A Golden Age of Digital Assets: Charting a Path Forward

1[House Hearing, 119 Congress]2[From the U.S. Government Publishing Office]34        A GOLDEN AGE OF DIGITAL ASSETS: CHARTING A PATH FORWARD56=======================================================================78                                HEARING910                               before the1112 SUBCOMMITTEE ON DIGITAL ASSETS, FINANCIAL TECHNOLOGY, AND ARTIFICIAL13                              INTELLIGENCE1415                                 of the1617                    COMMITTEE ON FINANCIAL SERVICES18                     U.S. HOUSE OF REPRESENTATIVES1920                    ONE HUNDRED NINETEENTH CONGRESS2122                             FIRST SESSION2324                               __________2526                           FEBRUARY 11, 20252728                               __________2930                            Serial No. 119-33132       Printed for the use of the Committee on Financial Services3334 [GRAPHIC(S) NOT AVAILANLE IN TIFF FORMAT3536                            www.govinfo.gov3738              U.S. GOVERNMENT PUBLISHING OFFICE39  59-598               WASHINGTON : 20254041                 HOUSE COMMITTEE ON FINANCIAL SERVICES4243                    FRENCH HILL, Arkansas, Chairman4445BILL HUIZENGA, Michigan, Vice        MAXINE WATERS, California, Ranking46    Chairman                             Member47FRANK D. LUCAS, Oklahoma             SYLVIA R. GARCIA, Texas, Vice48PETE SESSIONS, Texas                     Ranking Member49ANN WAGNER, Missouri                 NYDIA M. VELAZQUEZ, New York50ANDY BARR, Kentucky                  BRAD SHERMAN, California51ROGER WILLIAMS, Texas                GREGORY W. MEEKS, New York52TOM EMMER, Minnesota                 DAVID SCOTT, Georgia53BARRY LOUDERMILK, Georgia            STEPHEN F. LYNCH, Massachusetts54WARREN DAVIDSON, Ohio                AL GREEN, Texas55JOHN W. ROSE, Tennessee              EMANUEL CLEAVER, Missouri56BRYAN STEIL, Wisconsin               JAMES A. HIMES, Connecticut57WILLIAM R. TIMMONS, IV, South        BILL FOSTER, Illinois58    Carolina                         JOYCE BEATTY, Ohio59MARLIN STUTZMAN, Indiana             JUAN VARGAS, California60RALPH NORMAN, South Carolina         JOSH GOTTHEIMER, New Jersey61DANIEL MEUSER, Pennsylvania          VICENTE GONZALEZ, Texas62YOUNG KIM, California                SEAN CASTEN, Illinois63BYRON DONALDS, Florida               AYANNA PRESSLEY, Massachusetts64ANDREW R. GARBARINO, New York        RASHIDA TLAIB, Michigan65SCOTT FITZGERALD, Wisconsin          RITCHIE TORRES, New York66MIKE FLOOD, Nebraska                 NIKEMA WILLIAMS, Georgia67MICHAEL LAWLER, New York             BRITTANY PETTERSEN, Colorado68MONICA DE LA CRUZ, Texas             CLEO FIELDS, Louisiana69ANDREW OGLES, Tennessee              JANELLE BYNUM, Oregon70ZACHARY NUNN, Iowa                   SAM LICCARDO, California71LISA McCLAIN, Michigan72MARIA SALAZAR, Florida73TROY DOWNING, Montana74MIKE HARIDOPOLOS, Florida75TIM MOORE, North Carolina7677                      Ben Johnson, Staff Director7879                                 ------8081 SUBCOMMITTEE ON DIGITAL ASSETS, FINANCIAL TECHNOLOGY, AND ARTIFICIAL82                              INTELLIGENCE8384                    BRYAN STEIL, Wisconsin, Chairman8586TOM EMMER, Minnesota, Vice Chairman  STEPHEN F. LYNCH, Massachusetts,87BILL HUIZENGA, Michigan                  Ranking Member88WARREN DAVIDSON, Ohio                BILL FOSTER, Illinois89JOHN ROSE, Tennessee                 JOSH GOTTHEIMER, New Jersey90WILLIAM TIMMONS, South Carolina      SEAN CASTEN, Illinois91MARLIN STUTZMAN, Indiana             AYANNA PRESSLEY, Massachusetts92BYRON DONALDS, Florida               RITCHIE TORRE, New York93ZACH NUNN, Iowa                      SYLVIA GARCIA, Texas94TROY DOWNING, Montana                BRITTANY PETTERSEN, Colorado95MIKE HARIDOPOLOS, Florida            BRAD SHERMAN, California96TIM MOORE, North Carolina            SAM LICCARDO, California97                         C  O  N  T  E  N  T  S9899                              ----------100101                       TUESDAY, FEBRUARY 11, 2025102                           OPENING STATEMENTS103104                                                                   Page105Hon. Bryan Steil, Chairman of the Subcommittee on Digital Assets,106  Financial Technology and Artificial Intelligence, a U.S.107  Representative from Wisconsin..................................     1108Hon. Stephen F. Lynch, Ranking Member of the Subcommittee on109  Digital Assets, Financial Technology and Artificial110  Intelligence, a U.S. Representative from Massachusetts.........     3111112                               STATEMENTS113114Hon. Maxine Waters, Ranking Member of the Committee on Financial115  Services, a U.S. Representative from California................     4116Hon. Tom Emmer, Vice Chairman of the Subcommittee on Digital117  Assets, Financial Technology and Artificial Intelligence, a118  U.S. Representative from Minnesota.............................    69119120.................................................................121122                               WITNESSES123124Mr. Jonathan Jachym, Deputy General Counsel and Global Head of125  Policy & Government Relations, Kraken Digital Asset Exchange...     5126    Prepared Statement...........................................     7127Mr. Ji Hun Kim, President and Acting CEO, Crypto Council for128  Innovation (CCI)...............................................    12129    Prepared Statement...........................................    14130Mr. Coy Garrison, Partner, Steptoe LLP...........................    22131    Prepared Statement...........................................    24132Mr. Jose Fernandez da Ponte, Senior Vice President and General133  Manager of Blockchain, Crypto and Digital Currencies, Paypal...    32134    Prepared Statement...........................................    34135Mr. Timothy Massad, Research Fellow and Director of Digital136  Assets Policy Project, Kennedy School of Government, Harvard137  University.....................................................    42138    Prepared Statement...........................................    44139140                                APPENDIX141142                   MATERIALS SUBMITTED FOR THE RECORD143144Hon. Maxine Waters:145    Better Markets...............................................   102146    Defense Credit Union Council (DCUC)..........................   110147    Independent Community Bankers of America (ICBA)..............   113148    Public Citizen...............................................   115149150                 RESPONSES TO QUESTIONS FOR THE RECORD151152Written responses to questions for the record from Representative153  Maxine Waters154    Mr. Jonathan Jachym..........................................   122155    Mr. Ji Hun Kim...............................................   123156    Mr. Coy Garrison.............................................   124157    Mr. Jose Fernandez da Ponte..................................   125158    Mr. Timothy Massad...........................................   126159Written responses to questions for the record from Representative160  Bill Foster161    Mr. Jonathan Jachym..........................................   127162163                              LEGISLATION164165H.Res.----, Expressing Support for Blockchain Technology and166  Digital Assets.................................................   130167H.R. 9633, the Securing Innovation in Financial Regulation Act...   133168H.R. 10544, the New Frontiers in Technology Act..................   144169H.R. 9579, the Bridging Regulation and Innovation for Digital170  Global and Electronic (BRIDGE) Act.............................   151171H.R. 9758, the Evaluating DeFi Opportunities Act.................   159172H.R. ----, the Stablecoin Transparency and Accountability for a173  Better Ledger Economy (STABLE) Act of 2025.....................   165174175                    A GOLDEN AGE OF DIGITAL ASSETS:176177                        CHARTING A PATH FORWARD178179                              ----------180181                       Tuesday, February 11, 2025182183                     U.S. House of Representatives,184                    Subcommittee on Digital Assets,185                              Financial Technology,186                       and Artificial Intelligence,187                           Committee on Financial Services,188                                                    Washington, DC.189190    The subcommittee met, pursuant to notice, at 2:31 p.m., in191room 2128, Rayburn House Office Building, Hon. Bryan Steil192[chairman of the subcommittee] presiding.193    Present: Representatives Steil, Huizenga, Emmer, Davidson,194Rose, Timmons, Stutzman, Donalds, Nunn, Downing, Haridopolos,195Moore, Lynch, Waters, Sherman, Foster, Pressley, Torres,196Garcia, and Liccardo.197    Also present: Representative Casten.198    Chairman Steil. The Subcommittee on Digital Assets,199Financial Technology, and Artificial Intelligence will come to200order.201    Without objection, the chair is authorized to declare a202recess of the committee at any time.203    The hearing is titled ``A Golden Age of Digital Assets:204Charting a Path Forward.205    Without objection, all members will have 5 legislative days206within which to submit extraneous material to the chair for207inclusion in the record.208    I now recognize myself for 4 minutes to give an opening209statement.210211    OPENING STATEMENT OF HON. BRYAN STEIL, CHAIRMAN OF THE212   SUBCOMMITTEE ON DIGITAL ASSETS, FINANCIAL TECHNOLOGY AND213 ARTIFICIAL INTELLIGENCE, A U.S. REPRESENTATIVE FROM WISCONSIN214215    Mr. Steil. Good afternoon and welcome to the first hearing216of the House Financial Services Digital Assets, Financial217Technology, and Artificial Intelligence Subcommittee. Today, we218resume the work that this subcommittee started last Congress219under the then-leadership of subcommittee Chairman French Hill.220I am grateful to the now full committee chairman for trusting221me to pick up the mantle and continue our legislative work to222provide clarity for the digital assets ecosystem.223    Digital assets present a clear opportunity for the224advancement of financial services in the United States. This225technology has the potential to modernize our financial226infrastructure, enhance the dollar's dominance in global227markets, increase the efficiency of payments, both domestically228and abroad, and provide American businesses and consumers with229a faster, cheaper, more transparent way to transact in an230increasingly digital economy.231    Under the Biden Administration, we saw regulatory overreach232and a pattern of enforcement-driven actions that stifled233innovation, especially in the digital assets ecosystem. Instead234of working with Congress to establish clear guidelines, the235Biden Administration opted for an unpredictable and hostile236approach that left American entrepreneurs, businesses, and237consumers in a state of uncertainty. Agencies took238inconsistent, often contradictory, actions pushing innovators239offshore and threatening Americans' leadership.240    This lack of regulatory clarity not only hurt American241investment, but it also impacted everyday Americans. Let us be242clear. The Biden Administration's approach opened the door to243bad actors and left consumers more vulnerable to fraud.244    While the European Union (EU) and United Kingdom (U.K.) and245even developing economies have advanced regulatory frameworks246in digital assets, the United States has fallen behind. Our247government's failure to act could mean that the benefit of248digital assets and blockchain technology will be realized249elsewhere, while American consumers, entrepreneurs, and250financial institutions are left navigating an uncertain251landscape.252    Under the Trump Administration, we will course-correct by253creating a workable pathway for responsible digital asset254companies to set up operations here in the United States.255Encouragingly, several positive steps have already been taken.256President Trump issued an executive order on digital assets.257The Securities Exchange Commission (SEC) repealed Staff258Accounting Bulletin (SAB) 121. The Federal Deposit Insurance259Corporation (FDIC) has announced that it is reevaluating its260supervisory approach to crypto-related activities. Both the SEC261and Trump Administration have stood up working groups to tackle262these challenges.263    Last Tuesday, the White House's artificial intelligence264(AI), crypto czar, David Sacks, joined Chairman Hill, Thompson,265Bozeman, and Scott for a press conference, where they all266agreed that it is time for both regulators and Congress to get267this done.268    Last week, the chairman and I released the Stablecoin269Transparency and Accountability for a Better Ledger Economy270(STABLE) Act, a discussion draft to provide a clear regulatory271framework for the issues of payment stablecoins. We appreciate272the feedback from all relevant stakeholders.273    The reality is that the status quo for digital assets is274untenable. Regulatory and legislative clarity is needed now.275Together we can ensure that stablecoin issuers, digital asset276firms, and blockchain developers operate under fair,277transparent, and predictable rules in the United States. That278means working together--the Trump Administration, Congress,279regulators, and market participants--to craft thoughtful280policies that uphold our national security, protect investors,281and encourage the responsible development of digital assets in282the full ecosystem.283    Today's witnesses bring a wealth of knowledge and284experience on these issues. I look forward to hearing their285insights on how we can learn from the mistakes of the past to286strike the right balance between innovation and consumer287protection. Thank you. I look forward to your testimonies.288    The chair now recognizes the ranking member of the289subcommittee, the gentleman from Massachusetts, Mr. Lynch, for2904 minutes for an opening statement.291292 OPENING STATEMENT OF HON. STEPHEN F. LYNCH, RANKING MEMBER OF293 THE SUBCOMMITTEE ON DIGITAL ASSETS, FINANCIAL TECHNOLOGY AND294      ARTIFICIAL INTELLIGENCE, A U.S. REPRESENTATIVE FROM295                         MASSACHUSETTES296297    Mr. Lynch. Good afternoon, and thank you, Mr. Chairman. Let298me be the first to congratulate you on your selection as chair299of this subcommittee. I do look forward to our partnership this300Congress. With the wide subject matter jurisdiction, digital301assets, financial technology (fintech), and artificial302intelligence, this committee provides considerable opportunity303for collaboration.304    I also want to thank our witnesses for your willingness to305help the committee with its work.306    The Trump Administration and House Republican leadership307have clearly demonstrated their eagerness to enact crypto-308friendly laws and regulations. As you noted, Mr. Chairman, one309of President Trump's first executive orders established a310digital asset working group that will be comprised of311regulators handpicked by the crypto industry. In addition, just312days before taking office, President Trump also issued a meme313coin to further his own financial interest, so he is all in.314    The crypto industry spent $119 million in this last315election lobbying Congress, and proposals such as a316cryptocurrency stockpile and the prohibition of a central bank317digital currency speak to the crypto industry's powerful318influence. Not surprisingly, House and Senate Republicans have319also announced plans to make digital assets a legislative top320priority.321    Nonetheless, cryptocurrencies remain highly volatile and322speculative instruments that if poorly handled have the323potential to destabilize our economy. I continue to have324serious concerns about crypto scams, money laundering, and325illicit finance uses. In 2023, Americans lost over $5.6 billion326to such scams, and illicit addresses received approximately327$40.9 billion in cryptocurrency.328    On the advent of this golden age of crypto, I remind my329colleagues of the crypto winter in which major companies,330including Future Exchange Trading Ltd. (FTX), BlockFi Lending331LLC, and Celsius Network LLC collapsed, and Sam Bank Freedman332was convicted of massive fraud. Fortunately, because of our333robust securities and consumer protection laws, most of the334victims of those scams were not U.S. citizens. Similarly, the335damage caused by the failures of Silicon Valley and Signature336Bank did not spread to our broader financial system.337    I agree with most of my colleagues that a regulatory regime338is needed, but not one that reflects a wish list from industry339advocates. As this committee considers legislation to address340stablecoins and the market structure, I hope we can have341collaborative and bipartisan discussions.342    We must seek input from law enforcement, the Financial343Crimes Enforcement Network (FinCen) academics and other experts344to ensure robust consumer protection, anti-money laundering,345and illicit finance safeguards are in place. I worry that by346allowing the digital assets industry to access our banking347system, we invite the next financial disaster.348    I served on this committee during the 2008 financial crisis349and watched American taxpayers be forced to bail out major350financial institutions that made risky decisions in the name of351innovation. The digital assets industry has had years to prove352its use cases. Promises of financial inclusion, lower costs,353and faster payments are better achieved through public policy354solutions.355    This subcommittee should focus its time on exploring356legitimate innovations that have the potential to expand357economic access. Last Congress, I was encouraged by the358bipartisan approach to exploring artificial intelligence359through the Working Group on AI, which I co-led alongside Chair360Hill, and a roundtable I hosted at Massachusetts Institute of361Technology (MIT), with faculty and experts. We found shared362policy goals.363    The emergence of international competitors such as DeepSeek364demonstrate that we must move quickly to ensure U.S.365competitiveness.366    Additionally, I hope to continue working with my colleagues367on fintech policy issues we seem to agree on. These include368addressing financial data privacy, expanding data portability,369reducing the cost of payments, and encouraging innovation that370expands economic access and financial inclusion.371    Mr. Chairman, I look forward to continuing the important372work we began last Congress, and I yield back.373    Chairman Steil. The gentleman yields back.374    I too look forward to working with you, Representative375Lynch. I think we have a great opportunity in front of us.376    The chair now recognizes the ranking member of the full377committee, Ms. Waters, for 1 minute.378379    STATEMENT OF HON. MAXINE WATERS, RANKING MEMBER OF THE380  COMMITTEE ON FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM381                           CALIFORNIA382383    Ms. Waters. Thank you very much.384    While Republicans want to discuss charting a path forward385on digital assets, Co-President Elon Musk and Trump continue386their hostile takeover and illegally shut down the Consumer387Financial Protection Bureau. I find it somewhat disheartening388to hear my colleagues talk about guardrails for stablecoins or389digital assets as the agency that has clawed back $21 billion390from predatory companies for harm to consumers is being391dismantled.392    That being said, I unveiled the fruits of nearly 3 years of393work between former Chair McHenry and myself, stablecoin394legislation that was jointly drafted by my staff and Chair395McHenry's. I believe that this legislation provides the best396foundation for moving forward to getting a Federal framework397signed into law.398    I thank you, and I yield back.399    Chairman Steil. The gentlelady yields back.400    Today, we welcome the testimony of Mr. Jonathan Jachym, the401Deputy General Counsel and Global Head of Policy and Government402Relations at Kraken Digital Asset Exchange; Mr. Ji Kim,403President and Acting CEO at the Crypto Council for Innovation;404Mr. Coy Garrison, Partner at the law firm Steptoe; Mr. Jose405Fernandez da Ponte, the Senior Vice President and General406Manager of Blockchain, Crypto, and Digital Currencies at407PayPal; and Mr. Timothy Massad is a Research Fellow and408Director of Digital Assets Policy Project at the Kennedy School409of Government of Harvard University.410    We thank each of you for taking your time to be here. Each411of you will be recognized for 5 minutes to give an oral412presentation of your summary. Without objection, your written413statements will be made as part of the record.414    Mr. Jachym, you are recognized for 5 minutes for oral415remarks.416417STATEMENT OF JONATHAN JACHYM, DEPUTY GENERAL COUNSEL AND GLOBAL418  HEAD OF POLICY & GOVERNMENT RELATIONS, KRAKEN DIGITAL ASSET419                            EXCHANGE420421    Mr. Jachym. Chairman Steil, Ranking Member Lynch, committee422Ranking Member Waters, thank you for the opportunity to testify423today. My name is Jonathan Jachym, and I serve as Global Head424of Policy and Government Relations at Kraken. Our business was425founded in San Francisco over 13 years ago and has steadily426grown into one of the world's largest and most trusted digital427asset exchanges.428    I have served in my current role for over 3 years and spent429the prior 15 years in private sector roles based in the United430States and Europe, including over a decade of experience with431two of the largest traditional market infrastructure groups.432    Kraken has invested heavily in supporting effective policy433outcomes around the globe. This includes engagement with434governments, regulators, and our industry partners across the435United States, EU, U.K., Canada, Australia, and many other436developed and emerging markets.437    Here in Washington, we have continued to support our438leaders in Congress in passing foundational market structure439legislation necessary to regulate centralized intermediaries440and secondary market transactions.441    Kraken's role in the digital asset ecosystem is diverse.442Today we serve over 15 million customers around the world. We443custody over $42 billion in assets on our platform. We have a444team of over 2,000 professionals across 60 countries that445support the 24/7/365 global nature of the users and markets446that we serve.447    We advance our mission to expand the adoption of448cryptocurrencies in 3 key areas. First, we operate a449centralized exchange for crypto markets. We offer a staking450program and related products and services.451    Second, we power traditional market investment allocation452into digital assets. This includes derivatives offerings in453eligible jurisdictions, the world's leading benchmark provider,454which powers a majority of the exchange-traded products that455have been approved for trading here in the United States and456other major markets. We also operate a novel State-chartered457bank, which offers institutional custody under an innovative458Wyoming legal framework.459    Third, our on-chain's business includes our wallet and460Layer 2 blockchain called Ink, which serves as a seamless461bridge to decentralized finance (DeFi) for our new frontier of462innovative developers and users.463    Despite the growth in our markets and years of bipartisan464work in Congress, the United States has fallen behind other465jurisdictions in passing fundamental rules for centralized466intermediaries. The opportunity and urgency for legislative and467regulatory clarity is here.468    Meaningful progress has been made despite the failed and469harmful policy approaches we saw in the last administration,470which included regulation by enforcement and downward pressure471through the banking system. This slowed or halted responsible472growth and deterred investment, job creation, and innovation in473the United States.474    Among many important topics, I would like to highlight a475few key components that are central to effective market476structure policy frameworks. First, Congress should grant spot477market authority to the Commodities Futures Trading Commission478(CFTC) to regulate centralized intermediaries and secondary479market transactions in digital commodities.480    Second, effective disclosure requirements will provide481transparency and customer protection.482    Third, we must avoid blunt application of centralized rule483books to decentralized protocols that do not have centralized484governance systems, infrastructure, or management. Policymakers485must continue to evaluate and craft best practices and distinct486policy approaches to address DeFi.487    The leadership from many distinguished members of this488committee has proven that good crypto policy is not partisan.489Speaking from my own experience the last several years and on490behalf of my colleagues at Kraken and around the industry, we491are incredibly encouraged to see Congress and the492administration now working together toward regulatory clarity.493    The United States must pass rules that are fit for the U.S.494markets, but there is often great value in learning from other495jurisdictions that have already advanced foundational rules of496the road for centralized intermediaries.497    As we look ahead, U.S.'s leadership and international498cooperation will be necessary to avoid market fragmentation and499support the inherently global nature of the digital asset500ecosystem. Industry consensus and nonpartisan collaboration is501critical for the United States to accelerate toward these502goals. We look forward to continuing to support these efforts.503    Again, I thank you for the invitation and look forward to504our discussion.505506    [The prepared statement of Mr. Jachym follows:]507    [GRAPHIC] [TIFF OMITTED] T9599.001508509    [GRAPHIC] [TIFF OMITTED] T9599.002510511    [GRAPHIC] [TIFF OMITTED] T9599.003512513    [GRAPHIC] [TIFF OMITTED] T9599.004514515    [GRAPHIC] [TIFF OMITTED] T9599.005516517    Chairman Steil. Thank you, Mr. Jachym.518    Mr. Kim, you are recognized for 5 minutes.519520   STATEMENT OF JI HUN KIM, PRESIDENT AND ACTING CEO, CRYPTO521                     COUNCIL FOR INNOVATION522523    Mr. Kim. Thank you, Chairman Steil, Ranking Member Lynch,524and members of the subcommittee, for the opportunity to testify525today on how the United States can best chart its path forward526to ensure a golden age for digital assets. I believe that527achieving this goal will require a comprehensive Federal528legislative framework for digital assets.529    I am pleased to represent the Crypto Council for530Innovation, CCI, a global alliance of industry leaders across531the digital asset space. CCI is grateful that so many Members532of Congress recognize the need for United States to lead when533it comes to digital asset innovation.534    Under the leadership of this committee, we experienced535great bipartisan progress during the 118th Congress. I536respectfully submit that it is critical for Congress to537continue such efforts to provide the digital assets industry538with the needed clarity to ensure continued growth and539leadership in the United States.540    Over the past 15 years, digital assets have evolved from a541topic of curiosity to transforming financial services and how542we architect future economic systems. The approvals of spot543bitcoin and Ethereum Exchange-traded Funds (ETFs), growing544retail and institutional participation, and increased adoption545of digital assets signal an industry not only meeting its546potential but changing how we live.547    Indeed, the global digital asset market has seen548substantial growth, with a market cap that currently exceeds $3549trillion. The stablecoin market alone has gone to over $200550billion, demonstrating the increased use of digital rails for551payments.552    Tokenized assets and new blockchain-based transaction rails553can improve financial access and inclusion, reduce counterparty554risk, improve operational efficiencies and lower cost. The555industry is working to improve the legacy financial system and556software gaps that have harmed historically disadvantaged557populations.558    Against this backdrop, other major jurisdictions have559recognized that we are in a race to the top in harnessing and560benefiting from this new technology. These jurisdictions are561delivering exactly what the U.S. digital assets industry has562been requesting, regulatory clarity through a thoughtful,563tailored regulatory regime that recognizes the potential of564digital assets.565    To that end, it is imperative that the United States build566upon the progress made during the 118th Congress and ensure567U.S.'s leadership in digital assets at the global level.568Increased clarity regarding regulatory expectations will569unleash further innovation and ensure that American markets570remain the envy of the world.571    CCI is encouraged by this administration's early efforts to572catalyze further digital asset development in the United573States, including recognizing digital assets as a national574priority in the recent executive order. More still needs to be575done, however, to unwind the significant damage and uncertainty576caused by a regulation-by-enforcement approach under the prior577administration.578    Unfortunately, during Chairman Gensler's tenure, the SEC579brought over 125 enforcement actions related to digital assets580but issued no clear guidance or rulemaking to clarify when an581asset is, in fact, a security. This lack of regulatory clarity582has driven companies offshore to jurisdictions with more583defined rules and less ambiguity. If a regulatory approach is584pushing lawful businesses to move offshore, this must change,585and we believe that change has begun.586    In the interest of time, I will briefly outline the587specific steps I view as critical to achieving the golden age588of digital assets in the United States.589    First, Congress must pass market structure legislation to590clarify when a digital asset is a commodity or security and to591give clear statutory authority to the CFTC to regulate the spot592markets for digital commodities. Legislation should also593address risks associated with digital assets markets,594technology and provide key consumer protections.595    Second, Congress should establish a comprehensive framework596for the regulation and supervision of stablecoin issuers. Such597a bill should also consider rationally integrating effective598State-based regulatory models. Accomplishing this would realize599the powerful potential of dollar-backed stablecoins and600providing individuals with more choice in payments while601further solidifying the global role of the U.S. dollar.602    Finally, Congress and the administration should prioritize603supporting the development of decentralization and DeFi604technologies. Policymakers should recognize the importance of605self-custody solutions and software which enable individuals to606securely manage their own digital assets.607    Congress can unleash digital asset innovation through608forward-leading legislation. This is the surest way to609guarantee that the United States commands the digital asset610future while best protecting consumers and fostering economic611growth.612    Thank you so much again for the opportunity to testify, and613I look forward to your questions.614615    [The prepared statement of Ms. Kim follows:]616    [GRAPHIC] [TIFF OMITTED] T9599.006617618    [GRAPHIC] [TIFF OMITTED] T9599.007619620    [GRAPHIC] [TIFF OMITTED] T9599.008621622    [GRAPHIC] [TIFF OMITTED] T9599.009623624    [GRAPHIC] [TIFF OMITTED] T9599.010625626    [GRAPHIC] [TIFF OMITTED] T9599.011627628    [GRAPHIC] [TIFF OMITTED] T9599.012629630    [GRAPHIC] [TIFF OMITTED] T9599.013631632    Chairman Steil. Thank you, Mr. Kim.633    Mr. Garrison, you are now recognized for 5 minutes.634635        STATEMENT OF COY GARRISON, PARTNER, STEPTOE LLP636637    Mr. Garrison. Thank you, Chairman Steil, Ranking Member638Lynch, committee Ranking Member Waters, members of this639subcommittee, for inviting me to testify today.640    My name is Coy Garrison. I am a Partner in Steptoe's641blockchain and cryptocurrency practice, where I have advised642clients for the last 3 years.643    Prior to joining Steptoe, I was an attorney at the SEC for644about 9 years. I had the honor of serving as Counsel to645Commissioner Hester Peirce and also serving in multiple roles646within the Division of Corporation Finance. I testify here647today on my own behalf, not on behalf of the firm or its648clients.649    Congress and this Trump Administration have a tremendous650opportunity to work together to bring sensible regulation to651the digital asset industry. New leadership at Federal financial652regulators are already beginning to reverse the failed crypto653policies of the last 4 years. The SEC, in particular, has a654heavy burden to undo the harmful policy decisions that former655Chair Gensler brought, and they have begun the hard but656necessary work of rulemaking and providing actual guidance.657    However, regulatory actions alone will not be sufficient to658stand up a comprehensive regime. Congress needs to fill659regulatory gaps by passing legislation for both digital asset660market structure and dollar-denominated payment stablecoins.661    First, I want to underscore that the moment for action is662now. The open hostility of the prior administration toward this663industry has resulted in a marketplace with no Federal664regulator, no protections for token holders and fewer U.S.-665based projects.666    Fortunately, we live in a very different world today. The667change at the SEC in particular is a breath of fresh air.668Acting Chairman Mark Uyeda recently announced the formation of669a crypto task force and appointed Commissioner Peirce to lead670its efforts. Results were immediate. The SEC rescinded the671widely maligned Staff Accounting Bulletin 121. Their work,672however, is just beginning and was recently previewed by673Commissioner Peirce's announcement of 10 different work streams674for the task force.675    What can the SEC actually accomplish? I offer the following676suggestions, which I believe are consistent with Commissioner677Peirce's 10 priorities.678    First, the SEC should articulate a sound legal679interpretation for when digital asset transactions are subject680to the securities laws. A clean break is needed from the681Gensler era's legal imprecision and sweeping assertion that682nearly all digital assets are securities. The interpretation683should begin with an acknowledgement that the digital asset684itself is not a security. A disciplined transaction-by-685transaction analysis must be used to determine whether an686investment contract is present, because it is required by case687law and should be adhered to by the Commission.688    Second, the SEC should consider withdrawing Gensler-era689litigation alleging unregistered exchange, broker-dealer, and690clearing agency activities. As a preliminary matter, it is far691from clear that these transactions meet the elements of the692Howey test. Even if the new SEC believes that it has693jurisdiction over secondary market transactions, consideration694should be given to whether beginning a rulemaking process would695be a more productive pathway to the registration of covered696entities. In an encouraging sign, I note that just yesterday697the SEC and Binance filed a joint motion to stay their698litigation for 60 days.699    Third, the SEC should consider how to better facilitate700token offerings in the United States by amending existing701exemptions and dusting off Commissioner Peirce's token-safe702harbor proposals.703    While the SEC can consider these and many other actions,704Congress continues to have a vital role in establishing a705workable framework.706    With respect to market structure, I urge the subcommittee707to consider the following principles for inclusion in any708legislation: The need to establish clear lines between the SEC709and the CFTC and a process to determine which transactions are710subject to the different agencies' jurisdictions; requiring711disclosures that are tailored to the needs of digital asset712holders; allowing for disintermediated trading and real-time713settlement of digital assets; imposing similar types of714corporate controls and risk management requirements that exist715today for securities and derivatives intermediaries, as well as716requiring segregation of customer assets and prohibiting the717commingling of funds.718    A second regulatory gap that requires congressional action719is Federal oversight of dollar-denominated stablecoins. The720discussion draft of the STABLE Act provides appropriate721protections for consumers and establishes a regulatory722framework for the issuance and operation of dollar-denominated723payment stablecoins.724    In conclusion, the timing is right for Congress and the725administration to work together to implement much-needed726regulatory reform. Thank you for your leadership on this727important topic, and I look forward to your questions.728729    [The prepared statement of Mr. Garrison follows:]730    [GRAPHIC] [TIFF OMITTED] T9599.014731732    [GRAPHIC] [TIFF OMITTED] T9599.015733734    [GRAPHIC] [TIFF OMITTED] T9599.016735736    [GRAPHIC] [TIFF OMITTED] T9599.017737738    [GRAPHIC] [TIFF OMITTED] T9599.018739740    [GRAPHIC] [TIFF OMITTED] T9599.019741742    [GRAPHIC] [TIFF OMITTED] T9599.020743744    [GRAPHIC] [TIFF OMITTED] T9599.021745746    Chairman Steil. Thank you, Mr. Garrison.747    Mr. Fernandez da Ponte, you are now recognized for 5748minutes.749750STATEMENT OF JOSE FERNANDEZ da PONTE, SENIOR VICE PRESIDENT AND751 GENERAL MANAGER OF BLOCKCHAIN, CRYPTO AND DIGITAL CURRENCIES,752                             PAYPAL753754    Mr. Fernandez da Ponte. Thank you.755    Chairman Steil, Ranking Member Lynch, committee Ranking756Member Waters, and members of the subcommittee, thank you for757the opportunity to testify today.758    My name is Jose Fernandez da Ponte, and I serve as Senior759Vice President and General Manager of PayPal's blockchain,760crypto, and digital currency business. I appreciate the761invitation to address the subcommittee regarding PayPal's762vision for the future of digital payments.763    Today, I would like to focus my remarks on how responsible764innovation can enhance payments infrastructure and make the765digital economy more efficient for all participants.766    Twenty-five years ago, PayPal embarked on a journey to767digitize payments and take them from offline to online. Now, we768continue the journey by moving payments online to onchain.769    Our customers can today buy, sell, and hold four types of770commonly used cryptocurrencies: bitcoin, bitcoin cash, Litecoin771and Ether. Our customers can also choose to check out with772crypto and use crypto as a payment method with millions of773merchants today.774    In 2023, we launched PayPal USD, or PYUSD, a fully backed,775regulated stablecoin issued in the United States by Paxos and776developed for commerce and payments. Our objective to engage in777the digital asset space and bring PYUSD to market is twofold:778leverage the latest innovations to provide a faster, cheaper,779stable payment instrument and ensure that it has utility for780mainstream commerce and payments.781    With PYUSD, consumers are able to conduct faster and782cheaper transactions, send money to loved ones, buy goods and783services online, and settle those transactions quickly.784Businesses of all sizes can use the stablecoins to enable785cross-border payments, open new markets, and manage their own786treasury more effectively.787    I would like to share two specific examples of how our788customers are using PYUSD today. The first one is on domestic789business-to-business payments. Large enterprises and SMBs,790small and mid-size businesses, rely on PayPal to securely offer791fast and low-cost transfers for business-to-business payments.792Today, PYUSD is available to them through more than 25793partners. It has been used, among others, by our own venture794affiliate, PayPal Ventures, to fund portfolio companies during795weekends and outside of banking hours. It has started to be796integrated into popular enterprise resource planning systems,797and we use it ourselves to conduct payments to some of our798vendors today.799    Second, let me talk about international transfers to800businesses and consumers. Stablecoins like PYUSD can enable801efficiencies for cross-border payments. International payments802incur significant costs as they move through the corresponding803banking network. To address that, we have enabled U.S.804customers of our Xoom product to fund millions of dollars of805remittances with PYUSD at a lower cost. When a Xoom user806chooses PYUSD as a funding instrument, there are no Xoom807transfer fees that are incurred.808    In addition, on the wholesale side, we have enabled several809of our disbursement partners to settle directly with us using810PYUSD on the back end of transactions, reducing costs and811increasing the speed of those settlements.812    At every stage of our cryptocurrency journey, beginning813with our Buy/Hold/Sell Product, the launch of crypto transfers814and the go-to-market of a stablecoin, we have been deliberate815and methodical in our approach, building trust with customers,816regulators, and law enforcement at each step.817    In terms of policy, we believe that predictable market818policy is necessary for the crypto industry to grow and thrive819in the United States. We recommend several policies that can820help make the United States a leader in this technology.821    First, we urge Congress to pass legislation providing822stablecoin markets and trading frameworks for the industry.823    Second, a State pathway is critical for the continued824growth of the industry. State licensing is the approach that825most crypto companies have taken, and it leverages the826expertise developed over the years by the State of New York827Department of Financial Services and others.828    Third, Federal and State charters can work simultaneously829under a core set of standards. In both State and Federal830regimes, the requirements for reserve asset management,831governance, disclosures and prudential risk management should832be fit for the purpose of payments.833    Finally, any legislation must recognize that the business834of payment and stablecoin issuance is the business of payments835and is not the business of banking and that payment stablecoins836are not securities.837    In conclusion, the current environment offers an important838moment for the United States to benefit from a thoughtful and839proportionate legislative approach. We look forward to working840with you to complete this important task. Thank you.841842    [The prepared statement of Mr. Fernandez da Ponte follows:]843    [GRAPHIC] [TIFF OMITTED] T9599.022844845    [GRAPHIC] [TIFF OMITTED] T9599.023846847    [GRAPHIC] [TIFF OMITTED] T9599.024848849    [GRAPHIC] [TIFF OMITTED] T9599.025850851    [GRAPHIC] [TIFF OMITTED] T9599.026852853    [GRAPHIC] [TIFF OMITTED] T9599.027854855    [GRAPHIC] [TIFF OMITTED] T9599.028856857    [GRAPHIC] [TIFF OMITTED] T9599.029858859    Chairman Steil. Thank you.860    Mr. Massad, you are now recognized for 5 minutes.861862 STATEMENT OF TIMOTHY MASSAD, RESEARCH FELLOW AND DIRECTOR OF863 DIGITAL ASSETS POLICY PROJECT, KENNEDY SCHOOL OF GOVERNMENT,864                       HARVARD UNIVERSITY865866    Mr. Massad. Chairman Steil, Ranking Member Lynch, committee867Ranking Member Waters, members of the subcommittee--868    Chairman Steil. Mr. Massad, if you could just double-check869that your mic is on. We can hear you, but the live feed may not870pick you up.871    Mr. Massad. Is it Okay now? Okay.872    I am honored to testify before you today. The views I873express are my own and do not represent the views of the874Harvard Kennedy School.875    It was in 2014 under my leadership that the CFTC declared876bitcoin a commodity. Since that time, for over 10 years, I have877been calling for strengthening regulation.878    We hear a lot of calls for clarity, and everybody can be879for that, but you can have bad rules that have clarity. We need880a regulatory framework that truly encourages responsible881development of this technology and not just more of the882speculative activity and the abuses that we have seen far too883much of to date.884    I am going to focus on stablecoins. It is the most useful885application of technology to date, and I applaud the committee886for prioritizing that.887    The STABLE Act has many features I support, such as full888reserves for tokens, limitations on the activities of an889issuer, but there are many areas where it is deficient. It is890substantially weaker than what was negotiated between the891former committee chair and the ranking member last fall, which892the ranking member introduced yesterday.893    I want to highlight five issues. These are discussed as894well as others in more detail in my testimony.895    First, the legislation provides for Federal and State896chartering, but there is far too much risk of weak State897standards, an inadequate review process, and there is no898ongoing Federal supervision of State issuers. That is a899prescription for a mess. We want people to have confidence that900any stablecoin is truly stable and worth a dollar, regardless901of what State it comes from. We do not want to provide902insurance for that as we do with bank deposits, so we have to903do it through sufficient national standards and supervision.904    Second, the legislation does not address the bankruptcy of905a stablecoin issuer. If an issuer fails, the standard corporate906bankruptcy process would likely apply. That means you have the907automatic stay, holders will not get their money quickly, the908process could take years, and there could be contagion and909significant collateral damage. The legislation needs to create910a dedicated resolution process that minimizes those risks.911    Third, I do not think it does enough to address the risks912of financial crime and evasion of sanctions. It says issuers913are subject to the Bank Secrecy Act. That is a good thing, but914the Bank Secrecy Act (BSA) relies on centralized915intermediaries. Stablecoins can be transferred and traded916without going through a centralized intermediary, and they can917be transferred through an intermediary that does not even918comply with the BSA. We need to extend the regulatory perimeter919and be more creative in tackling these risks.920    Fourth, the Act is a bit like putting the lock on the barn921door after the horses have left. When you think about the922market today, because it is not clear to me, it would even have923much of an impact on Tether. The legislation says it is924unlawful to issue a stablecoin that is not chartered, but there925is no enforcement mechanism for that and no penalties. It needs926to have those and an explicit territoriality provision.927    Finally, there are simply many ways the Act does not give928regulators enough authority and discretion, given that this929could become a very significant market and it will evolve in930ways we cannot predict.931    I want to turn from stablecoins and briefly discuss932decentralization and market structure. I am pleased to see the933subcommittee propose that the SEC and the CFTC work together on934these issues. I have recommended joint approaches for years935now.936    The challenge with the term ``decentralization'' and937``DeFi'' is that they are used to describe a lot of things that938are not that decentralized or that still have elements of human939control and discretion. We need to make sure key regulatory940objectives, like consumer protection, are achieved even if in a941different manner. Decentralization is also not a good criteria942for distinguishing securities from commodities.943    For these and other reasons, I am strongly opposed to the944Financial Innovation Technology for the 21st Century (FIT21)945Act. It is complex. It will generate more confusion than946clarity and could undermine our capital markets, and it is947snowing outside. There is often a lot of snow in this room948about this issue, because the notion of security versus949commodity and people say well, a digital token can never be a950security if it is not part of an investment contract. If I have951a digital token that represents a share of GM stock, that is a952security regardless of how it is sold or transferred.953    There are better ways to address market regulation. I954discuss those in my testimony. Thank you, and I am happy to955take your questions.956957    [The prepared statement of Mr. Massad follows:]958    [GRAPHIC] [TIFF OMITTED] T9599.030959960    [GRAPHIC] [TIFF OMITTED] T9599.031961962    [GRAPHIC] [TIFF OMITTED] T9599.032963964    [GRAPHIC] [TIFF OMITTED] T9599.033965966    [GRAPHIC] [TIFF OMITTED] T9599.034967968    [GRAPHIC] [TIFF OMITTED] T9599.035969970    [GRAPHIC] [TIFF OMITTED] T9599.036971972    [GRAPHIC] [TIFF OMITTED] T9599.037973974    [GRAPHIC] [TIFF OMITTED] T9599.038975976    [GRAPHIC] [TIFF OMITTED] T9599.039977978    [GRAPHIC] [TIFF OMITTED] T9599.040979980    [GRAPHIC] [TIFF OMITTED] T9599.041981982    [GRAPHIC] [TIFF OMITTED] T9599.042983984    [GRAPHIC] [TIFF OMITTED] T9599.043985986    [GRAPHIC] [TIFF OMITTED] T9599.044987988    [GRAPHIC] [TIFF OMITTED] T9599.045989990    [GRAPHIC] [TIFF OMITTED] T9599.046991992    [GRAPHIC] [TIFF OMITTED] T9599.047993994    Chairman Steil. Thank you very much.995    We will now turn to member questions.996    The chair recognizes himself for 5 minutes for the purpose997of asking questions.998    Last week, during a press conference with Chairman Hill,999Thompson, Scott, and Bozeman, the White House's AI and crypto1000czar, David Sacks, said the administration is committed to1001working with Congress on a market structure and stablecoin1002framework.1003    While financial market regulators have the power to clear1004up some of the regulatory ambiguity related to the digital1005asset ecosystem, there are some obvious gaps where no regulator1006has jurisdiction.1007    I want to start with you, Mr. Garrison. We will kind of1008jump around, just a little rapid-fire to stage-set here.1009    Can you help me describe some of those gaps and explain how1010the ecosystem has been impacted by them? For example, does the1011crypto spot market lack a clear Federal regulator?1012    Mr. Garrison. Yes, it does lack.1013    Chairman Steil. Is there a regulatory framework for1014stablecoin and stablecoin issuers?1015    Mr. Garrison. There is not.1016    Chairman Steil. Is DeFi even contemplated by existing law?1017    Mr. Garrison. It is not.1018    Chairman Steil. The ambiguous legal classification of1019digital assets, is it a security, is it a commodity? That is an1020open question.1021    Mr. Garrison. Correct.1022    Chairman Steil. Okay. Then, Mr. Garrison, in your view,1023what would be the outcome to the digital asset ecosystem if1024Congress cannot get these gaps filled? Will companies move1025offshore to jurisdictions with regulatory certainty or because1026of possible enforcement actions?1027    Mr. Garrison. Yes. I think we see that today.1028    Chairman Steil. Would you agree with that, Mr. Kim?1029    Mr. Kim. Absolutely, Chairman. We are seeing a lot of1030American businesses moving offshore due to the lack of clarity1031in the United States.1032    Chairman Steil. Do you see the same thing, Mr. Jachym?1033    Mr. Jachym. Absolutely. Regulatory clarity drives1034investment and growth for businesses like ours.1035    Chairman Steil. Would you foresee the United States having1036to import regulatory standards and market practices from other1037countries if the United States fails to act, Mr. Garrison?1038    Mr. Garrison. Yes, that is a likely outcome.1039    Chairman Steil. Do you think we are already lagging behind1040in the space today?1041    Mr. Garrison. Yes. Other jurisdictions, including the1042European Union, United Arab Emirates, and Hong Kong, are1043further ahead.1044    Chairman Steil. I want to come back to you. With there1045being no standards in the United States for some of these1046crypto companies, consumers who are trying to vet different1047projects, different tokens, how is that altering the market1048with a lack of regulatory clarity in the United States?1049    Mr. Garrison. There is a lack of consistency in the types1050of disclosures that are provided and how. There is a lack of1051consistency in the protections that are provided to persons1052engaging in digital asset trading.1053    Chairman Steil. Let me now jump to you, Mr. Kim, and say,1054what if we did put in place a framework for stablecoin, for the1055ecosystem to have a Federal regulatory framework governing1056stablecoin issuances. Would those stablecoin ecosystems1057actually develop with established legacy financial institutions1058taking part?1059    Mr. Kim. Absolutely, Chairman. A comprehensive stablecoin1060framework will provide certainty and clarity to the industry,1061allow for U.S. innovation and leadership and, most importantly,1062protect consumers and investors by giving them various1063standards and requirements to best protect customers as well.1064    Chairman Steil. Mr. Fernandez da Ponte, would you agree1065with that?1066    Mr. Fernandez da Ponte. I would. It is a strange1067circumstance that today the majority of dollar-denominated1068stablecoins are actually issued outside of the United States,1069and there are many jurisdictions that are moving fast in that1070space.1071    Clarity on the regime in the United States would enable1072American issuers to compete, accelerate financial innovation1073for the benefit of American businesses and consumers.1074    Chairman Steil. If we provided that regulatory standards1075for stablecoins, we would be eliminating a major gap in the1076ecosystem. Is that accurate?1077    Mr. Fernandez da Ponte. It is, yes.1078    Chairman Steil. Okay. Let me continue on. I am going to1079come back to you, Mr. Jachym. How do you envision the digital1080asset ecosystem will change if a Federal regulatory framework1081for digital asset market structure were enacted by Congress?1082    Mr. Jachym. I think in the first instance, it will allow1083businesses to plan and invest. It will drive consistency.1084    I think it is also important to keep the international1085landscape in view. Other jurisdictions have moved forward, and1086I think as we have seen in other financial market reforms. Let1087us take the Dodd-Frank reforms, for example. Jurisdictions1088moved in different substantive directions on somewhat similar1089timelines.1090    The most challenging part of those post-2008 crisis reforms1091were trying to rationalize cross-border market access for large1092infrastructure players. These turned into bilateral and1093geopolitical challenges, and I think we have an opportunity1094here to avoid those. I think it is very important that the1095United States puts a leadership seat at the table.1096    Chairman Steil. Thank you.1097    In our final 30 seconds, with new technology, people1098identify potential risk. I think we see digital asset skeptics1099claim that the industry is rife with fraud, with abuse. Could1100you just very briefly comment on how you are monitoring anit-1101money laundering (AML) and Know Your Customer (KYC)?1102    Mr. Jachym. Kraken invests heavily in the personnel tools1103and technology to detect and prevent illicit finance and any1104illicit finance being conducted on our platform. We create a1105very strong ecosystem, where we not only monitor and KYC check1106everyone coming into our environment, but in terms of1107transactions that come in and out and off of our platform, they1108are subject to sanctions screenings and other compliance tools.1109    Chairman Steil. Thank you very much. I yield back.1110    I now recognize the gentleman from Massachusetts, Mr.1111Lynch, also the ranking member of the subcommittee.1112    Mr. Lynch. Thank you, Mr. Chairman.1113    Mr. Massad, I do not think we should overlook the lessons1114of the failure of Silicon Valley Bank. In that case, we had a1115stablecoin issuer who had a huge amount of deposits in a single1116bank, most of which was uninsured. Just months before the1117collapse of Silicon Valley Bank and Signature Bank, the Federal1118Reserve System (Fed), the FDIC, and Office of the Comptroller1119of the Currency (OCC), released a joint guidance cautioning1120banks about the volatility and vulnerability of crypto assets.1121    The everyday American was largely insulated from the1122fallout of these bank failures, likely because crypto1123companies--likely because of the risk management systems and1124heightened capital reserve requirements to insulate most banks.1125Crypto companies had limited access to the banking sector.1126    I have deep concerns about opening the floodgates for1127nonbank companies to our payment systems or offering Fed1128accounts. Additionally, allowing crypto companies free rein1129could put pensions, retirement accounts, and other typically1130safe investment accounts at risk. The next crypto crash could1131have disastrous effects on the wider economy.1132    Mr. Massad, what additional risks should this committee1133consider as it crafts legislation to protect our broader1134economy and our traditional finance system from the volatility1135and instability of crypto assets? What safeguards would you1136recommend, especially with regard to the volatility of crypto,1137to perhaps take down the entire financial industry?1138    Mr. Massad. Thank you for the question, Representative1139Lynch.1140    First of all, I think with respect to the banking system,1141we certainly do not want banks investing in crypto on the asset1142side of their balance sheet, meaning buying crypto or otherwise1143making investments.1144    I think with respect to other issues, like services that1145are for a fee, like custody or payroll services, I think,1146assuming that we put in a good comprehensive framework on1147stablecoin issuers, so they manage their risks and on crypto1148trading platforms, so they manage their risks. I think those1149kinds of banking services can be done.1150    Mr. Lynch. Having a firewall between the crypto side and1151traditional--1152    Mr. Massad. Absolutely. Absolutely, we need to address1153affiliations and so forth. Your point on the concentration of1154deposits, that is why it is not enough for a stablecoin issuer.1155The STABLE Act says you can have bank deposits. You can have1156all these things, but it does not have any rules on1157concentration or customer concentration. I am quite concerned1158about that.1159    I think this all comes back to looking at this1160comprehensively and looking at the fact that we really do not1161have a regulatory framework for a lot of these crypto firms. We1162have seen a lot of fraud and manipulation and problems as a1163result of that.1164    I think it has to be done in building blocks. I applaud the1165committee for starting with stablecoins. I would get that piece1166done and then turn to the market structure issues because those1167are a little more complicated. I think we will learn a lot by1168getting the stablecoin piece done.1169    Mr. Lynch. What about the contagion piece of this where you1170have banks that have access to the discount window, you have1171FDIC insurance. Then on the other side of the house, if you1172have volatility and instability, you have sort of commingling1173or association between various crypto companies so that there1174is a domino effect that could result. It actually--1175    Mr. Massad. There clearly is.1176    Mr. Lynch --runs into the traditional finance system.1177    Mr. Massad. Right, two things. One, that is because of the1178lack of transparency in this industry. Sure, the blockchain is1179transparent in the sense that it is pseudonymous, but you do1180not know exactly what a lot of the relationships are and who1181has exposure. There is a lot of leverage in the crypto1182industry, and we do not track that. Even in the ETF, exchange-1183traded funds, market, there is a lot.1184    Mr. Lynch. Do you think there should be a prohibition on1185government bailouts of crypto firms?1186    Mr. Massad. Certainly. Certainly, there should be.1187    Mr. Lynch. Okay.1188    Mr. Massad. The other thing I would comment on is with1189respect to the banking sector; we really do not want banks1190exposed to the credit of this industry. That is why I would1191limit it to sort of services that are fee-based or taking1192deposits that are in dollars as long as, again, we have some1193concentration limits.1194    Mr. Lynch. Thank you, Mr. Chairman. I yield back.1195    Chairman Steil. The gentleman yields back.1196    The gentleman from Michigan, Mr. Huizenga, is recognized1197for 5 minutes.1198    Mr. Huizenga. Thank you, Chairman Steil.1199    I do want to extend my congratulations to you as well on1200becoming Chairman of the Digital Assets Subcommittee and having1201been the former Chair of the Capital Markets Subcommittee where1202a lot of these issues were housed. I know this is complicated1203and well-deserved, though, on your part, but also1204congratulations to Chair Hill for seeing that we needed to1205break this out. I think this is a very positive thing, so I1206look forward to working with you all.1207    Mr. Garrison, Mr. Jachym, let me start with you. Digital1208asset market participants have rightfully criticized the lack1209of predictability and certainty. Going back to 2019, SEC Chair1210Jay Clayton actually attempted to provide some clarity by1211releasing a framework for investment contract analysis of1212digital assets.1213    As we have just seen and just exited the last 4 years where1214former Chair Gensler famously told crypto firms to come in and1215register, whatever that meant exactly. They provided very1216little direction or a way for that to actually happen. Instead,1217it seemed what firms received was a threat of enforcement for1218doing so.1219    Is it fair to say that the SEC has thus far not produced1220desirable or discernible standards for digital asset ecosystem1221that facilitate consistent application of the rules? Mr.1222Jachym? Mr. Garrison?1223    Mr. Jachym. Congressman, thank you for the question.1224    That is absolutely true. There has just been a complete1225lack of policymaking. It has been a regulation-by-enforcement1226regime using a decades-old jurisdictional test to try to1227shoehorn the diverse set of digital assets in the market into1228the securities--1229    Mr. Huizenga. Let us just be clear. Regulation through1230enforcement is a bad thing, right?1231    Mr. Jachym. It is a bad thing. And--1232    Mr. Huizenga. Okay. Sometimes some of my colleagues and1233friends do not always see it that way. They just think that is1234another tool in the toolbox. That lack of predictability, I1235would think, would be very harmful.1236    Mr. Jachym. It has been in stark contrast, Congressman. We1237have watched in many major markets around the world a1238constructive policymaking process where jurisdictions have1239crafted definitions, passed legislation, and passed regulation.1240    We are in the implementation phase. It has been the exact1241opposite experience here in the United States.1242    Mr. Huizenga. Mr. Garrison, I want you to answer this: What1243must be done to ensure consistent guidance regarding the1244classification of digital assets?1245    Mr. Garrison. I think the SEC needs to take a deep breath1246and start afresh on its guidance. The 2019 guidance that you1247mentioned, while well-intentioned, has over 60 factors and no1248way to actually weigh the different factors. That is simply not1249actionable. There is a--1250    Mr. Huizenga. I think the good news is, Acting Chair Uyeda1251is seemingly doing that. He is taking a very different1252approach. One of his first was to rescind the Staff Advisory1253Bulletin 121 (SAB 121) followed by the creation of a crypto1254task force headed by a fellow commissioner, Hester Peirce.1255    Additionally, we have seen the SEC pause some of their1256pending crypto-related enforcement actions, citing a desire for1257a potential resolution.1258    Mr. Kim, beyond these examples, what other actions could1259the SEC pursue as far as low-hanging fruit to improve its1260approach in digital asset regulation that Congress could1261legislate?1262    Mr. Kim. Thank you very much for your question.1263    First of all, I want to just reiterate that it has been so1264encouraging for the industry to have the SEC crypto task force1265and the new SEC leadership who are welcoming and willing to1266work with industry.1267    In addition to pausing or withdrawing enforcement actions1268based solely on registration violations without any allegations1269of fraud or egregious conduct, it is clarifying some of the1270issues that the industry has been requesting: What is a1271security? Clarifying and confirming that a stablecoin that is1272backed one-to-one U.S. dollar-denominated is not a security and1273just continuing to work with industry. The industry wants to1274work with our regulators to make sure that we can enhance1275clarity and provide for U.S.'s leadership.1276    Mr. Huizenga. I have about a minute left. I want to try to1277hit a couple of quick things. Mr. Jachym, in 2023, the SEC went1278after Kraken's staking program. You operate in 200, over 2001279countries. Is that correct?1280    Mr. Jachym. That is correct.1281    Mr. Huizenga. Okay. That is a fair number. Being a member1282of the Foreign Affairs Committee, I know that constitutes much1283of the known digital world on that.1284    Did any other regulator around the world shut you down as1285former Chair Gensler did?1286    Mr. Jachym. No, Congressman. I think, to put our global1287operations in context, in those jurisdictions that have1288advanced clear rules of the road, we have worked with1289regulators to put those in place, and we are regulatory1290compliant.1291    There are a lot of jurisdictions that have not, and markets1292operate on a reverse solicitation basis. Most of our business1293is across North America and Europe where we see regulation1294moving forward.1295    Mr. Huizenga. My time is expired, but I will put in a1296question to you all about whether U.S. lawmakers should be1297concerned that Europe was first out of the gate with some of1298their regulations and their framework, and what lessons can the1299United States learn from Markets in Crypto-Assets (MiCA).1300    With that, Mr. Chair, I yield back.1301    Chairman Steil. The gentleman yields back.1302    The gentlewoman from California, Ms. Waters, who is also1303the ranking member of the full committee, is recognized for 51304minutes to ask questions.1305    Ms. Waters. Mr. Massad, consumer protections are under1306attack in this country, and this will have profound1307consequences for all of our constituents. As Elon Musk and the1308Trump Administration try to delete the Consumer Financial1309Protection Bureau (CFPB), Republicans on this committee have1310offered stablecoin legislation that is also light on consumer1311protections.1312    In the legislation I released, there are robust protections1313for consumer wallets, including risk management and financial1314resource requirements, to ensure consumers do not lose their1315payment stablecoins to the scams and fraud that have plagued1316the crypto industry for far too long.1317    What will it mean for consumers if these protections are1318stripped away, as Republicans on our committee have suggested?1319    Mr. Massad. I think you are exactly right, Congresswoman,1320that we could see a lot of consumer harm. Today stablecoins are1321not stable because we do not have this framework around them.1322It is not enough just to say okay; you have to have full1323reserves for tokens. We do need to go beyond that, and you have1324noted some of the ways.1325    Also, your point about wallets, I think, is very good. We1326have to look at this. Extend the perimeter here in terms of1327regulation and look at how these things are transferred. They1328can be transferred on self-hosted wallets, which raises a lot1329of issues of evasion of sanctions and financial crime. Unless1330we really put in a comprehensive framework, we are going to1331have these problems.1332    I think the bill-that the legislation that you negotiated1333with the former committee chair does a lot of this. It has1334stronger Federal standards, it has standards that go to1335wallets, and it has a dedicated resolution process. It has a1336number of features, I think, that it would better ensure1337protection of consumers.1338    Ms. Waters. Thank you.1339    Days before being inaugurated, President Trump followed in1340the footsteps of his Co-President Musk to profit off of meme1341coins. When Trump launched his own meme coin, I warned of the1342speculative dangers and myriad risks for investors who would be1343blocked from class action lawsuits if they were swindled.1344Trump's profiteering also challenges critical national security1345and anticorruption laws.1346    Now, we are seeing reports that after Trump's token1347crashed, a large number of investors suffered over $2 billion1348in losses. According to Chainalysis data, $100 million in1349trading fees have gone to the Trump family and his partners.1350While pump-and-dump schemes run rampant with meme coins, it is1351clear that early traders, Trump's family and their partners,1352have been the biggest winners at the expense of hundreds of1353thousands of investors.1354    When I heard about this meme coin, I asked, ``what is it?''1355They said, ``it is not an investment. It is not a contribution1356to the campaign.'' It is all about the President of the United1357States and then his wife and now his children all being1358involved in creating their own coins and making money. Those1359who understand what it means to have the rug pulled out from1360those who are unsuspecting, this appears to have happened.1361    What do you think about this?1362    Mr. Massad. I think it is plainly wrong, and I do not think1363you need to be an expert about crypto to know that. I mean,1364look, this is like paying to join a fan club, except it is a1365digital token that then you trade. You buy it to trade because1366you hope that somewhere and someone at some time will pay more1367for it than you paid.1368    It is clearly contrary to the spirit of the executive1369order. It is clearly a conflict of interest. It will create1370ongoing conflicts of interest because companies and countries1371may now try to buy the coin to curry favor with the1372administration, and they are going to continue to release1373additional coins.1374    I think it is a black eye for digital assets. It is exactly1375the kind of behavior we should be trying to tamp down.1376    Ms. Waters. Just quickly. Upon taking office, President1377Trump signed an executive order banning the creation and1378issuance of a U.S. Central Bank Digital Currency also known as1379CBDC. The United States is now the only country in the world to1380impose a Presidential ban on CBDC while China and Europe are1381free to lead the global competitive landscape.1382    I just get that in there because of our central bank--why1383do they not want our central bank involved?1384    Mr. Massad. If I can just add a couple thoughts to that. I1385mean, look, I know there are a lot of pros and cons about a1386retail CBDC, but we need the Federal Reserve to continue doing1387research and development in the area of digital assets.1388    If you want digital assets and tokenization to really grow1389as a sector, then the Federal payments infrastructure must be1390geared to handle that. That is why we need the Federal Reserve1391to continue to do work in this area. Unfortunately, the1392executive order suggests it cannot.1393    Chairman Steil. The gentleman's time has expired.1394    Mr. Massad. Sorry. Thank you.1395    Ms. Waters. Thank you very much.1396    Chairman Steil. The gentlewoman's time has expired.1397    The gentleman from Minnesota, Mr. Emmer, is recognized for13985 minutes.13991400  STATEMENT OF HON. TOM EMMER, VICE CHAIRMAN OF THE FINANCIAL1401  DIGITAL ASSESTS, FINANCIAL TECHNOLOGY SUBCOMMITTEE, A U.S.1402                 REPRESENTATIVE FROM MINNESOTA14031404    Mr. Emmer. Thank you to you, Chairman Steil, and to1405Chairman Hill, for your tremendous leadership and partnership1406on digital asset legislation. I am honored to serve as the vice1407chairman of this subcommittee, and I am humbled by the great1408work already done by your subcommittee.1409    Under President Trump, promises made are promises kept. A1410new day for crypto innovation, opportunity, and excellence has1411finally arrived. Crypto technology shifts economic power from1412centralized institutions back into the hands of the people. It1413is transformation.1414    The wrong leadership, our past administration, feared this1415transformation. They did everything they could to kill it. The1416right leadership, the Trump Administration, welcomes this1417transformation and will do everything in their power to make1418the United States the crypto capital of the world.1419    For this reason, we are in a moment to drive real change,1420to legally anchor the digital asset community, to unlock a1421peer-to-peer internet with an abundance of opportunity, to be1422globally competitive with our regulations, to expand the status1423of the dollar as the world's reserve currency, and to foster in1424the golden age of America.1425    Doing this requires leading with two priorities. First, we1426must ensure crypto policy remains nonpartisan. Republicans and1427Democrats have a 10-year history of working productively1428together on solutions in this space. That kind of teamwork must1429remain the status quo.1430    Second, we must craft statutory regulations that honor the1431core American values that are enshrined in digital asset1432technology, privacy, individual sovereignty, and free market1433competitiveness.1434    I am encouraged by the strong nonpartisan coalition of1435members on this subcommittee and this full committee who have1436put American values at the forefront of crypto policymaking.1437    This Congress, I look forward to supporting this1438subcommittee as its vice chair in drafting and passing1439stablecoin legislation and market structure legislation.1440    I also look forward to passing the CBDC Anti-Surveillance1441State Act, which bans the government from ever creating a1442central bank digital currency, the Blockchain Regulatory1443Certainty Act, which gives entrepreneurs the legal clarity they1444need to innovate right here in the United States, and the1445Securities Clarity Act, which codifies in law that a token is1446separate and distinct from an investment contract.1447    This committee has long been at the forefront of innovative1448policymaking for the digital asset ecosystem. In this Congress,1449I am excited to see the legislative products of our labor pass1450and get signed into law.1451    Thank you again, Chairman Steil, Chairman Hill, and my1452colleagues across the aisle, for your longstanding partnership1453in good faith to unlock an abundance of economic opportunity1454for our constituents.1455    We have a lot of work ahead, but our constituents can trust1456that a great bipartisan team here in Congress will bring this1457across the finish line and deliver for the American people.1458    Again, I am honored to serve as your vice chairman, Mr.1459Steil, and I yield back the balance of my time.1460    Chairman Steil. We are honored to have you as our vice1461chair. We look forward to your participation.1462    The gentleman yields back.1463    The gentleman from Illinois, Mr. Foster, is recognized for14645 minutes.1465    Mr. Foster. Thank you, Mr. Chair, and congratulations.1466Thank you to our witnesses, particularly Mr. Massad. Your1467testimony was really excellent. I read it twice, and I urge1468anyone who wants to understand the issues here to have a long1469read on your testimony.1470    One of the points you made in this is the inadequacy of the1471current corporate bankruptcy codes for resolving--for1472stablecoin.1473    I was wondering if the other witnesses have any comments on1474that. Do you view the current bankruptcy code as adequate for1475resolving failed stablecoins, or do you think we need a1476separate resolution regime for stablecoin issuers?1477    Anyone who wants to--just raise your hand. If you think the1478current regime is adequate and we do not need a new one, just1479raise your hand.1480    Okay. It looks like all of you agree that we need some kind1481of a new resolution regime for bankrupt issuers of stablecoin,1482so that really should be on our to-do list on here.1483    Let us see. Mr. Jachym, you emphasized regulatory oversight1484over your platform, but, as Mr. Massad points out, that is only1485half the battle. If you accept crypto assets that have been1486self-hosted, you must need some mechanism to make sure that1487they have not been used for fentanyl purchases or North Korean1488missiles. All these sorts of things that are really key to1489having that--how do you ensure that the crypto assets that you1490bring on board have not been used for these illicit purposes?1491    Mr. Jachym. Thank you for the question, Congressman.1492    Kraken employs a zero-tolerance policy for illicit finance.1493If you think about our ecosystem, there are KYC and AML checks1494for every user that comes on board--1495    Mr. Foster. Okay. Just to be specific, let us say you have1496bitcoin that is going through these washers and transferred to1497other anonymous currencies and then it shows up in your1498platform from a self-hosted wallet. How do you have any idea1499where that money has been?1500    Mr. Jachym. Thank you for the question, Congressman.1501    This is the beauty of blockchain technology, and I think1502this is where the blockchain analytical tools really power this1503ability to surveil, detect, and prevent this type of behavior.1504    We employ these tools to ensure that not only are all the1505transactions within our environment and on our platform are1506subject to these screens but also onboard, off-board, and if we1507are interacting with other centralized intermediaries, self-1508hosted wallets that are owned by our customers, those are1509subject to sanctions--1510    Mr. Foster. ``That are owned by your customers''--yes, I am1511not worried about your customers, the people you KYC'd. I am1512worried about people that are out there on the dark web trading1513anonymously with self-hosted wallets to buy fentanyl precursors1514or all the things that are killing Americans or the North1515Korean nuclear missiles that threaten us.1516    Mr. Jachym. And--1517    Mr. Foster. It seems like--or, if you have a solution that1518actually works, I have been asking for it for 10 years and have1519not received it. If you could for the record, say exactly how1520you can guarantee that, when you bring on a crypto asset, that1521value has not been used in an illicit transaction. If you could1522answer that for the record, I would appreciate it.1523    It is one of the two things that--one of the reasons why we1524have actually over the last 10 or 12 years, passed exactly zero1525legislation on crypto is that the two fundamental issues are1526anonymity and finality.1527    Just for an example on the finality and why that is so1528tough. If you are self-hosting and someone comes and puts a gun1529at your head, drags you into an alley, says, ``Get out your1530cell phone, transfer all your crypto to me,'' Is it your view1531that you are just screwed? That money has disappeared into1532another self-hosted wallet, wandered off to the dark web or do1533you think that we need some way of tracking it down to find out1534where it went?1535    Mr. Jachym. Congressman, I think it is really important to1536put the market into context here. The crypto markets have1537reached over $3.5 trillion. Eighty-five to 90 percent of that1538activity today goes through centralized intermediaries like1539Kraken and other--1540    Mr. Foster. Then it is the 15 percent that is threatening1541us with nuclear missiles we cannot stop from North Korea, all1542right? I am not worried about the 85 percent, and I am not1543even--anyway.1544    If you have a solution--1545    Mr. Jachym. Congressman, if I may, I think the 85 to 901546percent is what we are here to talk about today. That is why it1547is so important for the United States to move forward with1548market structure regulation.1549    There are many issues to debate over the next several1550years, but we need to move now and put that basic foundation in1551place--1552    Mr. Foster. Okay. Unless that 85 percent is used as an on-1553ramp for the 15 percent that is killing Americans.1554    Mr. Massad, you look like you wanted to say something.1555    Mr. Massad. I was just going to say, When I hear the1556industry defend it this way and yet at the same time, they want1557to promote DeFi--so you might say, well, okay, are you willing1558to somehow restrict DeFi and have everything go through1559centralized intermediaries so we can have BSA checks?1560    Mr. Foster. Okay. Thank you.1561    My time is up. I yield back.1562    Chairman Steil. The gentleman yields back.1563    The gentleman from Ohio, Mr. Davidson, who is also the1564Chair of the Subcommittee on National Security, Illicit1565Finance, and International Financial Institutions, is now1566recognized for 5 minutes.1567    Mr. Davidson. Thank you, Chairman, for holding today's1568hearing, ``A Golden Age of Digital Assets.''1569    Given the title, I think I will get a question in at least1570on gold-backed stablecoins, but I want to strongly support1571legislation that provides legal clarity for payment1572stablecoins.1573    First, traditional stablecoins are priced at $1 per token,1574and they are backed by custody of $1 of either cash or cash1575equivalents like U.S. Treasurys. As the name implies, a gold-1576backed stablecoin is backed by physical custody of gold.1577Consequently, with a claim to the gold that is on deposit, each1578token reflects the market price of gold.1579    Similar commodity-backed stablecoins are obviously viable,1580but why would anyone prefer a stablecoin of any kind to a1581traditional bank deposit?1582    First, banks have fractional reserves, and although the1583risk of a bank default is normally small, cases like Silicon1584Valley Bank exist. Stablecoins are fully reserved, and they1585have audited balances of one-to-one. In the case of dollars, it1586is $1 per dollar, or in the case of something like gold, it1587would be 1 ounce per token.1588    The other thing is self-custody. While people--the skeptics1589keep trying to undermine the market, the whole point is self-1590custody, permissionless--which is no intermediary--payments.1591The idea that you have to go through an intermediary to be1592trusted basically says that, unless the government grants you1593permission, we just assume you are a criminal, that you are1594trying to do everything that we want to criminalize.1595    There is no decentralized finance without the decentralized1596part. If you do not protect self-custody, you essentially do1597not have--all you really do is change which intermediaries are1598involved. You do not really do that much truly interesting1599work, so I do not think any serious piece of legislation to try1600to chart a path for a, ``Golden Age of Digital Assets'' could1601possibly exclude serious protections for self-custody.1602    I was really pleased to hear you highlight that, Mr. Kim.1603    Mr. Jachym, Kraken lists some advantages of gold-backed1604stablecoins. You obviously have them available. Do you agree1605that there are advantages to using a gold-backed stablecoin to1606other stablecoins?1607    Mr. Jachym. Thank you for the question, Congressman. To1608touch on your prior point, thank you for your leadership in1609terms of helping others understand the importance of self-1610custody in the crypto markets.1611    With respect to stablecoins, we believe a robust and1612healthy and competitive stablecoin market is going to be1613important. We have seen instances where the market, either due1614to regulation or other forces, has been dominated by a couple1615players. Again, in Europe, let us look to this example. We have1616seen the emergence of, as rules have been put in place, new1617issuers register and competitive forces at play. I think that1618is what we all want for the market.1619    This includes gold-backed stablecoins. I think there is1620going to be a lot of innovation in this space, but it is1621important for the United States to put rules in place for1622issuers. Right now, we see other jurisdictions moving forward,1623which require every global stablecoin issuer to consider1624registration in one jurisdiction or another. And--1625    Mr. Davidson. I think that is a good point.1626    I think the big thing the committee has tried to do--and we1627had witnesses, including Director Harris from New York is we1628have had legal clarity in America for years now, we just have1629not made it Federal. Some people want to make it only Federal1630and essentially nuke what has worked successfully with the1631regulatory regime in New York. Look, New York rarely gets1632regulatory frameworks right in a way that I will applaud, but1633this is one that seems to have been pretty effective. A lot of1634times it seems very heavy-handed, but this seems to have1635worked. We have got people that do not want to recognize that1636and basically want to eliminate the State-backed stablecoin1637path.1638    One of the other things that we talked about was legal1639clarity. One of the first bills I introduced in this space was1640the Token Taxonomy Act, and it gets at this idea that there has1641to be a bright-line test.1642    I am going to rapidly run out of time, but, Mr. Massad, is1643there any place that really does not look like a Jackson1644Pollock painting? I mean, that everyone looks at it and says,1645this is really a bright-line test, this is a security and this1646is not.1647    Mr. Massad. Congressman--thank you for the question--it is1648very tough. I think we need to remember that other1649jurisdictions are struggling with this ``security versus1650commodity'' or ``security versus something else'' also. Europe1651has this, too, whether it is a crypto asset or a financial1652instrument.1653    The difference is, they have, in some of these other1654jurisdictions--because this also exists in Hong Kong and other1655places--they have more unitary regulation, so it is a little1656bit easier to--1657    [Crosstalk.]1658    Mr. Davidson. It is the challenge before us--1659    Mr. Massad. Second--1660    Mr. Davidson [continuing]. and we have to get a bright1661line. I am sure others will highlight it.1662    Sadly, my time has expired, and I yield back.1663    Mr. Massad. If I can just add, though, on New York--1664    Chairman Steil. The gentleman's--1665    Mr. Massad [continuing]. if all 50 States follow New York--1666    Chairman Steil. The gentleman's time has expired.1667    Mr. Massad [continuing]. I am fine with the----1668    [Crosstalk.]1669    Chairman Steil. The gentleman's time has expired. You can1670enter it for the record.16711672    [The information referred to was not received prior to1673printing.]16741675    Chairman Steil. The gentleman's time has expired.1676    The Representative from Massachusetts, Ms. Pressley, is1677recognized for 5 minutes.1678    Ms. Pressley. Thank you to our witnesses for joining us1679today.1680    There is so much excitement around digital assets,1681especially cryptocurrency, understandably so. Cryptocurrency is1682the new thing, it is shiny, it is flashy. People on the1683internet are always telling stories about how much money they1684are making on their investments in the latest coin.1685    The stories that stick with me the most are not on social1686media posts. They are the ones that I hear in the community or1687that come to my office as casework, like the college student1688whose digital wallet was drained and they do not know who to1689turn to for help, or the elder who lost everything when1690responding to text messages from a number that was pretending1691to be their grandchild in order to set up a crypto access1692account.1693    These stories and many more are the heartbreaking reality1694of crypto scams, and I believe we all, government and industry,1695should do everything we can to stop them.1696    Mr. Kim, you are the President and Acting CEO of Crypto1697Council for Innovation. Do you think it is important for1698government to play a role in reducing scamming and fraudulent1699activity through cryptocurrency?1700    Mr. Kim. Thank you very much for your question,1701Congresswoman.1702    As a general matter, it is extremely important for any1703counter-illicit activity to be stopped, and CCI is committed to1704coming up with policy solutions.1705    My opinion is that the best way to accomplish this is1706through a comprehensive Federal framework for both [inaudible]1707and payment stablecoins to make sure there are consumer1708disclosures, that there are consumer protection standards. All1709of this information can help prevent scams. At CCI, we run1710different types of educational aware campaigns with our members1711to make sure these types of scams do not come to be.1712    In the United States, centralized exchanges, as my1713colleague to the right of me mentioned, they are subject to1714robust AML and Countering the Financing of Terrorism (CFT)1715oversight. No amount of counter-illicit activity is acceptable,1716and CCI is committed to working with you and your office to1717make sure that we promote awareness and education to best stop1718consumer scams.1719    Ms. Pressley. Thank you.1720    Actually, my next question is for the entire panel of1721witnesses. Please raise your hand if you oppose crypto scams1722and support protecting consumers.1723    Excellent. Let the record reflect that every single witness1724today raised their hand. I am glad we can all agree on that.1725    It is not enough to simply talk about it, we need to be1726about it. That is why I want to bring attention to the Consumer1727Financial Protection Bureau. This small but mighty government1728agency is one of the top watchdogs fighting hard for working-1729class people and their bank accounts. That is precisely the1730reason Elon Musk is trying to kill it.1731    If you are not familiar, the CFPB has put 21 billion--that1732is with a ``B''--dollars back in people's pockets. When it1733comes to digital assets, CFPB collected data from consumers and1734found that 40 percent of crypto asset complaints were about1735fraud and scams. They then used that information to develop1736resources for consumers and prioritize regulations for crypto1737firms to reduce predatory behavior.1738    The agency is now under attack. Elon Musk and his so-called1739``Department of Government Efficiency (DOGE) bros'' have kicked1740out the employees, locked the door, and stopped all the work1741from continuing. They did it with the blessing of our scammer-1742and harmer-in-chief, Donald Trump.1743    Earlier this year, Trump launched his own cryptocurrency1744meme coin. He promoted it on social media, and people invested1745in it, but then it quickly lost value, roughly 40 percent, when1746Trump insiders pulled their money for a profit, resulting in1747working-class people stuck with the losses. It was a scam.1748    Let us be clear. On one hand, Donald Trump will steal from1749people through a crypto scam. On the other hand, the1750hardworking staff at CFPB will fight to get people their money1751back. That is why we need this essential agency to be reopened1752to finish its necessary work.1753    Mr. Massad, the Consumer Financial Protection Bureau,1754before it was attacked by Elon Musk and DOGE, proposed that1755crypto payments are subject to the Electronic Fund Transfer1756Act. Why do you think that is important?1757    Mr. Massad. I think--Congresswoman, thank you for the1758question. I think we have to have a complete framework of1759regulation, particularly given the fact that the industry likes1760to push back against whatever regulator is trying to do.1761    To your point about shutting down the CFPB, we cannot build1762strong financial markets if we are going to sort of regulate by1763a pendulum swing--sort of go way over here to one1764administration and then go way over here to the other1765administration. I mean, reasonable people can disagree with1766some of their rules, but you do not shut down the agency.1767    Ms. Pressley. Thank you.1768    I yield back.1769    Chairman Steil. The gentlewoman yields back.1770    All members are reminded to refrain from engaging in1771personalities toward the President.1772    The gentleman from Tennessee, Mr. Rose, is now recognized1773for 5 minutes.1774    Mr. Rose. Thank you, Chairman Steil, and thank you, Ranking1775Member Lynch, for holding this hearing.1776    Thank you to our witnesses for taking time to be with us1777today.1778    One aspect of stablecoins that interests me greatly is1779their utilization for business-to-business transactions.1780    Mr. da Ponte, why are stablecoins a better tool than1781traditional settlement rails for domestic business-to-business1782transactions?1783    Mr. Fernandez da Ponte. Thank you so much for the question.1784    We have been active in the space of crypto for the last 51785years and in the stablecoins for the last year and a half, and1786the reason that we are there is because we are a payments1787company, not a blockchain company. We see the potential of1788technology to bring the next generation of payment rails, and1789we believe that business-to-business payments are one of the1790places where we will see that adoption first.1791    In terms of domestic payments, there is a very clear1792advantage that, even in places that have adopted real-time1793payments and more traditional rails, through transactions with1794the stablecoins and blockchain, businesses can transact outside1795of banking hours, outside of Monday to Friday, outside of 9 to17965.1797    We see that, for many small businesses that we serve, that1798means that they can get their payments in 2 days earlier, they1799can get their payments in without waiting for an Automated1800Clearing House (ACH), transfer to settle. We see fundamental1801advantages in reducing financial costs for those businesses.1802    Mr. Rose. Thank you.1803    Recently, I had a constituent express a great deal of1804frustration regarding the cost and difficulty of conducting an1805international wire transfer to pay an invoice.1806    Mr. da Ponte, do you see similar benefits when stablecoins1807are used for international cross-border payments between1808businesses?1809    Mr. Fernandez da Ponte. Thank you so much for the question.1810    If there is value on the domestic side, there is even more1811value on the international side.1812    The cost of sending an international wire is in the range1813of $50. The time that it takes to settle is in the range of 31814to 5 days and there might be other costs associated for the1815receiving party internationally.1816    When we can do transactions that are fast, cheap and can1817settle 24/7, and can settle in minutes, we are saving those1818businesses at least in 3 ways. We are putting 5 days of money1819back on their balance sheet, because they do not need to pre-1820fund the money. In many cases, they can get better exchange1821rates, because they can time when they do the transaction. They1822are also reducing the counterparty risk, because they do not1823need to have pre-funded money with their disbursement partners.1824    I have the luxury of being able to engage with our1825consumers and businesses, and I remember, a few weeks ago, I1826was talking to one of our small businesses, a pottery business1827out of Texas, who was very clear that the main reason that she1828was excited about this technology was not the need to reduce1829the cost of payments but to grow her business. She said that1830she had to decline a significant order from overseas, from the1831Middle East, because they could not figure out the way to make1832the payment.1833    If we can provide this fast and cheap and 24/7 settlement1834vehicle, we will be helping her grow her business and other1835millions of other American businesses.1836    Mr. Rose. Thank you. I think you shed great light on that.1837    I would like to shift gears now and discuss the benefits1838that stablecoins offer to consumers, not just businesses.1839    Mr. Kim, I understand that traditional financial1840institutions charge 5 to 12 percent for remittances. How can1841stablecoins be used to lower those costs for consumers looking1842to make remittance payments?1843    Mr. Kim. Thank you very much for this important question,1844Congressman.1845    You are absolutely right, traditional institutions can1846charge anywhere from 5 to 12 percent for cross-border1847remittances. Stablecoins can reduce that to 1 percent or lower.1848    I am from New York, and New Yorkers send $10 billion1849overseas on remittances. We are talking about $500 million that1850could be spent on the local economy and other good reasons.1851    This is why it is so important to have a comprehensive1852Federal framework for stablecoins to further spur this1853innovation and leadership in the United States when it comes to1854stablecoins, Congressman.1855    Mr. Rose. Thank you.1856    I fear that a lack of strong communication between the CFTC1857and the Securities and Exchange Commission has been why the1858Biden-Harris Administration was so unsuccessful in1859appropriately regulating digital assets.1860    Mr. Kim, would you be supportive of a joint advisory1861commission between the SEC and the CFTC to help harmonize them1862and resolve the jurisdictional overlap?1863    Mr. Kim. Absolutely, Congressman. Interagency collaboration1864and cooperation are critical to getting this right for the1865United States. We need clear delineation of responsibilities1866between the two agencies, and this is something that the1867President is working--the President's executive order also1868recognized by establishing the working group. I want to thank1869you, Congressman, for your leadership with the Bridging1870Regulation and Innovation for Digital Assets (BRIDGE) Act, as1871well.1872    Mr. Rose. Thank you.1873    I have full faith that, this Congress, we will pass1874legislation regarding both stablecoins and market structure for1875digital assets. As we blaze a path forward, it cannot be done1876without cooperation and communication between the SEC and the1877CFTC.1878    Thank you, Mr. Chairman. I yield back.1879    Chairman Steil. The gentleman yields back.1880    The Representative from New York, Mr. Torres, is now1881recognized for 5 minutes.1882    Mr. Torres. Thank you, Mr. Chair.1883    I feel we in Congress should neither romanticize nor1884demonize emerging technologies like blockchain. Like all1885technologies, blockchain has constructive uses and destructive1886uses.1887    I feel like our mission should be to develop a regulatory1888framework that maximizes the best uses and minimizes the worst1889uses. Without a bipartisan agreement, we will continue to have1890a dangerously deregulated status quo that benefits offshore,1891overleveraged, deregulated actors. For me, a bipartisan1892agreement would be a fundamental improvement upon the status1893quo.1894    I want to follow up on Congressman Rose's questions on1895remittances. I represent the Bronx, which is one of the poorest1896counties in America. I have constituents who pay exorbitant1897fees simply to transfer their own money to their loved ones1898abroad, whether it be Mexico or the Dominican Republic.1899    My first question would be for Mr. da Ponte.1900    PayPal is obviously one of the largest payment processes in1901the world. What is the cost of transferring money via the1902conventional payment system versus the crypto or stablecoin1903payment system?1904    Mr. Fernandez da Ponte. Thank you for the question,1905Congressman.1906    The cost of sending money overseas varies widely by1907corridor, but information coming from sources like the World1908Bank would put the average cost in the range of around 61909percent, with a target of--I think that the desired target for1910the World Bank is to bring that down to 3 percent. The current1911average, I think, is in the range of 6 percent.1912    When you are doing those transactions on stablecoins today,1913if you are doing that purely from a stablecoin wallet to a1914stablecoin wallet, depending on the protocol that you are1915using, it can be as low as 1 cent per transaction in some of1916the most efficient wallets.1917    That still would not address part of the complexity,1918because then you would need to explain to the person on the1919other side they need to get a crypto wallet, they need to find1920an exchange, so there is still some friction there.1921    We are finding experiences that combine fiat and1922stablecoins for the benefit of the user. For instance--1923    Mr. Torres. I just want to simplify it, so the average cost1924of remittances is 6 percent. The World Bank has a1925sustainability development goal of 3 percent. What is your cost1926with stablecoin?1927    Mr. Fernandez da Ponte. When somebody on Xoom, our1928remittance product--we have enabled stablecoin as a funding1929instrument. When somebody sends a remittance funded by PYUSD,1930we do not charge any transfer fees, so the transfer fee that is1931charged to the user is zero. There is still a component on the1932foreign exchange's (forex's) spread depending on where that1933corridor came from.1934    Mr. Torres. Okay, it is zero when it comes to the1935transaction fees. Then if you factor in the spread for the1936foreign currency exchange rate, what would it be?1937    Mr. Fernandez da Ponte. That--I would need to come back to1938you for follow up, but I--1939    Mr. Torres. Is it less than 3 percent?1940    Mr. Fernandez da Ponte. In many cases, it would be less1941than 3 percent.1942    Mr. Torres. Okay.1943    We are living in a time when foreign demand for U.S.1944stablecoins is on the--I am sorry--foreign demand for U.S.1945Treasurys is on the decline. It appears to me that stablecoin1946issuers are becoming the largest purchaser of U.S. Treasurys.1947    It would seem to me that the proliferation of stablecoins1948can dramatically expand the market for U.S. Treasurys. What1949impact would that have on the cost of U.S. debt?1950    Mr. Fernandez da Ponte. Thank you, Congressman, for the1951question.1952    U.S. Treasurys are definitely being established as one of1953the assets that are being preferred for the servicer of1954stablecoin. As the market grows, that will inevitably drive1955demand, especially as American issuers are able to issue more1956here inside of the United States and they are able to provide1957that increase in the market.1958    I do not have an opinion on what that would make for the1959cost of debt of the United States but definitely is one of the1960aspects where net demand for Treasurys could grow.1961    Mr. Torres. Or, it would seem to me, economics would1962dictate that growing demand for U.S. Treasurys would lower the1963cost of U.S. debt, but--1964    Mr. Massad, do you feel stablecoins should be regulated in1965the same manner as banks?1966    Mr. Massad. Not quite in the same manner, but with some1967similar principles, such as some of those in the STABLE Act,1968like full reserves, capital and liquidity requirements, risk1969management measures, and so forth.1970    I have been calling for this for years because--not just to1971address the risks--1972    Mr. Torres. You would concede that a stablecoin issuer that1973has no fractionalization of reserves--1974    Mr. Massad. Correct. Agreed.1975    Mr. Torres [continuing]. in their lending--1976    Mr. Massad. They are not creating--1977    Mr. Torres [continuing]. functions qualitatively different1978from a bank----1979    Mr. Massad. They are not creating----1980    Mr. Torres [continuing]. and, therefore, should have its1981own regulatory framework?1982    Mr. Massad. Absolutely.1983    Mr. Torres. Okay.1984    I see my time is about to expire, so I will leave it at1985that. Thank you.1986    Chairman Steil. The gentleman yields back.1987    The chair now recognizes the chair of the full committee,1988the gentleman from Arkansas, Mr. Hill.1989    Chairman Hill. Thank you, Chairman Steil and thank you for1990your leadership of our important work in the 119th Congress on1991digital assets.1992    I appreciate the questions of my fellow committee members,1993and I appreciate all the witnesses being with us today.1994    Mr. Garrison, today's investors make investments in digital1995asset projects through a series of exemptions that the SEC has1996crafted, each with their own advantages and limitations.1997    Could you take a minute and discuss the different1998exemptions that digital asset projects are currently using to1999raise money with investors and what the principal obstacles are2000to that process?2001    Mr. Garrison. Certainly.2002    The primary exemption that most digital asset issuers rely2003on is Regulation S, which is a safe harbor for offshore2004transactions to prevent U.S. investors from even participating.2005As a starting point, many U.S. investors are just kept out.2006    For those that do issue to U.S. investors, you typically do2007so through the Regulation D safe harbor, which can only be sold2008to wealthy investors. You have to have over $200,000 in income2009or a million dollars' net worth to participate in that.2010    In the United States there really is no straightforward way2011to get digital assets out to retail investors in an either2012registered or exempt offering.2013    Chairman Hill. Yes. That is helpful to me because this is--2014what I think the ecosystem has to understand that not all these2015needed activities can be taken care of by the commission by2016itself without Congress.2017    What would be, in your view, the key features of a workable2018exemption-type system that SEC could add to that without2019Congress?2020    Mr. Garrison. Certainly. The SEC could use its exemptive2021authority to add a new exemption similar to Commissioner2022Peirce's token safe harbor proposals from a few years ago, for2023example.2024    A few features that could be helpful there are: The ability2025to access retail investors, as well as tailored disclosure2026items for this industry, right? So, token-holders have2027different interests than a shareholder in a company. The types2028of disclosures that are needed are completely different in this2029situation.2030    Chairman Hill. Yes.2031    Mr. Garrison. Providing that type of information, you can2032pair that with many investor protections, individual2033limitations on how many people can participate, how much they2034can participate of their net worth.2035    Many of the same concepts and existing securities law2036exemptions can be grafted over in a way that makes it a2037balanced approach.2038    Chairman Hill. Thank you. I think we have worked,2039certainly, with that concept as we drafted our FIT21 bill in2040the last Congress.2041    Bitcoin clearly is the most popular digital asset in the2042ecosystem, and it is one example where both the SEC and the2043CFTC have agreed that it is not a security, along with ether.2044    Do you think, under the current securities laws, it would2045be possible for a national security exchange to list bitcoin2046and a security alongside each other? Is that possible, do you2047think, under current--2048    Mr. Garrison. No. No, it is not.2049    Chairman Hill. Not? You do not believe it is?2050    Mr. Jachym, do you agree with that? Do you think--2051    Mr. Jachym. I think there--Congressman, thank you for the2052question. I think there could be exemptions put in place.2053    It is our view that, rather than do this piece by piece2054through exemptive relief or no action from the agency, it is2055really important for Congress to set a clear statutory2056framework and do that across both agencies. We have seen prior2057examples where markets have dual registrations at the SEC and2058CFTC.2059    The fact of the matter is, the rest of the developed world2060and most other emerging jurisdictions have just called these2061crypto assets, and you have one regulator, one registration2062framework. We have to work within our unique legal system, but2063I think, in order for our framework to be durable and keep pace2064with the innovation, the tests and the jurisdictional lines2065need to be clear and simple.2066    Chairman Hill. Mr. Garrison, do you agree with that?2067    Mr. Garrison. Yes. There is, without a doubt, a need for2068clear jurisdictional lines and clarity.2069    Chairman Hill. You have advocated for a joint Self-2070regulatory Organization (SRO) to oversee digital assets as a2071convenient way to sort of sidestep these questions. Are you2072still advocating for that?2073    Mr. Garrison.2074    Mr. Garrison. I am sorry. Clarification, for a joint SRO--2075    Chairman Hill. Yes.2076    Mr. Garrison [continuing]. to oversee SEC and CFTC trading?2077    Chairman Hill. Yes. Yes.2078    Mr. Garrison. Yes, I think that could potentially work2079great. Any type of communication between the two agencies and2080coordination on regulations would make sense.2081    Chairman Hill. My time has expired, Mr. Chairman. I yield2082back.2083    Chairman Steil. The gentleman yields back.2084    The Representative from Texas, Ms. Garcia, is recognized2085for 5 minutes.2086    Ms. Garcia. Thank you, Mr. Chairman and thank you to all2087the witnesses.2088    I want to do some follow-up to the questions that Mr.2089Torres was asking you, Mr. da Ponte.2090    The crypto industry has always boasted about the easier2091access and the savings of using crypto or stablecoins in lieu2092of remittances, and they talk about all these prices. The2093reality is, do we have that many migrants using crypto or2094stablecoins to transmit remittances?2095    Mr. Fernandez da Ponte. There are no--thank you for the2096question so much.2097    The use of remittances--the use of stablecoins broadly for2098remittances or for other types of payments is still in the2099early stages. The vast majority of the use case for stablecoins2100today, where stablecoins have been adopted, is mostly on crypto2101and trading markets.2102    We see some early stages in which both consumers and2103businesses are using that for cross-border, peer-to-peer (P2P)2104payments or for business-to-business payments, but it is still2105in very early stages.2106    Ms. Garcia. What percent of remittances today do you think2107are being transmitted with crypto or stablecoins?2108    Mr. Fernandez da Ponte. I do not have data for that, but my2109best estimate would be that it is going to be in the low single2110digits. It is still a very small amount.2111    Ms. Garcia. It is very small, right. Because, frankly, at2112least when--I still remember the first hearing we had on this2113topic, and I questioned the witness at the time, and he, too,2114could not give me a single instance where he had seen it done.2115As a practical matter, yes, it may be easier to transmit, but2116the receiving party has to have the capacity to receive it. It2117is not something you can just get, go to the market, and buy2118your milk.2119    Likewise, do you have any data on the breakdown by income2120of the buyer, customer, consumer, and the investor that does2121use stablecoin or does invest in stablecoin or crypto?2122    Mr. Fernandez da Ponte. I do not know that we have that2123data, but I can consult with our team and come back--2124    Ms. Garcia. Again, it is a question that I have been asking2125now, it seems like, for 5 years, and no one seems to be able to2126answer that question, even some of these working groups that2127are put together.2128    Experts come, and you all like to talk about how inclusive2129this can be and that this will help the unbanked. It is2130laudable goals, but the reality is, unless you are really very2131rich, you are not doing any of this.2132    The average American just seems to be overwhelmed with this2133discussion, that they do not really even understand what we are2134talking about, that I think it is going to be really hard for2135us to get past some of those hurdles. When you talk about the2136underbanked, those with limited English proficiency, I think it2137is getting--there are a lot of dubious people know about what2138this really means.2139    We know cash. Cash is king. We really do not want, at least2140in my district, anybody competing with the U.S. dollar. I think2141there is a big hurdle here that we have to use, but we also2142have to make sure that, whatever we are doing, that we do have2143a framework to protect the consumer and that we can make sure2144that they also have remedies for justice if they get scammed,2145as Ms. Pressley mentioned.2146    Mr. Massad, do you think the governmentwide mandate to2147eliminate diversity, equity, and inclusion efforts will change2148the crypto industry in the long run?2149    Mr. Massad. That is a good question, Congresswoman. I am2150sure it will.2151    I think it is very unfortunate to eliminate these programs2152entirely. Even if you can find examples of how they have been2153used that you think are an overreach, the notion that we should2154eliminate these things, I think, is not good policy. Again--2155    Ms. Garcia. It is part of the branding of this industry2156from the beginning, as I said, ``We will be there for the2157unbanked, for the poor person to send a remittance, for2158everybody--we will include everybody. We are not going to be2159like the banks.''2160    Mr. Massad. No, I agree with you that the industry likes to2161talk about inclusion. I do not think we have seen that much of2162that.2163    To your question about stablecoins, who is using them for2164remittances and so forth we might see that use case develop.2165The fact is, stablecoins are mostly used today for trading2166crypto.2167    Now, if we had a regulatory framework with sufficient2168protections that people could have confidence that a stablecoin2169was really worth a dollar, then we might see people use2170remittances.2171    I agree with Mr. Fernandez da Ponte that the cost of2172remittances is very, very high, and we should be looking for2173ways to bring it down. There are other companies trying to2174bring it down through non-blockchain technologies, and they are2175making progress in that regard.2176    Ms. Garcia. Thank you.2177    I yield back.2178    Chairman Steil. The gentlewoman yields back.2179    The gentleman from South Carolina, Mr. Timmons, is2180recognized for 5 minutes.2181    Mr. Timmons. Thank you, Mr. Chairman, and I want to thank2182the witnesses for being with us today.2183    Over the past 4 years, under the Biden Administration and2184Chair Gensler, innovation within the digital asset sector has2185been driven out of the United States. Numerous groundbreaking2186blockchain companies with potential to transform our economy2187have relocated to jurisdictions with well-established2188regulatory frameworks. Meanwhile, international competitors2189have gained a distinct competitive advantage while American2190businesses in this space were essentially dismissed by the2191administration, with the message to simply go away.2192    Mr. Fernandez da Ponte, as an American company, how has2193PayPal's digital currency business been affected by the absence2194of regulatory certainty over the past several years?2195    Mr. Fernandez da Ponte. Thank you so much for the question.2196    We have been in the industry--we have been in the payments2197industry for 25 years, and we have been--we are regulated in2198many, many jurisdictions, and we take that regulation very2199seriously.2200    When we decided that we were going to enter this space, we2201went to the highest regulatory standards that we could go. We2202obtained the first provisional BitLicensing in New York. We2203obtained the first upgrade for BitLicense in New York. We2204obtained a limited purpose trust charter out of New York as2205well.2206    We have gone the State route in the place in which the2207regulation was available to us and where we could interact with2208the system.2209    Definitely, there are constraints on how products are2210designed that derive from that lack of clarity and that lack of2211understanding of when one specific token would be considered a2212security or not. We support a very small number of tokens in2213our platform--2214    Mr. Timmons. Thank you.2215    Mr. Fernandez da Ponte.--and are mainly driven by--2216    Mr. Timmons. A quick follow up question. How could clear2217legal guidelines for digital assets and blockchain technology2218help non-bank entities like PayPal compete more effectively on2219the global stage?2220    Mr. Fernandez da Ponte. We believe that, as the world moves2221to the next generation of payment rails, it is incredibly2222important for a payment company like us to be involved. As the2223world moves toward mobile money wallets internationally and2224toward networks that will interoperate with each other, we see2225an increasing volume that is going into those rails. We need to2226have an ability to compete in that international market,2227because it is happening outside of the United States before it2228is happening in the United States.2229    Mr. Timmons. Thank you for that.2230    Mr. Fernandez da Ponte. Thank you.2231    Mr. Timmons. Mr. Jachym, how about for Kraken? What would2232your answer be? How would clear legal guidelines help assist2233competitiveness of the U.S. economy?2234    Mr. Jachym. Thank you for the question, Congressman.2235    The clarity needed and provided by the legislation that has2236advanced over multiple congressional cycles would solve for a2237key foundational piece of this puzzle, which is regulation for2238centralized intermediaries. That will allow investment and2239growth.2240    Now, if you look at the trend that has happened here, both2241at the level of the project development teams and the2242innovators through to the investing community and then to the2243centralized markets, we have lacked that clarity in the United2244States, which has pushed innovation and pushed development2245offshore.2246    It is not just the legal bills. It is the distraction of2247management and board and our businesses to think proactively2248about investing.2249    We are very excited for the change in tone and the2250cooperation, and we think that is going to drive new innovation2251here in the United States.2252    Mr. Timmons. Thank you for that. I can assure you; help is2253on the way.2254    Last Congress, I introduced the New Frontiers in Technology2255Act with my colleague from New York, Mr. Torres. The aim of2256that bill is to provide clear definitions within the expanding2257and often ambiguous digital assets regulatory landscape.2258    As you may know, non-fungible token creators and2259marketplaces have faced challenges for years due to unclear2260regulations, while countries like Japan, Singapore, and South2261Korea have created favorable conditions that have allowed Non-2262Fungible Token (NFT) companies to thrive.2263    I was encouraged to see a discussion draft of my bill2264included in today's hearing, and I look forward to advancing2265this important work later in this Congress.2266    Mr. Kim, can you describe some of the regulatory ambiguity2267regarding the treatment of NFTs and explain why these assets2268need to be approached in a different manner than, say, bitcoin2269or ethereum?2270    Mr. Kim. Absolutely. Thank you for your question,2271Congressman.2272    It is important to clarify the non-security status for NFTs2273such as artwork, collectibles, and nonfinancial applications.2274Imagine an artist looking to hire a securities attorney--2275apologies to my colleague to the left of me--before selling2276this art piece.2277    This is why your bill is so important. Thank you to you and2278Congressman Torres for your leadership there to clarify this2279important issue.2280    Mr. Timmons. Thank you for that.2281    I am particularly interested to see how NFTs can2282revolutionize various sectors but particularly real estate. I2283think that there are a lot of efficiencies long-term that we2284can use the blockchain, and this legislation would help go a2285long way in that endeavor.2286    Congress has an obligation to make sure the U.S. economy is2287the best place in the world to start and build a business. That2288is what we are working on in this subcommittee, and I am2289optimistic we will get it done this Congress.2290    Thank you.2291    I yield back.2292    Chairman Steil. The gentleman yields back.2293    The Representative from California, Mr. Liccardo, is2294recognized for 5 minutes.2295    You may be able to pull the mic over--2296    Mr. Liccardo. Oh, here. Got it. Thank you. My mistake.2297Wrong button. Thank you.2298    Thank you, Mr. Chairman. Congratulations, as well.2299    I appreciate the testimony of the witnesses. Thank you all2300for being here.2301    I hope that we do move a stablecoin bill out with2302bipartisan support. I appreciate the hard work that has been2303done on all sides, and I also particularly appreciate our2304ranking member's work late last year to try to achieve a2305compromise, which I think was a good bill.2306    I am interested--and perhaps I will start with you, Mr.2307Fernandez da Ponte, since your company is a well-known national2308brand even to those who are not familiar with crypto, and you2309happen to be headquartered in the great American city of San2310Jose.2311    I wanted to ask, given the focus that you have, and your2312company has on having a stable payment system--in your2313testimony, you wrote on page 5 that ``regular and predictable2314market policy is necessary for the crypto industry to grow and2315thrive.'' That is certainly understandable. You clearly support2316State regulation--an option for State regulation, but I noticed2317that you also encourage that there be uniform standards, for2318example, around reserve requirements, around risk management,2319and governance.2320    Then, do you share the concern that Mr. Massad has, that2321there ought to be some Federal regulation or oversight over2322what the standards ought to be if we are going to have a State-2323chartered stablecoin?2324    Mr. Fernandez da Ponte. Thank you, Congressman, and thank2325you for your leadership in our home city. It is a great city,2326indeed--2327    Mr. Liccardo. Thank you.2328    Mr. Fernandez da Ponte.--in San Jose.2329    Yes, we advocate for the need for legislation, and we2330advocate for the State path. The reason that we advocate for2331the State path is that, when we look at it from our2332perspective, we are a payments company, and payments are2333regulated at the State level. We strongly believe that fully2334backed, fiat-backed, one-to-one reserve stablecoins are--and2335the issuance of those payment stablecoins is the business of2336payments, not the business of banking or fractional reserve or2337the points that were made here.2338    We do believe that it is important to maintain a State2339path.2340    I think that the point on the standards is that a State2341path can coexist with a Federal path. We see the advantages of2342having a Federal path as well. We do believe that there should2343be that general set of standards, that it is important that we2344have equitable standards in terms of reserve management between2345any Federal path and any State path. We also believe that it is2346important to not have a duplicity of regulation.2347    This idea that they can coexist and share common standards,2348we think, is an important one.2349    Mr. Liccardo. Thank you very much.2350    Mr. Jachym, do you also agree that there ought to be some2351baseline standards set even if there is a State charter2352stablecoin?2353    Mr. Jachym. Absolutely, Congressman. Thank you for the2354question. I think, if you look in the stablecoin space, again,2355with the goal of encouraging a healthy, vibrant, competitive2356stablecoin market, both State and Federal pathways are2357important, and there should be minimum standards set.2358    I think from our standpoint as a centralized intermediary,2359it is slightly different. If you look at how markets are2360regulated in traditional markets, whether they are derivatives2361or equities, a unified Federal framework is essential.2362    Today, we operate with over 40 State money transmission2363licenses. There are only a handful of States that have put in2364place crypto-focused regulations for centralized2365intermediaries, so we believe it is imperative to advance and2366finalize as soon as possible the market structure bill which2367puts a clear Federal framework in place for exchanges like us.2368    Mr. Liccardo. Going to Mr. Massad's concerns on the STABLE2369Act about extraterritorial enforcement, should we not give the2370Attorney General the authority to enforce and explicitly ensure2371there is extraterritorial application, since we clearly have--2372many of these entities are abroad?2373    Mr. Jachym.2374    Mr. Jachym. I think it is important, first and foremost, to2375get a stablecoin bill done. In terms of the cooperation and2376international cooperation with other jurisdictions, I think2377that is the most important first step.2378    We have seen stablecoin rules finalized in the European2379Union, and we have seen the results of those stablecoin rules2380now go into effect. In fact, those stablecoins that have not2381taken steps to register as issuers and bring themselves within2382the regulatory perimeter are being delisted from major2383exchanges.2384    I think, again, that is just a case in point of why it is2385so important to move this forward as quickly as possible.2386    Mr. Liccardo. Thank you.2387    I yield.2388    Chairman Steil. The gentleman yields back.2389    The Representative from Indiana, Mr. Stutzman, is2390recognized for 5 minutes.2391    Mr. Stutzman. Thank you, Mr. Chairman.2392    Thank you to the panel for being here. Today, I think this2393has been a very informative hearing and one that, obviously, I2394am excited about the future, and, obviously, a lot is2395happening.2396    I was actually--I served 8 years ago, and I remember when2397this committee had its first hearing on cryptocurrency back in23982014, and Mr. Huizenga was the chairman of the committee. Fast-2399forward to 2025, and this House has taken substantial steps2400regarding a Federal framework for how digital assets can be2401incorporated into our financial ecosystem.2402    Despite the substantial work my colleagues have done on2403market structure, we saw an administration over the last 42404years that chose regulation by enforcement over permanent2405statute. The Biden Administration engaged in an all-out assault2406on digital asset firms, token issuers, and blockchain2407developers.2408    Furthermore, the SEC and the CFTC were in a turf war over2409their jurisdictions over these tokens. It is my understanding2410that there was a lot of confusion that resulted in a lack of2411unity and regulation by enforcement, which harmed emerging2412technologies and U.S.'s supremacy in digital asset technology.2413    While the confusion--since the Trump Administration,2414thankfully, has taken over, Commissioner Peirce has unveiled a241510-point action plan for the SEC's new Crypto Task Force. I2416would just share with my colleagues on the other side of the2417aisle that it is a really good read, and I would encourage you2418all to read it.2419    One of the points that the Commissioner makes is, ``Where2420Congress has directed the Commission to impose requirements on2421market participants, SEC rules will not let you do whatever you2422want, whenever you want, however you want. Some of these rules2423will impose costs and others compliance burdens that some may2424find irritating, and the Commission will use its enforcement2425tools when necessary to pursue noncompliance.''2426    It goes on to talk about the direction that it is going and2427then, of course, lists 10 different directives or plans of2428action.2429    Mr. Garrison--and I would offer to anybody else if they2430would like--if you could briefly summarize some of the most2431important points in the action plan and explain some of the2432impact that you think that they will have on digital assets if2433they are accomplished.2434    Mr. Garrison. Certainly.2435    The first two priorities, I think, are incredibly2436important. The first is clarifying the status of digital assets2437under the securities laws, as well as, the second, scoping out2438activities that are outside the scope of Federal securities2439laws.2440    I think that really is the foundational question that the2441SEC has to tackle, creating a very clear interpretation of how2442the SEC views when a digital asset that is sold pursuant to an2443investment contract fits under the securities laws. Everything2444else flows from that.2445    Another maybe bucket, I would say, for the 10 priorities is2446writing rules and providing guidance on how regulated2447intermediaries by the SEC can touch digital assets. Now, that2448would apply both in the context of digital assets that are not2449securities as well as digital assets that are securities, like2450a tokenized stock.2451    Providing a clear pathway for broker-dealers, investment2452advisors, clearing agencies, and transfer agents to be able to2453engage will really allow the ecosystem to flourish, will allow2454it to do so in a regulated way and in a way that is compliant2455and safe.2456    Mr. Stutzman. Yes.2457    Anybody else like to comment quickly?2458    Mr. Massad. Yes, if I could. I think it is a very2459thoughtful plan. I have great respect for Commissioner Peirce2460and Acting Chair Uyeda.2461    I think, given that and given the legislation that you all2462have noticed to create a joint committee, I would urge you to2463let the commissions work on this for a while and get stablecoin2464legislation in place--let us learn from that--but not rush on2465market structure. Because I think we could easily screw things2466up through the market structure legislation more than help.2467    Mr. Stutzman. Thank you.2468    I have 45 seconds. Anybody else want to comment?2469    Mr. Kim. Yes, just very briefly, Congressman.2470    I think, again, at the risk of repeating myself, it just2471reflects the new SEC leadership and administration, which wants2472to work with industry, which is extremely encouraging.2473    I think it was Mr. Garrison's written testimony where he2474had a great line which said the industry is not looking for2475special treatment, just fair treatment.2476    We look forward to working with the task force on next2477steps.2478    Mr. Stutzman. Okay.2479    Mr. Jachym. Congressman, if I may add, one subject that has2480not been mentioned is clarity around staking, which2481Commissioner Peirce does outline in that plan. We think it is a2482very important part of the ecosystem. It is a lesser-known2483component, but it is unique to the crypto ecosystem. It is2484something we are looking forward to getting regulatory clarity2485here on in the United States.2486    Mr. Stutzman. My time has expired, but I would be curious,2487at some point, somehow, just some specific elements from2488successful regulatory frameworks that other jurisdictions have,2489what you all would recommend would be something that we keep in2490mind.2491    Thank you.2492    I yield back.2493    Chairman Steil. The gentleman yields back.2494    The gentleman from California, Mr. Sherman, is recognized2495for 5 minutes.2496    Mr. Sherman. The ranking member made it--I think2497demonstrated how the Trump coin was pumped up to $75 and now2498dumped down to $17 and chiefly was owned by 40 wallets: could2499be only one family; could be the Trump family. It is called the2500Trump coin.2501    I want to focus on dogecoin. On November 5, everybody knew2502that election was going to be good for crypto, and bitcoin went2503up 22 percent. One coin, dogecoin, went up, in 1 week, six2504times as fast as bitcoin. Then, after 1 week, they named a big-2505time department after the coin, and the coin still uses the2506dogecoin dog as its emblem.2507    Somebody knew for a week that, as long as Trump had been2508elected, there would be this new entity called DOGE and that2509would popularize the coin, drive its price up. Now, I do not2510know who would have known that this new commission would be2511called DOGE. I do not know whether Mr. Musk or Mr. Trump knew,2512but they did give it the name exactly 1 week after the2513election.2514    Mr. Massad, assuming the dogecoin is not a security, is it2515subject to insider trading laws?2516    Mr. Massad. No, it is not.2517    Mr. Sherman. By arguing that it is not a security, you can2518engage in knowing a week in advance that it is going to be2519popularized through a government action creating a well-known2520and very popular commission, trade on that, make a lot of2521money. They say that Musk is not smart.2522    I will point out that Trump used to--well, has just2523recently threatened the Brazil, Russia, India, China and South2524America (BRICS) countries if they dare try to compete with the2525U.S. dollar, while favoring the crypto bros who have announced2526that the purpose is competing with the U.S. dollar, all while2527trying to pass laws preventing a central bank digital currency2528because that would allow the dollar to compete with crypto.2529    I want to focus a little bit on stablecoin. Most2530stablecoins are tied to the U.S. dollar. Say we are thinking2531about one of those. The question is, how is a stablecoin2532different from a money market mutual fund? Now, it is cooler2533because it is called a coin, and being a cool thing, it can2534dream of a functionality it does not have, just as my Ford2535Fusion is dreaming of self-driving.2536    In terms of current functionality and putting aside just2537how cool it is to tell people you do not have a money market2538fund, you have got a stablecoin, what does a stablecoin tied to2539the U.S. dollar offer the investor that old-fashioned, boring2540mutual funds--that money market funds do not offer?2541    Mr. Massad. Thank you for question, Congressman.2542    I think the way I think about stablecoins is, they should2543not be an investment vehicle. They should not pay interest.2544And--2545    Mr. Sherman. Not even the little bit of interest I get on2546my money market fund?2547    Mr. Massad. Not to start out with. I think were--2548    Mr. Sherman. Okay.2549    Mr. Massad [continuing]. are better off restricting that.2550So, they are----2551    Mr. Sherman. So, it is worse--2552    Mr. Massad. They are a payment mechanism.2553    Mr. Sherman [continuing]. than a money market fund. My2554money market fund is absolutely stable, strongly regulated, and2555pays little interest. You are talking about a stablecoin that2556may or may not be stable and would pay no interest at all.2557    So what is the advantage that it has, assuming I am not2558trying--2559    Mr. Massad. Again--2560    Mr. Sherman [continuing]. to avoid the anti-money-2561laundering statutes, assuming I am not a tax evader, and I am2562not hiding money from my spouse?2563    Mr. Massad. I think it is the--2564    Mr. Sherman. What advantage does it have?2565    Mr. Massad. I think it is the potential that technology2566does provide certain cost savings in terms of how these can be2567moved--2568    Mr. Sherman. In some day in the--but why invest in it now?2569That is like buying a Fusion--2570    Mr. Massad. Again, I do not view it as an investment,2571Congressman. I do not want it to be an--2572    Mr. Sherman. So why would anybody--2573    Mr. Massad [continuing]. investment. I want it to be a2574payment mechanism.2575    Mr. Sherman. Why would anybody buy a stablecoin, which2576today is a worse payment system for any honest person, on the2577theory that someday in the future it may have a greater2578functionality than it has today?2579    Mr. Massad. I think--2580    Mr. Sherman. Why would anybody own a stablecoin now,2581assuming they are not a drug dealer, a terrorist, or a tax2582evader?2583    Mr. Massad. Congressman, I think the question is, if we2584create a framework that addresses the risks, will stablecoins2585become a means of payment generally used? That question is not2586clear yet, but--2587    Mr. Sherman. The money market mutual fund already is.2588    Mr. Massad. No, that is an investment, in my mind. I do2589not--2590    Mr. Sherman. I am sure I could--2591    Mr. Massad. I do not use that to pay for my coffee.2592    Mr. Sherman. I am sure I could find a money market fund2593that pays zero interest if--2594    Mr. Massad. No.2595    Mr. Sherman [continuing]. I hated the concept of the world2596investment, but--2597    Mr. Massad. I am not--but there is a transfer agent. There2598are lots of reasons why I do not use a money market fund to go2599buy a pair of jeans or pay for dinner. A stablecoin----2600    Mr. Sherman. You are saying you cannot use a stablecoin to2601do that. I would assert that we are creating a stablecoin to2602facilitate those who are trying to hide assets.2603    I will yield back.2604    Chairman Steil. Does the gentleman yield back?2605    Mr. Sherman. I do.2606    Chairman Steil. The gentleman yields back.2607    The gentleman from Florida, Mr. Donalds, is recognized for26085 minutes.2609    Mr. Donalds. Thank you, Chairman.2610    That was a very interesting dialog. My statement is not to2611be disrespectful. It is to be factual about where we are going.2612    I think, based upon the previous conversation, the question2613could be, why did they decide to make calculators when an2614abacus can do? That is just simply because technology is taking2615us to a place where it is far more functional. You can do so2616many other things. It is far more interactive, it is far more2617user-friendly, and it actually speaks to the experience that2618people are choosing to operate in.2619    No difference with how you choose to do calculations or how2620you choose to exchange. Whether it is a currency, a stablecoin,2621a cryptocurrency, et cetera, it is really the medium of holding2622value and/or exchange that people choose to engage in.2623    Obviously, with where people are going, not just in the2624United States but in the world, stablecoins, crypto and2625blockchain technology are not going away. They are the modes of2626storing value and/or transacting into the future, and so it2627would behoove us in Congress to make sure that we have a2628framework that allows for the proliferation of what human2629beings, especially Americans, choose to want to invest in and2630want to do going forward.2631    That said, Mr. Fernandez da Ponte, the U.S. dollar is the2632asset that basically underlies 98 percent of transactions in2633stablecoins. As stablecoin use flourishes in countries around2634the globe, so does the U.S. dollar.2635    Would you describe the role that stablecoins play in2636supporting U.S. dollar dominance, particularly given the2637current global landscape?2638    Mr. Fernandez da Ponte. Thank you for the question,2639Congressman.2640    The role of the U.S. dollar as a global reserve currency is2641a fundamental strength of the U.S. economy, and I do not think2642that we should take it for granted if this technology ends up2643generating that next generation of payment rates.2644    As you said the vast majority of stablecoins today are2645denominated in U.S. dollars. I do not think that we should take2646that for granted. The reason for that is because the preeminent2647use case today is crypto trading, and the crypto trading2648markets are denominated against the U.S. dollar.2649    As the use of stablecoins make their way into mainstream2650commerce and payments, I do believe that we will see the2651appearance of stablecoins that are denominated in other2652currencies. Therefore, it is very important that the2653stablecoins that are denominated in U.S. dollars and issued in2654the United States are able to compete with those stablecoins2655that are going to emerge outside.2656    Also, I think that it is important that we have a situation2657in which not the vast majority of those dollar-denominated2658assets are issued by companies outside of the United States and2659sometimes maybe backed by reserves that are not dollar-2660denominated either. We think that a clear framework for the2661stablecoin issuers in the United States will contribute to2662maintaining the U.S. position and the U.S. dollar position2663externally with a strong competition driven by American2664companies.2665    Mr. Donalds. All right. Thank you for that.2666    Mr. Garrison, as we consider legislation to provide2667regulatory clarity to the digital assets industry, what role2668could self-regulation play in the larger market structure?2669    Mr. Garrison. I think self-regulation is an important layer2670of the overall sector, right. I think we see that in the2671financial services world, and it works as a good model. Self-2672regulatory organizations have existed in the securities context2673since the beginning of our framework.2674    We currently have the Financial Industry Regulatory2675Authority (FINRA). I mean, even the national securities2676exchange system is a group of-each one a self-regulatory2677organization. You see that on the derivative side as well with2678the National Futures Association (NFA). There is absolutely no2679reason why porting that concept over into the digital asset2680space would not make sense.2681    Mr. Donalds. Okay. Thank you for that.2682    Lastly, Mr. Jachym, quick question for you. This kind of2683doubles back to the U.S. financial system's dominance. What is2684your view in terms of stablecoins really being an additive2685toward not just U.S. market dominance but also U.S. dollar2686dominance on the world stage?2687    Mr. Jachym. Yes. Thank you for the question, Congressman.2688    There is wide variety of use cases that have been proven2689out, some that have not yet been proven out. It is very clear2690that stablecoins are going to improve efficiency in cross-2691border admittance, and I think we have heard that from the2692panel today.2693    It is going to be really important that the United States2694leads in terms of putting rules in place. Other jurisdictions2695have done this, not just for stablecoins but for centralized2696markets. They go hand in hand.2697    If you look at the top 4 percent of assets on our platform,2698it represents over 60 percent of the volume, right. Two of2699those are stablecoins. If you look at the top 10 percent,2700right, that represents almost 80 to 90 percent.2701    Again, let us focus on passing rules for the most important2702pieces of the market today.2703    Mr. Donalds. Thank you, gentlemen.2704    Thank you, Chairman. I yield back.2705    Chairman Steil. The gentleman yields back.2706    The gentleman from Illinois, Mr. Casten, is recognized for27075 minutes.2708    Mr. Casten. Thank you.2709    Thank you all for staying here so late. There has been a2710lot of conversation about the serious end of crypto,2711stablecoins. I am going to focus on the silly end, the meme2712coins.2713    It is funny, we have all these rules of decorum, and it is2714hard to talk about meme coins with the language that the2715industry uses to talk about them. I see you all smiling. We2716will refer to them as fecal coins for the purpose of this2717hearing.2718    Is it safe to say from your smiles that you generally share2719the view of the industry that this is not something that has2720any innate value, is meme coins?2721    Mr. Massad. Yes.2722    Mr. Casten. Yes. All right. Have any of you invested in--2723again, this starts to get a little bit colorful language--the2724Hawk Tuah girl's coin? Have any of you invested in that?2725    No. Okay.2726    Mr. Massad. They are fan clubs, which is really what they2727are.2728    Mr. Casten. Yes. I say that to raise a more serious point,2729that, as several of my colleagues have noted, the President of2730the United States issued something that has no innate value. It2731does not have the value that maybe a Bible, a pair of sneakers,2732a steak or a bottle of water has. It has no innate value.2733    It hit, I think, $75 at its peak the day before the2734inauguration, on the 19th. Anybody know what it is trading at2735today?2736    Mr. Massad. It is a lot less, but I would have to check. It2737was like--2738    Mr. Casten. Just under $16 when I was just checking here a2739moment ago. Like the Hawk Tuah girl coin, it is really2740volatile. You boost your Q score, and it bounces up, and then2741people realize they are holding something worthless.2742    The rise in value when it popped up, according to2743Chainalysis, said that it appeared to include a significant2744profit to Chinese traders, that 50 of the largest investors on2745the coin have made profits in excess of $10 million each, and2746the crash in the coin's price has caused more than 800,0002747wallets to lose $2 billion combined.2748    Now, as I understand the work that Chainalysis does, they2749do not capture any off-chain transactions, so stuff happening2750at Kraken or otherwise.2751    Mr. Jachym, is it reasonable to assume that the $2 billion2752in on-chain transactions is much less than the total loss that2753has actually been experienced from meme coin investors?2754    Mr. Jachym. Congressman, thank you for the question.2755    I cannot speak to the specifics of on-chain versus off-2756chain. I know for our markets, again--2757    Mr. Casten. I am just making the point that, like, the2758Chainalysis reports, they are tracking on-chain trades, right,2759and so, we know--I mean, there has been like National Bureau of2760Economic Research that said that for bitcoin maybe 10 times the2761volume is off-chain.2762    If we know it is $2 billion on-chain and there is all this2763off-chain volume, safe to assume that the total losses are more2764than $2 billion, right?2765    Mr. Jachym. Potentially, Congressman. I think, when it2766comes back to your question of the role, the value, I think2767value is in the eye of the beholder. A lot of these are2768sentiment-driven assets.2769    Mr. Casten. Fine. They do not have any value.2770    Now, I think there is a lot of conversation we can get into2771about what is the net worth and obviously like the Trump family2772and the entities they control has gained a lot on this.2773    But because we allow--we still have rules that commingle2774brokers and issuers and dealers, the reports are that--and,2775again, according to Chainalysis, is that entities that the2776Trump family controls has made perhaps $100 million on trading2777fees for these coins, setting aside what the value of the coin2778is. Again, that is just based on the on-chain transactions that2779they track.2780    Mr. Massad, you say you have a comment there. I am assuming2781that you would agree with me that the Trump family has probably2782made more than $100 million in broker's fees. We just cannot2783track it.2784    Mr. Massad. We cannot track it, but, Congressman, you are2785raising so many good points. The thing about these is that the2786industry talks about securities versus commodities2787distinctions. If I were at the CFTC today and someone came--or27882014, someone came to me with the Dogecoin instead of bitcoin,2789I would not have declared that a commodity, okay? It should not2790be traded as a commodity. It should not be regulated by the2791CFTC. Maybe by the CFPB, but that is the kind of speculative2792stuff--2793    Mr. Casten. There is rich investor protection here, but I2794am running out of time.2795    Mr. Massad. Yes, we need it.2796    Mr. Casten. I want to get to another point. If you have2797something that is hard to track, that has no innate value, that2798does not require you to give something, like a sneaker or a2799Bible, in exchange for goods and services, is not this just a2800way to transfer money to people? And if we know that foreign2801governments----2802    Mr. Massad. Yes.2803    Mr. Casten [continuing]. are participating in these2804markets, is not this a violation of the Emoluments Clause of2805the Constitution?2806    Now, I know we have had conversations about engaging in2807personalities. This is not partisan. This is a question of do2808we in Congress think that the Constitution is worth defending.2809If the President of the United States is putting out something2810that has no innate value and is getting foreign entities to pay2811him for it, is not that a direct violation of the Emoluments2812Clause? If we are taking an oath to defend the Constitution,2813should we not care about that?2814    I yield back.2815    Chairman Steil. The gentleman yields back.2816    The gentleman from Iowa, Mr. Nunn, is recognized for 52817minutes.2818    Mr. Nunn. Thank you, Chairman Steil, for convening this2819very exciting and important discussion on where we are going.2820This is something that is going to change the landscape of the2821country not just in the next years to come but in the months2822ahead.2823    As a member of both the Financial Services Committee and2824the Agriculture (Ag) Committee, we have dual jurisdiction here,2825one that we have talked about before between both the2826commodities and the securities place. However, after this past2827election, I believe we have turned a page here. I cannot2828emphasize how different the atmosphere in D.C. feels,2829particularly when it comes to our transitioning back from an2830SEC chair who claimed jurisdiction over every single token out2831there, except for maybe bitcoin, and the launching of a crypto2832task force this past year.2833    Together, I believe that we are going to have the2834opportunity to really cement the future of America being a2835destination for crypto and digital assets moving forward,2836something in the last 4 years we have remained highly2837rudderless.2838    First and foremost, American leadership. I believe with2839this new administration we can anticipate a wave of innovation,2840particularly in blockchain products. This comes after losing 22841percent of market share per year in blockchain development.2842This has been over the course of the last half decade.2843    I want to qualify this for everyone who is paying2844attention. That is a market share drop from 40 percent to 292845percent, the United States losing out as a global leader in a2846space where just years before we had pioneered, and now we are2847seeing immediate competition coming out of Beijing.2848    I believe strongly that it is not too late, Mr. Chairman.2849We have the opportunity to reverse course with this2850congressional session.2851    With that, Mr. Jachym, first off, thank you for fighting2852back against the SEC's regulatory overreach consistently over2853the past 4 years. I want to talk to you about how do you see2854the new SEC and CFTC addressing previous conflicts regarding2855confusion on where this jurisdiction would lie. Do you see this2856as a reset opportunity, first and foremost?2857    Mr. Jachym. Thank you for the question, Congressman.2858    Absolutely, we see this as a reset moment. Again, I think2859the urgency is very clear if we look around the rest of the2860world and see what other jurisdictions have done to provide2861regulatory clarity.2862    Our company was sued for our staking service. We settled.2863We testified before Congress. The next day, the SEC called and2864said they are going to sue us again.2865    Mr. Nunn. That is right.2866    Mr. Jachym. This has been the threat the past 3 years of2867our story while we have engaged other governments and2868regulators in moving through the legislative regulatory process2869and providing clear rules of the road.2870    I think with respect to your question on cooperation, these2871things are not mutually exclusive. I know there have been2872discussions of let us wait. Let us move stablecoins first. Let2873us wait on market structure. We cannot wait any further.2874Congress does not need to move a market structure bill that2875solves every single problem in the ecosystem. We are talking2876about the most basic foundational rules of regulating2877centralized exchanges, and these two agencies can continue to2878work in tandem while Congress advances the bill in this cycle.2879    Mr. Nunn. Could not agree more. Clearly, we are not waiting2880in London or in Singapore or in the United Arab Emirates (UAE)2881to move forward on this. We have seen some take it in the wrong2882direction, I would say the EU, but they have moved out. The2883United States should not be sitting on its hands as this has2884developed.2885    I would like to talk on the national security side here.2886You are going to be talking to a number of national security2887professionals here, but over the past few years we have ceded2888technological leadership to China, creating a significant risk2889to our national security and economy, particularly in this2890area.2891    That is why in the last Congress I took lead on: the2892Financial Technology Protection Act, which creates a new2893working group specifically targeting illicit finance in this2894area; Stop Americans from Scammers Act, which empowers law2895enforcement to address and tackle things regarding blockchain2896tools; and the Creating Legal Accountability for Rogue2897Innovators and Technology (CLARITY) Act which keeps blockchain2898made here in America, not cede that power out.2899    I look forward to working with this team as being a leader2900in this Congress on making sure these things are enshrined in2901law, building on executive orders (EOs) that are already moving2902out.2903    I would like to talk to you, Mr. Kim, about not only your2904efforts in pushing this, but how can Congress ensure that we2905balance our innovation as well as our national security to2906combat these bad actors while not squelching new technology?2907    Mr. Kim. Thank you so much for your question, Congressman.2908    As I mentioned earlier today, countering illicit finance2909and national security are key priorities, including for CCI and2910our members.2911    I would encourage additional public-private partnerships. I2912know CCI would love additional opportunities to engage with all2913of you and be a resource on any policy issue, including2914national security.2915    In order to ensure U.S.'s leadership and innovation, we2916need to, again, establish comprehensive frameworks for both2917market structure and stablecoins but also ensure national2918security to your point, Congressman.2919    Mr. Nunn. We have a real opportunity here, Mr. Chairman, to2920make sure this is not only made in America but that the best2921practices to drive the resourcing, the security, and the2922onshore investment can happen right here in main streets from2923Iowa all the way to New York City.2924    With that, thank you very much, Mr. Chair. I appreciate it.2925Looking forward to stablecoin made in America.2926    Chairman Steil. The gentleman yields back.2927    The gentleman from Montana, Mr. Downing, is recognized for29285 minutes.2929    Mr. Downing. Thank you, Chairman Steil, and thank you to2930the witnesses.2931    I represent Montana's Second Congressional District, which2932is rural and sparsely populated. Some of the counties in my2933district have under a thousand people. Actually, there is one2934that has just over 500 people, so it is very, very sparse.2935Geographically, we are very large.2936    Blockchain technology is not something that only highly2937populated and tech-heavy areas should be concerned with. Rural2938communities can also reap the benefits of this technology, and2939I am really excited about it, actually.2940    I am just going to start out with Mr. Kim. Can you describe2941the benefits that digital assets and blockchain technology are2942bringing to rural communities like my district, and explain why2943rural users might want to use a blockchain-based financial2944product over something more traditional?2945    Mr. Kim. Thank you so much for this important question,2946Congressman.2947    As I have mentioned throughout today, blockchain and2948digital assets allow for more efficient, seamless, low-cost and2949pricing mechanisms, including for payment purposes.2950    I think we have talked a lot today about the potential.2951What are the use cases? How can this grow? In order for us to2952really unlock this potential innovation even more, again, we do2953need a comprehensive framework to ensure United States can lead2954when it comes to digital asset innovation, including in your2955district, Congressman.2956    Mr. Downing. Thank you.2957    Mr. Fernandez da Ponte, anything to add to that?2958    Mr. Fernandez da Ponte. Thank you for the question,2959Congressman.2960    I subscribe to the potential to drive additional2961flexibility on payments. In many rural areas, there is a2962scarcity of traditional payment institutions or financial2963institutions and banking branches. This ability to be able to2964have payment instruments that are fast and effective and can2965circulate widely, we believe that would benefit substantially2966residents in rural areas.2967    Mr. Downing. Thank you.2968    Several of my colleagues have mentioned countries around2969the world are well on their way to establishing regulatory2970frameworks for digital assets and payment stablecoins. If the2971United States does not embrace this technology and provide a2972clear regulatory framework, we will fall behind. Right now, the2973largest digital asset trading platform and stablecoin issuers2974are based outside of the United States.2975    I will go back to Mr. Kim. What are the implications of the2976United States ceding leadership to other countries in digital2977assets and blockchain technology?2978    Mr. Kim. Thank you, Congressman. As I mentioned in my2979written testimony, it is a race to the top. A lot of other2980leading jurisdictions are racing to establish the regulatory2981frameworks, and it remains critical and imperative for the2982United States to lead in all of this.2983    Due to the past 4 years of a regulation-by-enforcement2984approach, as we have talked about throughout today,2985responsible, established American companies have had to open2986offices and pursue licensure elsewhere in other jurisdictions.2987Time is critical. Congress, as I have mentioned respectfully,2988needs to come up with a comprehensive framework to ensure that2989leadership innovation stays here in the United States, both for2990stablecoins but for many other digital asset companies and2991intermediaries.2992    Mr. Downing. Thank you.2993    Switching gears a little bit, Montana was part of a multi-2994State enforcement action under the National Aeronautics and2995Space Administration (NASA) against FTX. I understand the FTX2996debacle and other hacks and scams in the digital asset2997ecosystem have made some people skeptical about this2998technology. There are legitimate concerns that bad actors in2999the space are not being held accountable and investors are3000being defrauded. We can preserve the promise of this technology3001while weeding out the bad actors. I have always said bad actors3002are bad for business. Nobody wants that.3003    As Montana's former regulator for securities and insurance,3004I did just that. It was my job to go after fraudsters while3005making sure Montana remained the place where entrepreneurs came3006to thrive.3007    Mr. Garrison, can you explain why someone who is skeptical3008of digital assets would want Congress to provide regulatory3009certainty to the digital asset ecosystem through legislation3010rather than deferring to the regulators?3011    Mr. Garrison. It is because the regulators have failed to3012act that you have situations like FTX, right. This is an3013example of fraud not coming from the technology but from3014centralized bad actors.3015    Right now, there is no current Federal regulator overseeing3016the spot trading of digital assets; so, therefore, there is no3017one for FTX to report to in the United States.3018    Mr. Downing. Thank you.3019    Mr. Jachym, anything you want to add to that?3020    Mr. Jachym. Thank you for the question, Congressman.3021    It is important from a centralized market standpoint we3022have clear Federal rules. We have tried to navigate this3023patchwork of multi-State licenses. I think the States will3024continue to have an important role to play for consumer3025protection, as you know from your previous roles. As we have3026seen in the equities and derivatives markets, a clear unified3027Federal framework is essential in order to protect customers3028and continue innovation in the United States.3029    Mr. Downing. Thank you all for being here, and thank you,3030Mr. Chair. I yield my time.3031    Chairman Steil. The gentleman yields back.3032    The gentleman from Florida, Mr. Haridopolos, is recognized3033for 5 minutes.3034    Mr. Haridopolos. Thank you, Mr. Chairman. I appreciate3035this. It is always eye-opening as we are getting started in the3036committee and as a new member.3037    I wanted to pick up where Chairman Hill left off. Mr.3038Massad, you, in past testimony have advocated for joint SRO to3039oversee digital assets as a convenient way to sidestep the3040questions of whether or not an asset is a security or a3041commodity. In today's testimony, you are advocating for3042locating authority to regulate nonsecurity digital asset spot3043markets at the CFTC through legislation.3044    You were clear that security tokens should be removed from3045the CFTC's jurisdiction. It seems you have punted on any actual3046factor of what makes a token a security token, only offering3047vague hand waves that the agency should consult and there3048should be provisions to deal with disagreements.3049    My question, sir, is, how does this actually solve the most3050pressing issues Congress is currently facing if at the end of3051the day no one knows who is regulating what?3052    Mr. Massad. Thank you for the question, Congressman.3053    I would say a couple things. First of all, what I advocated3054before--and I did this with the former Republican Chair of the3055SEC, Jay Clayton--was a joint approach, because it is very3056difficult to draw this line.3057    Having said that, what I would say today is this, if3058everyone up here thinks it is so easy and Congress should do3059it, why not let the SEC and the CFTC do it? They are now going3060to be chaired by Republican appointees. They have the3061expertise. They only have to get 3 votes of Republican members3062to adopt something. They do not have to get 60 votes in the3063Senate.3064    If it is so easy, it would be a lot faster to have them do3065it. The thing is--and I have confidence that they can come up3066with some interesting ideas. This is a very difficult issue to3067address, and I am worried that if Congress tries to do it, we3068will undermine our securities markets more than answer any3069questions.3070    Mr. Haridopolos. I appreciate your answer. I believe in3071democracy, but I appreciate your answer.3072    That said, I wanted to get into the question with Mr.3073Jachym with Kraken. Good customer service is always nice. It3074seems like when you all attempted to work with the government3075in good faith--you are in 200 countries I think you had3076mentioned before, and you are obviously not a fly-by-night3077company.3078    Could you describe to a new Member like myself what it was3079like to deal with the SEC and other government agencies? You3080attempted to find commonsense regulation.3081    Mr. Jachym. Congressman, thank you for the question.3082    Again, with our global business footprint, about 90 percent3083of that is North America and Europe. If you look at Canada, the3084U.K., the EU, we have worked very constructively with the3085legislatures and the regulators to move regulatory clarity3086forward, and these jurisdictions are ahead.3087    Regarding our engagement experience with the SEC, we and3088others, other industry leaders devoted a significant amount of3089time and resources to put legal, and policy thought to the3090agency. We were met with lawsuits.3091    Again, we are now turning a new page, and we commend the3092SEC, the leadership of the Crypto Task Force. This work and the3093evaluation are important, but it cannot slow down the great3094work that has been done in Congress.3095    We have seen bipartisan work over the last several3096congressional cycles. Again, this is not solving every problem3097in the ecosystem, but statutory authority is needed to put3098basic rules in place to give the CFTC spot authority and create3099a comprehensive regime for customers in the United States.3100    Mr. Haridopolos. Thank you for your candid answer.3101    With that, Mr. Chairman, thanks again for your leadership3102on this. I look forward to working with you and the other side3103of the aisle in solving this issue.3104    I think this is an issue that Congress should address and3105not leave it to regulators exclusively, because administrations3106change. I think that might be an important part.3107    Thank you, and I yield back, Mr. Chairman.3108    Chairman Steil. The gentleman yields back.3109    The gentleman from North Carolina, Mr. Moore, is recognized3110for 5 minutes.3111    Mr. Moore. Thank you, Mr. Chairman.3112    To our witnesses, again, I want to echo what the other3113members have said. Thank you for your testimony today.3114    I wish some of the Members on the other side were still3115here, because I remember when our meeting started out, there3116were some unfortunate comments made by one of the senior3117Members on the other side of the aisle taking shots at the3118President and at Elon Musk, and I think that is very3119unfortunate. I think this should not be a political enterprise3120in the sense of this testimony today. This is so important.3121    Digital assets are not a thing of the future. We are not3122talking about the Jetsons. We are talking about something that3123is actually a real thing that roughly 90 million people in this3124country either invest in, use or both.3125    The blockchain technology and digital assets hold so much3126potential to transform our financial system, offering greater3127efficiency, transparency, and accessibility. Some of the3128arguments that I would hear from the other side of the aisle3129were there was worry about fraud so it could not be used.3130    I am just, before I got here, a small-town lawyer from3131rural North Carolina, but the best analogy I would know would3132be someone saying, you should not use a $20 bill because there3133might be a counterfeit one out there somewhere.3134    The reality is in anything you have there are going to be3135fraudsters and criminals who try to come in and abuse the3136system. I appreciate what the industry has done to try to deal3137with it, but I do believe that it is very important, Mr.3138Chairman, and members of the committee, that we as Congress3139move forward with a very strong, solid system in place to make3140sure there are guideposts in place, just like FIT21 and what3141the industry has worked on.3142    I had a series of questions, but I think you all have3143covered most of that, but I did want to follow up on one thing.3144Mr. Jachym, I believe you are a NC State, North Carolina State,3145grad, in fact, so you are having a better season than my Tar3146Heels, so I will give it to you this year on that one.3147    I did want to ask this. My understanding is that--and I3148think Representative Haridopolos mentioned this just a moment3149ago, about last year some of the issues you dealt with, Mr.3150Gensler. Basically, it sounds like your company was being3151targeted. It sounded like a lot of that happened after you3152brought testimony before the committee.3153    I am just curious, how did this regulation, how did these3154actions by them affect your company but, more importantly, the3155digital asset community and investment in digital assets? I3156think it is unfortunate, but I think folks need to hear how3157that impacted you.3158    Mr. Jachym. Thank you for the question, Congressman.3159    As a Wolfpack fan, you have to believe, and we believe and3160are confident that this Congress is going to get a bill done on3161market structure.3162    Regarding our experience, again, we were sued once on one3163of the programs we offered. Again, there was no clear path to3164registration for staking. There still is no regulatory clarity.3165We have seen the U.K. move forward with legislation on staking.3166We have seen other jurisdictions do this. We know the United3167States can do it, and that is one priority for us.3168    Kraken did testify in Congress, and the next day we got a3169phone call that said you are getting sued on another business.3170I made sure not to wear that same tie for that hearing.3171    It is important that we move past that. I know we want to3172make sure actions of the past administration are held to3173account, but we are looking forward, and we think there has3174been a lot of bipartisan support that is necessary to get this3175bill done in this Congress.3176    Mr. Moore. I am glad to hear that. To all of the panelists,3177I really appreciate your expertise and your commitment to this3178and look forward to your suggestions as we move forward on this3179legislation.3180    Mr. Chairman, I yield back.3181    Chairman Steil. The gentleman yields back.3182    This concludes our portion of the questions. I would like3183to thank our witnesses for their testimony today.3184    Without objection, all members will have 5 legislative days3185within which to submit additional questions for the witnesses3186to the chair. The questions will be forwarded to the witnesses3187for their response. I ask our witnesses to please respond no3188later than March 31.31893190    [The information referred to can be found in the appendix.]31913192    The hearing is adjourned.31933194    [Whereupon, at 4:58 p.m., the subcommittee was adjourned.]31953196                                APPENDIX31973198                              ----------31993200                    MATERIALS SUBMITTED FOR THE RECORD32013202[GRAPHIC(S) NOT AVAILANLE IN TIFF FORMAT