U.S. House of Representatives Financial Services CommitteeU.S. House of Representatives Financial Services Committee(House Committee on Financial Services) held on Capitol HillHearing on "Digital Assets and the Future of Finance: Understanding the Challenges and Benefits of Financial Innovation in the United States"。
Moderated by committee chair Waters and lead member McHenry, the more than 50 members of the House Financial Services Committee attended and had the opportunity to express their views on crypto regulation.
Representatives of encryption companies attending this hearing include:Circle co-founder and CEO Jeremy Allaire, FTX founder and CEO Samuel Bankman-Fried (SBF), Bitfury Group CEO Brian P. Brooks, Paxos co-founder and CEO Charles Cascarilla (video access), Stellar CEO Denelle Dixon and Coinbase Inc. CEO, Coinbase Global Inc. CFO Alesia Jeanne Haa.
The hearing focused on issues such as encryption investor protection and market integrity.As the memo states, “there is no overarching and centralized regulatory framework for the crypto market, which makes investments in the digital asset space vulnerable to fraud, manipulation, and abuse.” At the same time, the memo affirms, “many exchanges and stablecoin issuers have obtained state Money transmission licenses or fiduciaries, such as Paxos, have conditional fiduciary status through the Office of the Comptroller of the Currency, the federal banking regulator. "
Delegates’ pre-meeting testimonial documents and hearing memos are available at:https://docs.house.gov/Committee/Calendar/ByEvent.aspx?EventID=114305
The 4.5-hour hearing was simultaneously broadcast live on Youtube (reviewable):https://www.youtube.com/watch?v=4oOTvtupND8
The basic structure of the hearing is that the chairman and chief member of the committee introduce the background and participating members → representatives of each encryption company take turns to introduce themselves and summarize their views for 5 minutes → ask questions freely.
Since the representatives of encryption companies span the fields of exchanges, mining, and stable currency issuers, the topics discussed are a bit scattered: the status of the US dollar in the world, the environmental protection of mining, anti-money laundering, anti-fraud, the security of encrypted asset storage and custody, Asset volatility risk, corporate transparency, Web3, Paxos and Meta (Facebook) stable currency cooperation... The core position of representatives of crypto companies is to emphasize the role of crypto products and services in financial innovation, and to show that they are already actively embracing regulation Attitudes and suggestions to legislators on the inadequacies of existing policies, committee members raised their concerns and questions about various risks in the encryption market. The attitudes of both parties are moderate and well-founded (compared to two years ago). Most of the questions have positive responses. The basis of consensus is that the encrypted world needs correct and effective supervision.
The committee will also hold a separate hearing next Tuesday (December 14) on the theme of "Stablecoins: Operating Principles, Actual Operations, and Risk Points." Goldstein, Professor Hilary J. Allen, American University Washington School of Law:https://www.banking.senate.gov/hearings/stablecoins-how-do-they-work-how-are-they-used-and-what-are-their-risks(Tether guys, absent from both games, interesting...)
The following are some important speeches of representatives from various parties selected by Odaily.
Circle co-founder and CEO Jeremy Allaire
In response to Rep. Stephen Lynch’s reference to “the no-custodial wallet rule proposed by the Financial Crimes Enforcement Network (FinCEN) last year as the Trump administration was leaving office, and how the transactions involved were different from those of MoneyGram or Western Union.” Self-custody means that the developers of the wallet themselves cannot participate in any transactions. "What we really need is a way to provide digital proof of identity."
In response to Rep. Alexandria Ocasio-Cortez’s “If the cryptocurrency industry loses the ability to use stablecoins as a bridge to trade dollars tomorrow, will that cause a major shift? It doesn’t look like it can work like it does now, does it?”, He also introduced in detail the role of stablecoins in the digital asset ecosystem. "Stablecoins are faster than the traditional banking system, which gives them an advantage, which I think is essential."
Response to Rep. Sean Casten's "Whether to Support the Recommendations in the President's Task Force Report on Stablecoins." “I support a lot of the recommendations, but I can’t generalize. I think there are a lot of challenges in the report. The first is what a federal charter for a stablecoin issuer would take, and there are other details that need to be clarified.”
FTX founder and CEO Samuel Bankman-Fried (SBF)
Response to Rep. Tom Emmer's question on what protections FTX provides for its users. "I am confused by the fact that the US SEC allows the launch of Bitcoin futures ETFs, but does not allow the launch of spot ETFs."
“I believe that the role of cryptocurrencies in providing financial services to the unbanked or underserved individuals presents the stated goal of disintermediation. Traditional cross-border remittances are slow and costly, and cryptocurrencies can transfer those Bringing underbanked people into the financial system and providing faster, cheaper and more equitable ways to transfer money.”
Bitfury Group CEO Brian P. Brooks
Responding to Rep. Bryan Steil, “Minimum balance limits, monthly account maintenance fees, and similar requirements are what keep individuals underbanked, and stablecoin issuers don’t have those requirements.”
Responding to Rep. Ted Budd's concern that this "nanny state" is imposing too many rules on cryptocurrencies. “The U.S. is unique in that its regulatory system for banks is decentralized, and it is recommended that the U.S. use existing regulators to apply current rules to cryptocurrencies, rather than have a single regulator oversee the entire industry.”
Responding to some comments made by Rep. Barry Loudermilk on data collection practices and a query on whether blockchain could enhance data protection. “Blockchain provides transparency. In past cybersecurity attacks, like Target or Equifax, people didn’t learn the full extent of the attack until weeks or months later. If something like this happens, blockchain can provide transparency .”
To paraphrase the Crypto Rating Council, borrow the Motion Picture Association's movie rating system: some digital properties are "R" and some are "PG."
In response to Rep. Patrick McHenry's question on Web 3. "Web 1 is content published by websites, Web 2 is content published by users."
Charles Cascarilla, co-founder and CEO of Paxos
Responding to Rep. Nydia Velazquez's question on the stablecoin situation "whether Circle CEO Jeremy Allaire and Paxos CEO Chad Cascarilla would support federal mandatory reporting requirements," both voiced their support.
Stellar CEO Denelle Dixon
Responding to Rep. Rashida Tlaib’s “Bitcoin mining consumes more energy than Argentina, Apple, Facebook, and Microsoft combined,” pointing out that the cryptocurrency industry currently consumes enough energy to run a small country, and that cryptocurrencies have different types of consensus mechanisms that use less energy or may be more environmentally friendly. Marathon Digital’s power plant in Montana and Greenidge Generation’s power plant in New York are examples of how once-shuttered coal-fired power plants are being repurposed for crypto. "We all need to focus on reducing energy use."
Response to Rep. Al Lawson's inquiry about brokerage provisions in the bipartisan infrastructure bill. "Some entities may lack the necessary information to comply with regulations even though they are classified as brokers."
Coinbase Inc. CEO、Coinbase Global Inc. CFO Alesia Jeanne Haa
In response to Rep. Bryan Steil: Did Coinbase get any further explanation from the SEC as to why it couldn't offer the (now defunct) lending product, "hasn't heard more yet."
Responding to a question from Rep. David Kustoff about the securities framework, specifically what the SEC has provided in terms of clarification. “The SEC has yet to provide a clear definition, instead pointing to Howey and Reves as an analytical framework for evaluating crypto startups.”
Response to Rep. Pete Sessions' question on "How Cryptocurrency Exchanges Can Identify Fraud and Mitigate Risk." "Coinbase will evaluate from a technical and risk perspective before listing encrypted assets."
Response to Rep. Carolyn Maloney about "a cyber attack earlier this year resulted in the loss of funds from a hot wallet." "Not many funds were at risk at the time, and Coinbase compensated affected customers."
In response to "12% of the world's cryptocurrencies are held on the Coinbase platform, is the protection from the trading platform unique to Coinbase or provided by all platforms". "It's something unique to Coinbase."
House of Representatives
Rep. Jake Auchincloss said that the implementation of a "mandatory regulation" mechanism is unfair to encryption companies that must shuttle between different regulatory agencies, and is willing to work with Republicans and Democrats to address these concerns. It may make the most sense for the market for primary market regulators to work with private company self-regulatory organizations to address issues such as custody requirements, stablecoin standards, and more.
Rep. Josh Gottheimer asked about exchanges’ cybersecurity practices, and the PWG (US Presidential Working Group on Financial Markets) report on stablecoin issuers becoming banks. SBF cites practices such as two-factor authentication and cooperation between exchanges and law enforcement. Gottheimer said he was working on a bill to implement some of the PWG's recommendations, but wanted advice on the pros and cons of different modes of implementation.
Rep. Don Beyer (non-committee member) issued a statement applauding the Financial Services Committee’s hearing today and referring to his bill targeting cryptocurrency regulation. "My comprehensive digital asset legislation is a great starting point for these efforts," he said. "I look forward to continuing the dialogue with Chairman Maxine Waters and the rest of the committee on how Congress can bring digital assets into a regulatory framework that is important for the industry and regulators." A demand that has been increasingly emphasized.”
Representative Brad Sherman pointed out: "Some mainstream forces in our society have spent millions of dollars on cryptocurrencies, and major banks are entering the field of cryptocurrencies. If you want to know where these forces are, Zuckerberg should Attend this hearing. Brian Armstrong (CEO of Coinbase) sent his second in command. And Tether is not even trying to show up.” He warned regulators not to wait for legislation to begin regulation.
Rep. Bill Foster asked if there were any witnesses who objected to "controlled anonymity" in digital currencies, meaning regulation can actually deanonymize criminal accounts and enable tracing when illicit activity occurs. No witnesses objected to this question.
Rep. Patrick McHenry said: "We need to get rid of the idea that cryptocurrencies are only used by criminals. You know what else is used for bad purposes? Cash."
(Note: On October 5th, Patrick McHenry proposed the Digital Token Clarity Act of 2021. The bill stems from a proposal that SEC Commissioner Hester Peirce has been proposing for some time. The bill would amend the Securities Act of 1933 to replace the Token development teams establish a three-year safe harbor to sell these tokens without fully registering as a securities offering, provided the network is decentralized over the course of the three years. Under the terms of the bill, the tokens Issuers must develop disclosure requirements specific to the industry. These include source code, development plans and “information explaining the launch and supply process, including the number of tokens issued in the initial distribution, the total number of tokens to be created, the Release schedule and total number of unissued tokens.)
Rep. Anthony Gonzalez disagreed with Rep. Brad Sherman's assertion that "big tech and big banks control the digital asset space," before asking Brian Brooks how Web 3 would work.
Tomicah Tilleman, director of policy at a16z, said: "This is the first time a member of Congress has used the platform of a committee plenary hearing to emphasize that Web 3 is the future of the Internet. This is a historic turning point in the national discussion on decentralized technology. You also see Committee members acknowledged the potential of the Web3 platform to address many of their concerns, including remittances and financial inclusion. The tone of all participants so far has been reasonable and constructive. So far so good.”
Nick Anthony, manager of the Cato Institute's Center for Monetary and Financial Alternatives, said: "It's important to recognize that while Maxine Waters, chair of the U.S. House Financial Services Committee, has called attention to the environmental costs of cryptocurrencies, She also acknowledged the benefits the technology offers — a key element that many critics overlook. It may be a subtle change, but it could be the start of a long-needed change in the conversation."
Todd Phillips, director of financial regulation at the Center for American Progress, said the Howey test is "clear" in how it defines whether something is a security. "According to the Howey test, something is a security if it is a contract, deal, or scheme whereby a person puts his money into a joint venture with the expectation that the profits will come solely from the efforts of the promoter or a third party. So, If someone raises money by issuing a governance token to develop a DeFi application or something like that, it is issuing a security and should be regulated by the SEC. This test is clear and has been used for almost 80 years, trying to obfuscate this fact is malicious of."
Matt Homer, former executive deputy director of the New York City Department of Financial Services, said: "Testimony shows that cryptocurrencies are already regulated. (We now) should focus on gaps and creating a level playing field."
