issue of how the CFTC
    should do this, and are certainly concerned about the consumer
    welfare and what safeguards should be in place, and there is
    not loopholes that could, you know, drive a truck through here.
    That is kind of where--it is not consensus. We have Members
    with different views on this, but I do think that people should
    take home from this that we are going to want to see some major
    changes.
        Mr. Behnam, you previously called for additional funding
    and staff for the CFTC to write rules for and oversee these
    markets. How important is it that Congress provide for durable,
    sufficient funding when it comes to these brand-new markets?
        I think just to combine my questions then with you, Mr.
    Lukken, one of the concerns is we have got derivative markets,
    we have got an economy that is on a roller coaster right now
    because of tariffs and other things. We do not want to
    disadvantage existing markets and market participants in how we
    do this, so it is a little bit the same question, but go ahead.
        Mr. Behnam. Senator, very quickly, thank you for the
    question. Short answer, it is an absolute priority. If you
    authorize a regulatory program but do not have the funding,
    there is no teeth there. I did a number of estimates internally
    when I was Chair. We came up with about $130 million over the
    first few years to staff up both on the tech side and the
    personnel side.
        To your last point, and I think this should resonate with
    everyone on the panel and on the Committee, I cannot tell you
    how much personnel time was taken in the last few years of my
    Chairmanship on crypto-related matters. I do not mean that in a
    negative way, but it is zero sum. When you have those people
    working on crypto matters, which are novel, unique, and do not
    have legal precedent, it leads them away from traditional
    markets, which I think we all agree are the core of what the
    CFTC does and the core of what this Committee cares about on
    the ag side, the energy side, the metals, and financials.
        Senator Klobuchar. Okay, thanks. Then Mr. Lukken.
        Mr. Lukken. The question is around the funding and impact--
    --
        Senator Klobuchar. It is pretty much funding because what
    is going to happen if resources are pulled too thin because of
    this major, major challenge coming in----
        Mr. Lukken. Sure.
        Senator Klobuchar [continuing]. in a good and bad way, but
    something that is going to have to be accomplished. Then you
    have these other things going on that you have always done at
    the CFTC.
        Mr. Lukken. Right. No, I think the agency certainly
    deserves full funding, and especially if they are taking on the
    new responsibility of digital commodities, they are going to
    need more funding to make sure that they can administer the
    act. You know, that is something that has traditionally been
    through an appropriations process. I think the Clarity Act
    gives the ability, a transitional fee that happens for four
    years. That, to me, makes some sense. I think if you start to
    put in a permanent tax on the industry, the concern is that you
    may start to impact hedgers, the people who are trying to
    utilize the markets and taxing them instead of appropriating
    that through the appropriations process, so I do have concerns
    with putting in a transaction tax permanently. I think it is
    better suited through the appropriations process.
        Senator Klobuchar. Mr. Kim, I am just only smiling because
    I am not going to get into the rescissions and what this means
    to many of us when we look at that process, what is before us
    now, and if we can ever trust it. Mr. Kim, so Senator Marshall
    was talking about the need to make sure we protect against
    terrorist use of these commodities. I thought that was a good
    line of questioning, and I just have one thing to add. Are
    digital commodity market participants technologically capable
    of complying with these financial laws? Should Congress tailor
    the laws in any ways to account for unique features of these
    markets or this technology?
        Mr. Kim. Thank you, Senator. I think the U.S. already has a
    robust AML/CFT program through FinCEN, as I mentioned earlier.
    That said, I believe it is appropriate for the CFTC to be the
    regulator for digital commodities, and once that framework is
    established, Senator, I think there could be additional
    protections as need be. What has been missing, as I mentioned,
    is that regulatory gap right now where the CFTC does not have
    that statutory authority to take a look at centralized
    intermediaries. My testimony has been about the need to address
    that gap to ensure U.S. leadership, Senator.
        Senator Klobuchar. Some mention has been made of the
    collapse of firms like MF Global and FTX, and it truly revealed
    how customer assets can evaporate when we do not have the
    adequate safeguards. In both cases, customer funds were
    commingled and ultimately lost in cascading failures that shook
    public confidence in financial markets.
        I will start with you, Mr. Behnam. What mechanisms would
    best guarantee that these assets are safe even if prices of
    collateralized digital assets collapse? How should Congress
    address these practices where firms reuse customer assets for
    their own purposes?
        Mr. Behnam. Thanks, Senator. Just very briefly, it really
    goes to the core principles and the rules that the CFTC applies
    in regulated institutions. MF Global was unique in the sense
    that it was a regulated entity, and those funds were commingled
    outside and in violation of the segregation rules. Some changes
    were made afterwards, but segregation rules, I think everyone
    would agree with on this panel, are sacrosanct to the CFTC,
    making sure customer money is protected and prioritized among
    house money and other customer money. I think if you replicate
    what rules around customer seg are used for traditional CFTC
    markets in the digital asset market, we will be able to
    accomplish our goals around protecting customer money and
    digital assets.
        Senator Klobuchar. Okay, thanks. Another question. We know
    that DeFi, decentralized finance, raises novel regulatory
    challenges. How should Congress approach decentralized finance
    platforms in regulatory frameworks?
        Mr. Behnam. Thanks, Senator. At the CFTC, when I was Chair,
    we had a couple enforcement actions against DeFi protocols. I
    do think there should be and needs to be a unique look at how
    DeFi platforms function relative to centralized platforms, but
    I am a firm believer that there needs to be some mechanism of
    regulation and oversight. DeFi platforms cannot live in a
    regulatory vacuum. There has to be some intersection with a
    regulator and a decentralized platform in order to have
    effective regulation. Otherwise, there will be a race to the
    bottom, essentially a race to DeFi to circumvent regulations.
        Senator Klobuchar. Mr. Sexton, does the Clarity Act's DeFi
    exception, the exemption that is in there, concern you at all?
    Is it too broad?
        Mr. Sexton. Senator, thank you. I know that there are
    concerns expressed about the DeFi exception in the Clarity Act.
    I believe that Congress should give some instruction to the
    CFTC as to how to deal with these platforms going forward in
    legislation. Also, I think that the CFTC and the SEC should
    carefully examine together DeFi protocols and determine, as
    Chair Behnam just indicated, how best to look at these
    protocols in the future and possibly come up with some type of
    regulatory oversight over them.
        Senator Klobuchar. Okay. Do you want to add anything, Mr.
    Massad?
        Mr. Massad. I think the DeFi exemption that is in the
    Clarity Act is one of its worst features. I think the first
    thing is we have to define what we mean. People use the term
    DeFi. It is not just an autonomous protocol. They are typically
    talking about, you know, situations where you have a business
    that is actually the front end of that or managing that, so
    there are lots of touchpoints for regulation. DeFi should not
    get a regulatory pass. We may need different rules, but we need
    to achieve the same regulatory objectives.
        One simple way to think about this is if we had a protocol
    that was for the Treasury market and that suddenly became the
    main way Treasurys were traded, we would not say, oh, well, we
    do not need to regulate it. We do not need to worry about it. I
    think the key things are define what we mean, look at the
    touchpoints for regulation because there are typically
    centralized actors acting in that space and develop different
    rules if we need them, but achieve the same regulatory
    objectives.
        Senator Klobuchar. Okay. Mr. Behnam, the collapse, again,
    of offshore exchanges underscored how quickly gaps in the
    international monetary regulatory frameworks can put U.S.
    customers at risk with trading activity flowing across borders,
    outside the reach of domestic agencies. The challenge, in
    addition to the other ones we laid out here, becomes ensuring
    robust protections for customer funds that are in this truly
    international market. How can the U.S. ensure that customer
    funds are protected in a global market where trading often
    occurs on offshore exchanges beyond U.S. oversight?
        Mr. Behnam. Thanks, Senator. You know, we have been a bit
    behind other regulators across the globe, and I think that has
    created arbitrage opportunities. Also, these international
    platforms who do not feel like they have a path to registration
    in the U.S. for a variety of reasons are circumventing,
    essentially, what are called VPNs or virtual private networks
    to get access to U.S. customers.
        I firmly believe that, as the Committee moves forward and
    the Congress moves forward with a market structure bill, if
    drafted correctly and comprehensively, this will bring the
    market within the regulatory fold, and that will provide the
    customers that you are talking about the protections that they
    deserve and that we need to have on a sort of outcomes basis,
    as Chairman Massad said. Regulation, as we take steps, will
    resolve these issues in part and hopefully comprehensively with
    other global regulators.
        Senator Klobuchar. Okay. Thank you. I will go to something
    else. I see Senator Warnock is here. I want to thank you, Mr.
    Chairman, for having this bipartisan hearing and so everyone
    could listen to the witnesses' ideas, and we look forward to
    working with you and with the rest of the Committee going
    forward.
        Thank you very much, and consider my last comments my
    closing.
        Chairman Boozman. Very good, thank you. Senator Warnock.
        Senator Warnock. Thank you, Chair Boozman.
        Mr. Behnam, last Congress, when we were considering
    legislation that would provide the CFTC with the authority to
    regulate the spot market for digital commodities, you testified
    before this Committee that the CFTC would need $120 million to
    properly staff up and prepare to supervise and regulate an
    entirely new industry. Do you still agree with your previous
    testimony, yes or no?
        Mr. Behnam. Yes.
        Senator Warnock. The President's nominee to replace you,
    Mr. Brian Quintenz, could not confirm that number, but he did
    indicate in his testimony before this Committee that more funds
    would be needed to implement the new authorities for the CFTC.
    Chair Behnam, to your knowledge, has the Trump Administration
    requested additional funding or additional staffing at our
    financial regulators to properly support additional regulatory
    responsibilities?
        Mr. Behnam. No, it has not.
        Senator Warnock. In six months, we have seen hiring
    freezes. We have seen staff reductions at the SEC, at the FDIC,
    at the OCC, all while refusing to nominate Democratic
    Commissioners for historically bipartisan boards like the CFTC.
    Chair Behnam, last year, you were consistent that new funding
    would be needed for new staff, staff training, and
    technological upgrades.
        Let's say a new crypto market structure bill that gives the
    CFTC new regulatory responsibilities is signed into law. Could
    you share what are the risks associated with Congress failing
    to provide the CFTC with sufficient resources to properly
    supervise the digital asset industry?
        Mr. Behnam. Thanks, Senator. In short, the answer is
    without the tools, which become the resources behind the
    authorization for the program, the program becomes essentially
    useless. There is obviously a lot of talented staff at the
    CFTC, and I know they will work hard to implement the program,
    but we absolutely need resources at the agency to properly
    implement the program.
        Senator Warnock. Absolutely, I agree with that. Clearly,
    investors of all sizes, if we are going to create a situation
    where capital markets can thrive, investors of all sizes, we
    need to have confidence that regulators are upholding the law,
    protecting consumers, that they have the capacity to do so. I
    look forward to working with my Republican colleagues to ensure
    that the CFTC is properly resourced.
        Regulatory certainty for the digital asset industry limits
    unnecessary risk, and it can help prevent the collapse of
    another cryptocurrency exchange firm. One thinks of FTX, a few
    years ago. I am concerned that today, a handful of centralized
    firms have come to control multiple stages of the trading
    process. All of that concentrates the risk, creates conflicts
    of interest in my mind.
        Mr. Massad, good to see you again. Is it routine for
    centralized exchanges to also serve as the custodian of
    customer funds and be responsible for listing, trading,
    clearing, and settling trades? Is this typically what we see?
        Mr. Massad. Yes, it is. They even have more vertical
    integration than that. Of course, most trading is through those
    intermediaries, not on chain.
        Senator Warnock. What sorts of risks and inefficiencies or
    conflicts of interest may exist when exchanges are vertically
    integrated like this?
        Mr. Massad. There are all sorts of conflicts that can
    arise. For example, today, these trading platforms can do their
    own proprietary trading, so they can front-run customer orders
    or misuse customer information. They can have interest in the
    tokens that they list. That is not prohibited either. They can
    have other business ventures. With respect to custody, they can
    be charging separate fees and may not, you know, adhere to good
    custody rules. Even the Clarity Act does not even require these
    platforms to hold the Bitcoin that they say their customers
    own. It does not require that.
        Senator Warnock. This vertical integration creating
    additional unnecessary risks for customers, we saw this with
    FTX with customers being unable to access their money months
    after the collapse of FTX. I am especially concerned that
    customers may not be getting the best prices on trades, that
    they may be paying higher fees, and more consolidation will
    lead to less competition in the market and create more systemic
    risk like we saw in the case of FTX.
        Mr. Massad, what provisions do you see in a Senate bill to
    limit the risk that large, centralized firms may have on the
    digital asset market?
        Mr. Massad. Sure. We need a comprehensive regulatory
    framework that prohibits these kinds of conflicts of interest,
    so no proprietary trading, no interest in the tokens they list,
    no other business ventures that can pose conflicts. We need to
    impose best execution requirements on brokers. We need to
    impose strict custody rules and, you know, either consider
    separate custodians or at least have rules that ensure that
    they really are holding the Bitcoin that they claim or the
    other assets that they claim their customers own, and they are
    segregating it properly, and they are not charging fees for
    that.
        Senator Warnock. Thank you so very much for your testimony.
    I look forward to working with my Republican colleagues to
    create a Senate bill that contains strong conflict-of-interest
    language so we can safeguard the financial system and protect
    consumers.
        Thank you very much, Mr. Chairman.
        Chairman Boozman. Thank you, Senator Warnock.
        With that, thank you again to all of our witnesses, our
    Committee Members, for their participation in today's important
    hearing.
        The record will remain open for five business days. Today's
    hearing is now adjourned.
        [Whereupon, at 5:28 p.m., the Committee was adjourned.]

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                                 July 15, 2025

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                                 July 15, 2025

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