🚨 MASSIVE CRYPTO HEARING LIVE! IMPORTANT! BITCOIN, XRP, XLM, ALTCOINS & MORE

Stan, thank you for the question. I think from the standpoint of what's available in the market today, one of the things that we need to do better in this industry—

All right, we are live. If you're watching this back, we're watching the hearing that's going on right now. There's like 15,000 people watching, and, uh, we're going to do the daily market update at the end of it, so you can skip past the hearing or you can watch the hearing. Here we go.

Look at UX design. All of these things are really, really important. And as we saw in the early days of the web, it happened. It came together. We became better at educating the audience about what's available and what's out there. The nice thing about blockchain is you have immutability. You have records that are out there that can't be changed. This information is already leveraged by Chainalysis, for example, in a— we live the different things that are happening on chain. And I think it allows us the opportunity to create a lot more foundational efforts with respect to user experience, and focus on these consumer protection issues that you're talking about?

We are live watching the hearing. We'll do the daily market update. We'll do the daily market update after. We're going to watch this hearing, though. This is important.

Thank you for the question. One of the really innovative properties of cryptocurrency markets are 24/7 risk monitoring engines. We do not have overnight risk or weekend risk or holiday risk in the same way traditional assets do. Which allow risk monitoring and de-risking of positions in real time to help mitigate volatility. We've been operating for a number of years with billions of dollars of open interest.

That's the FTX CEO.

Losses, clawbacks, or anything like that, even going through periods of large movements in both directions. We store collateral from our users in a way which is not always done in the traditional financial ecosystem to backstop positions. And the last thing that I'll say is if you look at what precipitated some of the 2008 financial crisis, you saw a number of bilateral bespoke non-reported transactions happening between financial counterparties, which then got repackaged and re-leveraged again and again and again, such that no one knew how much risk was in that system until it all fell apart. If you compare that to what happens on FTX or other major cryptocurrency venues today, There is complete transparency about the full open interest. There is complete transparency about the positions that are held. There is a robust, robust, consistent risk framework applied. And we're excited to work with the CFTC on our US license and regulated venue to bring a lot of this to US customers as well.

Thank you.

My time has expired.

Thank you, Madam Chair.

I yield back.

You're welcome. The gentleman from Texas. Mr. Sessions is now recognized for 5 minutes.

Madam Chairman, thank you very much, and to the panel, we appreciate this opportunity to hear from you. I think it's very important for us to hear from you. You're not the inventors necessarily, but you're the people that are going to make this work. I am tremendously impressed that from what I see, a lot of ingenuity, a lot of entrepreneurial spirit and lots of advice about the future, about where this can grow, is I think very important for us to listen to. I'm in favor of what you do. I'm not sure I want to go as far as you do on robustness of how much oversight you really want, because I think that in your perhaps emphasis, perhaps in your modeling, What makes you better is what you are.

This dude holds crypto, guaranteed.

Question I would ask, and I don't know which one of you to ask this, so I would just say we're always interested in a traditional financial model of identifying risk. What is, what is a risk? We get very little into value but a lot into risk. And so I would ask you that, that the value of much of this could be compared to stocks, IPOs, when they first come out. They might come out and be worth this amount of money, and one year later they're worth a lesser amount of money. I'm more concerned with the term fraud of the value that we're selling of all these different positions that could be held. What do you do to try and look at what might be fraud? I know there's been openness about a lot of discussion about how you allow information to be freely gleaned, you do these things, but is there an investigation or an understanding about what might be risky even though you accept it or fraud?

By the way, this is the most important crypto hearing right now. There's like 15,000 people watching. So that's why we're watching a little bit.

This is specific to the Coinbase platform. So on the Coinbase platform, we have various tools. One, in onboarding, as we've talked about, we do do KYC, but also in when we onboard our assets. So we offer, as I mentioned, over 100 assets for trading on our platform. We have a robust assessment of each of those assets. We're looking at it for legal risks. Do we think it has the contours of a federal security? We do not list securities on our platform. Two, we're looking at it for compliance reasons. Is this a scam? Are there real people behind those?

Right.

People behind them on the OFAC list? We don't want to list that token. So we're doing a full compliance review of the founders of the coin, the developers on the project, and then we're looking at it from a security risk. Can we safely secure and store this on our platform, or is there underlying technology risk that would be rising to a hack? So one way we look at fraud is when we list an asset to make sure it's not a fraudulent asset. Two, we, through our market rules, We do have traditional exchange rules for looking for spoofing, for wash trading, for all sorts of market manipulation on our platform, that we have third-party tools as well as employees that came from former regulators or from traditional financial services that do 24/7 monitoring. Much like Mr. Bankman-Fried responded to the risk models, we do compliance monitoring on a 24/7 basis. We also then monitor the blockchains. One of the wonderful things about this technology is the transparency, and so we can look for transaction activity, look for patterns on the blockchain.

And yeah, you can see everything.

Law enforcement, we file SARs, and we have traditional approaches much like you would see in finance, but the transparency really changes what we can do here.

I think that that's a key, at least to me. If you knew anything about the Medicare system, you have Medicare providers, and we have probably 18% fraud in that system. That is a federal system that's been well understood. Wherever you open up your door, whatever your storefront is, there's somebody there that's going to try and find a way to take you, to spoof you, to take advantage of this. And it seems like to me that, that, that is something that if you have accepted this as part of the duty that you have to make sure for the integrity of your system, it seems like to me that I have satisfied myself that what you have, not just have ongoing, but where you think you want to go, we need to be supportive of you. We need to look at you as a fact, less of as, uh, something that we ought to get in and understand and tackle you and hold you back. This guy did what we believe the future should look like for people around the world and people in the United States. I would simply say to you, I encourage your integrity. I encourage you to avoid the pitfalls that come from there being some fraud that was hidden for a long period of time and the industry knew it. We've seen this happen in companies. I don't need to go through that, where fully vetted market individuals still did something wrong. So this guy's good. Thank you for doing this today. I think it's good for all of our members, and I in particular want to thank my ranking member for his proactive viewpoint of Republican members that I hope would be supportive of what you're saying today. Thank you very much.

I think that guy knows that there's 15,000 people watching.

New York, Mr. Meeks, who is the chair of the House Committee on Foreign Affairs, is now recognized for 5 minutes.

Thank you, Madam Chair, and I want to thank you too for putting together this very, very important hearing. Look, the future is in innovation and financial industries is just—

take the camera off her—

and to get ahead of it. So your foresight, along with the ranking member, to do this is really important. Let me first ask my question to Mr. Aliya. As you may be aware, Communities of color often rely on minority depository institutions and community development financial institutions to safely do business and get access to crucial banking needs. And given their important role, as well as the challenges that they face, I've been a long advocate for robust partnerships whereby MDIs and CDFIs can leverage new technologies to better serve their communities, as well as I applaud Circle actually for using and exploring such partnerships and creating an initiative to deploy and share USD coin reserves into these MDIs and CDFIs enhancing financial inclusion. So my question really to you is, can you provide us a status update on where Circle is in implementing this program and what sorts of, uh, uh, systems will be developed to ensure the long-term success of the program.

Thank you, Congressman Meeks. I appreciate the question very much. For those on the committee that are not familiar, we recently announced a new broad-based company initiative called Circle Impact. It includes several key initiatives. First and foremost, something I did reference in my testimony as well, is an initiative to take what we hope will be billions of dollars of the deposits that are held behind USDC and actually place those with minority deposit institutions and community banks throughout the United States. I think one thing that's important to understand is that unlike a bank, that wants to maybe hoard its deposits for its own lending business. As a full-reserve model, we're not in the business of lending. And so it's a tremendous opportunity for us to work closely with banking institutions that could benefit from strengthened balance sheets, that could benefit from what that can then do, what that in turn can do to open up credit and lending and other opportunities in these underserved communities. So this particular initiative is one that we've just began. We expect to have the first wave of that in place by the end of the first quarter. We are also looking to coordinate with federal banking regulators who have their own initiatives that are focused on supporting MDIs and community banks. And we view this as a really critical and strategic part of what we can do to foster a more inclusive financial system. Final comment is simply that we believe that the technology of digital currency, the frictionlessness, the way in which individuals with mobile devices can actively participate, and not just domestically but interacting with family members around the world and safely exchanging value, that these can also bring significant benefits to these communities. And that guy, we will certainly keep the committee up to date on progress with this initiative.

This guy's Brian Brooks from BitFury Group.

Thank you very much for that. Let me go to Ms. Haass real quick. Uh, you talked about technology enhancements, and I know that crypto and digital currencies can bring to our financial markets that they're really impressive. For example, I know a lot of communities rely on these new modes of payment systems to send money to their families in their home countries, and You know, this type of activity is, of course, extremely useful to our global economy, which is really important. But there are also bad actors out there that could use crypto for, or digital currencies, to hide cash from illicit activity. Also, you know, people can hide cash, you know, not to pay their support payments and other things.

Monero.

Uh, my question is, um, how can we— and what is being put in place to keep the bad actors out there? And so, I mean, I know in your testimony, Ms. Haass, you, you mentioned that there's a small amount of non-compliant foreign exchanges where criminal actors benefit financially from illicit activity. So what's your assessment of our global coordination on stamping out such activity, and what What can the United States policymakers do to better coordinate with regulators across shores to prevent this arbitrage that you referred to?

Bro, they ask you some questions all the time, bro.

So as I shared on the Coinbase platform, we do have KYC, a BSA/AML program, and we ensure that we know who our customers are and then have clarity on those transactions. I know other US-regulated exchanges that we speak to have similar controls, and everybody on this panel here today, I think, shares those views. There are players who do not follow these. And I think that that is where regulation should be focused, to make sure that there's an expectation on what it is to perform as a digital asset marketplace. And that was part of our policy proposal.

The gentleman's time has expired. Thank you.

That's the CFO of Coinbase, by the way, is now recognized for 5 minutes.

Thank you, Madam Chair. Um, in 2019, the average daily turnover value of the US dollar constituted 88% of foreign exchange market transactions globally. This dominance by the dollar in global marketplace is a key reason why the dollar remains the reserve currency of the world. Mr. Brooks, welcome back to the committee. It's good to see you again. I think we've actually talked about this subject before in the past, but as digital assets become more common in the global marketplace, with the total digital asset market reaching almost $3 trillion, as Ranking Member McHenry just said, how do we ensure the US dollar remains the reserve currency?

It doesn't. Bitcoin is. XRP is.

Again, and I'd give you a couple of thoughts on that important question. One is, if we start with stablecoins before we talk about other crypto assets, I've said for a long time that the secular reduction in dollar holdings as a percentage of global central bank holdings is alarming. And this has been going on for more than 10 years at this point. So dollars as a share of the European Central Bank, the Japanese Central Bank, etc., has shrunk from 80-plus percent to more like 60-plus percent in a short amount of time. What that tells me is that in the future, with the rise of China and other major economies, the US dollar can't take its primacy for granted, and we need to start thinking about competing on utility, on features, not just based on a post-World War II monetary system that we could take for granted for the last two generations. And that's one of the reasons that I've been such a supporter of internet-enabled dollars.

Oh yeah, this is Brian Brooks.

Sorry, features, not only on history. I think that's really critically important. The second thing I would tell you is, as we enter year 11 or 12 of a highly inflationary environment— after all, we've been printing enormous numbers of new dollars since the financial crisis— there will come a time, gradually then suddenly, when the attractiveness of the dollar relative to other currencies could change. One of the benefits of the crypto economy is that it creates some counter-incentives on the part of the Fed to do that kind of policy, because people will flee to other kinds of assets. And that sort of market competition is something that I think will ultimately shore up our monetary policy and keep the dollar where it rightfully ought to be, which is as the dominant reserve currency it's been for all of our lives.

Yeah, it's very concerning to me that if we lose that position, our economy, our whole country, our way of life is at risk. Mr. Allaire, you made a comment in your testimony with regards to promoting the dollar as a primary currency. I assume you've got a thought on this as well.

Thank you, Congressman. Absolutely. You know, I think as I introduced in our, in my initial remarks, we're at a really interesting moment in time. We're seeing this infrastructure layer, these blockchains proliferate globally at incredible speed. It seems likely to us that the ability to access and interact with these blockchain networks will reach billions of users over the next 2 to 3 years. And the question is, in that time frame, will the United States support the dollar and digital dollars in the form of stablecoins, because they're in the market and operational today, to help the United States dollar be the competitive currency of the internet? I think that's the opportunity. I think it's in front of us right now. And it's one of the reasons why we're so focused on this as a national economic and not just a national economic priority, a national security priority, because clearly, if this is the new infrastructure— economic infrastructure of the internet, we want the dollar to play a critical and strategic role. And partnering closely with private companies and using open internet technologies becomes a way for the United States to compete versus states that are seeking to nationalize that infrastructure, operated themselves in a surveillance-oriented model.

Well, it's interesting that you were talking a while ago— I think Miss Velasquez asked questions about reserves, and I think you were talking about basically a one-to-one, uh, amount of backing of, of your coin, uh, of your asset with U.S. Treasuries. So you're looking— I think the value of your, of your— that you're backing up your, your digital coin with is the basically the full faith and trust of the United States government, right? Would that be correct?

That is exactly correct. And I think, you know, in many respects, the assets that back these dollar digital currencies are in many ways far safer than the dollars in a bank account, because dollars in a bank account, as we know, are fractionally reserved and lent out.

So this is a question from Mr.

Brooks with regards to— you talked about a minute ago with the control of owner controls the network. We had Mr. Zuckerberg in here when he was trying to talk about his Libra, and the control of that, the value of it, was going to be with the commission. My concern is who controls the internet. We've seen Twitter, we've seen Instagram, we've seen Facebook control people on their platforms. How concerned are you about outside forces controlling platform on which the digital dollar is traded?

Well, Mr. Luckemeyer, I'll do you one better on your hypothetical, which is we've now seen major banks deplatforming both industries and individual customers for not, not sharing the right point of view. So these are scary ideas. The point of crypto is to have true decentralization, and the projects that succeed will be the projects that achieve that. Bitcoin succeeded because there are literally millions of participants in the node network, and so there is no CEO of Twitter to deplatform you. There's no CEO of JPMorgan to take away your credit card. It's user controlled. Some of these won't achieve that. They'll be consigned to the ash heap of history, I predict.

Thank you very much. I yield back, Madam Chair.

Look at that girl's mask in the back. What the heck?

Gentleman from Colorado, Mr. Perlmutter, who is also the chair of the Subcommittee on Consumer Protection and Financial Institutions, is now recognized for 5 minutes.

Thanks, Madam Chair. Mr. Brooks, good to see another Coloradan on the panel. But I want to start with a couple questions for you, Mr. Bankman-Fried. And Ms. Haas mentioned knowing your customer. They avoid getting into the securities transaction business to the best of their ability. That's one of the things they look for. So, Mike, I've got several questions for you, and then one of them will be from completely left field. Field.

History is being made right now, folks. Facts.

Uh, cryptocurrency market exchanges such as yours are regulated through a patchwork of different state and federal agencies. For instance, some exchanges register as money services business with FinCEN at the federal level and may also receive money transmitter licenses. And you talked a little bit about that in your opening. Um, how is your company registered in these in this context?

Uh, yeah, thanks for the questions and looking forward to—

this is the FTX CEO. FTX CEO.

Uh, in addition to, uh, a bunch of international licenses, um, in the United States, we are participating in that system you referenced with the money transmitter and money service businesses licenses. Um, in addition to that, however, we are also licensed by the CFTC. Um, we have a, a DCO, a DCM, and other licensure from them through FTX US derivatives. And we look forward to continuing to work with them to build out our product suite. We just submitted an 800-page, I believe, proposal to them a few days ago, which we're excited to discuss. And we're also happy to talk with other regulators about potential products in the United States.

All right.

Well, let's talk about another regulator that may touch on what you do. You talked a little bit about derivatives and the fact that derivatives were, you know, sort of a key component in the failure of the financial markets back in '08 and '09. Is FTX registered with the SEC?

So the core derivatives regulator is the CFTC. And, you know, FTX US Derivatives is registered with the CFTC. With the SEC, we have begun discussions. I'm excited to continue discussions there. We do not list securities on our platform as of now, although we would be excited to explore listing digital assets securities in the future under the guidance of the SEC. I will also say briefly that I would be excited to see a unified joint regime with both CFTC and SEC involvement to create sort of harmonious markets regulations between spot derivatives, contracts, and other things.

All right.

Now, the left-field question. So, you know, our role here— I mean, there's nothing new under the sun. The technology may change. It may speed things up. It may make it more transparent, but a deal's a deal. Who's taking on the risk? Who's getting rid of the risk? You know, who's the middleman? So one of the things we hear about blockchain is that it's invulnerable, it's impenetrable, it's, you know, something that's super secure. And our responsibility is to make sure that things are generally safe, generally honest, that people aren't swindled. So I also sit on the Science Committee with Mr. Luchtmeijer, and, and the ranking member was talking about we're at W3. All right, in the Science Committee, we're doing a lot with, on quantum computing. And so my question to you is, what threats or benefits to a blockchain system will come from quantum computing?

Dude, this is the age-old question.

Um, In terms of the threats, you know, some cryptographic algorithms are not, at least theoretically, might not be secure under quantum computing. Obviously, this is going to depend on the exact details of what comes. And it's important that, you know, if and when that comes, that, you know, blockchain security algorithms are resistant to that. You know, on the same front, I think it has the potential to create, you know, basically new cryptographic algorithms that are faster, that are more secure, and that are, uh, you know, more efficient, um, from a number of different perspectives. Uh, so we'll, we'll see what happens there, bro.

That's right.

I have a million other questions, but I don't have enough time to ask them.

I'll yield back.

That's a 2015 question, buddy, not left field.

Come on.

The gentleman from Kentucky, Mr. Barr, is now recognized for 5 minutes.

But I'm really not kidding.

Thank you for holding this important hearing, Mr. Brooks. Good to see you back in front of our committee.

And to all of our witnesses, thank you for your testimony.

Mr. Brooks, I will start with you, um, and this is a bit of a follow-up to Ms. Wagner's question, but do you think Congress needs to introduce legislation to provide more definitional clarity with respect to digital assets? And if so, do you have any, uh, specific suggestions?

Well, I, uh, I really appreciate that question. That is the most important issue in the short term for the industry. And, and so let me just pick up where Mrs. Wagner left off. If the question is, is the current test clear? It's clear in the sense that we know what it is. It's not clear in that it's a four-factor balancing test. So I often think about what, like, the US trucking industry would be like if the truckers didn't know that the speed limit was 75 miles an hour. They just had a four-factor test of general safety having to do with how much sleep they got the night before, the overall size of their payload, and other factors. People need to know what the speed limit is. In my old agency, the OCC, what would happen is a bank would come to us with a new activity proposal and we would give them an answer. We would either give them a non-objection or we would not give them a non-objection, and it was very clear whether they would be allowed to access that. What happens in the United States is you have a new crypto project and you walk into the SEC and you describe it in great detail and you ask for guidance and they say, we can't tell you.

And you listen to this guy, it's so good, bro.

So whether this comes from legislation that defines what is a security and what isn't a security, or whether it comes from Congress in the form of of legislative discretion to an agency to say what is a security, I would argue that a four-factor balancing test is no better here than it is as truckers drive down the highway guessing what safe is.

Big applause.

Has been quoted as saying the test to determine whether crypto asset is a security is clear. Mr. Brooks, do you agree that that test is clear? I take it from your previous answer, the answer is no. But could you walk me through the process that exists today to determine if a digital asset is a security?

Yeah, well, well, thank you for that. The, the best test that is out there is a test that several of us on this panel actually helped to develop about 3 years ago as part of an industry organization called the Crypto Rating Council. When I came to see several of you several years ago in connection with the Crypto Rating Council, the way I described it to you was it's sort of like motion picture ratings for crypto. We don't know authoritatively what's a security and what isn't because no authority will, will tell us. But what we can do at least is we can tell you the difference between an R-rated asset and a PG-rated asset, and people can make their risk tolerance.

Wow.

So the way that process works is it's an objective, quantitatively based process that asks several dozen questions about the asset across each of the dimensions of the Howey Test. It gives you a number, and that number tells you how close you might be to danger and how far away you are.

Let me interrupt. And just—

that guy came with the smoke, bro.

Brian, or federal regulation of both digital assets and cryptocurrency trading platforms might be supportive of bringing clarity But I'd never underestimate the ability of the federal government and regulators to, uh, stifle innovation. Can you give me an example of, uh, of an overreach that would stifle Ripple?

Ripple, the idea would be to let traveler's checks inside exist inside the banking system and not bring a stablecoin issuer inside the banking system when they've applied.

Okay, uh, Mr. Laird, for to you, can you, uh, talk about the difference between explain a stablecoin versus a central bank digital currency, and what advantages does a stablecoin offer that, that a digital dollar, say, at the Fed would not be able to offer?

Thank you, Congressman Barr. I'm happy to. I think the first difference is that stablecoins are operational and growing in the market today, and they're built on an open internet technology model. So when we think about all of the things that we've seen built on the open internet, on these open protocols and networks, whether it's ubiquitous information exchange, communications, interaction around the world, that same open internet model is the foundation for stablecoins. And so I think that's a fundamental difference. A CBDC, which is a concept right now, it's not operational, would very likely be a very closed-loop technology. That's tightly administered and run by the government and would unlikely be accessible in the same way that these open networks are accessible. And so I think that's a critical difference. But I would come back to the most important, which is that most payment system innovations in the world have been driven by the private sector. And I think what's taking place today with digital currency is, is no different.

Could stablecoin and your product Could it address some of the concerns about China's advances in terms of— and the threat that China's advances pose to sanctions enforcement and protecting the dollar as the world's reserve currency?

I think so, yes. I mean, coming back to this, and I'll try and make this point concisely, you know, the United States and the US dollar is winning the digital currency space race. Today, dollar stablecoins are doing trillions of dollars of transactions. The experimental beta of a Chinese yuan, which is government-controlled in China, has done $10 billion of transactions. So the United States is winning. This has potential to grow at a very significant speed around the world and benefit the US dollar and benefit American businesses and households. And so I think that's one really, really critical thing to understand. And I think the primacy of this infrastructure and the development of this infrastructure It is a strategic national security and national economic priority for the United States, and we need to get going on it right now.

That is weird.

Thank you.

I have many other questions as well, but he's like saying that USDC is like the US's, like it's from California, but it's privately ran, right?

Now recognized for 5 minutes.

Man, that is weird. His perspective was interesting right there.

Madam Chair, we're winning very much. You're bringing this to our, our attention. Appreciate the ranking member, everyone participating today, especially the witness.

It's weird because China is clearly winning.

Heard a lot of very high and noble motives today. I think I don't want to misquote people that— but I've heard that the digital asset world, the open internet model, it's for all people in the world. It's easier, cheaper, open, free market data. It's transparent, reduces risk, not increases risk. It's There's less friction in the marketplace. These things are all great, but it's interesting that most of the people that I know that have invested in cryptocurrency is not because of that. It's because they think they can get rich quick, and the appreciation of Bitcoin is something that they want a part of. It's not because of all these other wonderful things that the internet can do. That's not the reason at all. Secondly, it's interesting when I ask them, well, you know what cryptocurrency and digital assets and Bitcoin, what it actually is, most of them say no. I just know that, you know, make a lot of money and I want to invest and I want the hard truth. I want to be able to invest in because I know that that's appreciated. Now, we've seen this before, unfortunately, and it led to, I think, a financial crisis around the world. When you were investing in derivatives and other things that people didn't know what the hell they were investing in, then it became very problematic. So, I do see the risk in this. Now, I have to say when this was a B problem or a B issue, a billion-dollar problem, didn't seem as such a big deal. But now that it's become a trillion-dollar issue, and I do think it's challenging really the supremacy of the dollar around the world, I do think it's potentially a big problem. I do have concerns. I want to follow on to what Mr. Barr said. You know, the issue of the dollar being the reserve currency, this seems it does challenge it. Does someone want to comment on that? If not, I'll pick on somebody.

I'm happy to comment, Congressman. I want to respond to a couple of things in your comments. I would agree with the fact that there are, you know, there are passersby and then there are people who are actively building and who are very, very close to the technical innovation. And I think like investments in technology companies or in other businesses that we see in the stock market, you have people who are investing because they think it's a business or a product that might go up. They may not understand the details of a given pharmaceutical company's science, but they they believe that perhaps it's an area of innovation, they want to invest in it. And so I do, I do agree that there is that distinction. But I think it is certainly incumbent on all the industry participants to ensure that there's great amount of disclosure, you know, financial literacy around, around these products. But more importantly, coming back to the comment about the dollar, I think there is this growth in digital assets as a new kind of asset class. And I think what's important to note is is understanding those in contrast to fiat currencies. Many of the digital assets— in fact, I think the overwhelming majority of the digital assets— are commodities that have utility, that are used to power some kind of technology network or protocol, more thought of like an oil or gas than, you know, than a fiat currency. So they exhibit those properties, and I don't think those will ever rival the dollar. I think they'll grow in value because they're utilized to help facilitate all kinds of activity on these Web3 applications and networks. And I do believe that with innovations like stablecoins and dollar digital currencies, we could actually see a dramatic amount of growth in the use of the dollar globally.

I'm gonna, I'm gonna reclaim my time just for a second because, um, one of the things that I see is that we do have digital, we have the digital dollar already. I mean, The digital dollar can do all the things that you guys were talking about today, with the exception that it is a fiat currency that wouldn't be, um, you know, as easily manipulated by some nefarious group because it would be controlled by the Fed and the United States of America. I mean, I, I do have great apprehension that you have, um, these cryptocurrencies that are used by drug traffickers or used by people trafficking other human beings.

The fiat is used for that too. Um, the fiat used for that too.

Digital currency. But why not the dollar? Why can't the dollar be the digital currency? Why can't we once again dominate, not 60, 80%, but maybe even higher with a digital dollar? That to me makes much more sense, and it's much more protected, and people won't have—

Okay, go try it. Go try it. We're going to usurp you with crypto, bro.

I did find this a very interesting discussion.

Go try it. We're going to usurp your dollar with crypto.

The gentleman from Texas, Mr. Williams. Is now recognized for—

I wish I was in the courtroom, bro. I'd be screaming at—

for those of you who don't know me, I'm a small business owner in Texas and still own those businesses. I'm a car dealer and a former professional baseball player. And when I'm trying to wrap my head around a new topic like cryptocurrencies, I try to relate it back to something I understand, like baseball or business. Now, some of you may know this, but modern-day baseball can really be attributed to Babe Ruth. He brought in the live-ball era of the time and introduced power to the baseball diamond. And before this, teams would play small ball that was very conservative, where teams would literally play for one run a game. The entire objective was simply to get the ball in play so they could try to steal their way around the base paths. And there was nothing wrong with this old way of playing, but when the White Sox won the World Series in 1906, the entire team had a total of 6 home runs all year. But Babe Ruth came along. Babe Ruth came along and totally changed everything. In 1920, he set the American League record of home runs with 54. To put that into perspective how fantastic this feat was at the time, the previous mark to be set was by Sock Seebold in 1902 with just 16. This introduced an entire generation of new baseball fans, and for the first time ever, the New York Yankees, over 1 million fans came to see them in a single season. Now, with that being said, many of you are becoming the Babe Ruth in the financial space, services space. You're introducing blockchain technology to the financial services industry and working to upend the tradition and the traditional way of doing business. And while many economists and so-called experts have been calling on the downfall of cryptocurrency and discounting the future of blockchain technologies, all of you were working tirelessly to create something new in order to bring this new technology to the masses. Unfortunately, uh, it would only take a few misguided curveballs, we'll say, uh, from Washington to undo some of the progress you've all put into this motion. So my first question to you, Mr. Brooks, uh, can you talk about some of the negative consequences that could happen if we take a heavy-handed approach to regulating this developing technology?

Well, Mr. Williams, as a long-suffering Dodgers fan, I share a lot of the things you're talking about, and I think the era you're talking about was an era when baseball went from focusing on not losing to an era where it focused on winning. And winning and not losing are not the same thing. So I come back to Mr. Vargas's question a second ago, which I think is the right way to answer your question. You know, Mr. Vargas asked the question of, um, people have the potential to lose a lot of money. These things are volatile, they're risky. How do we protect them from those kinds of issues? There are two ways of answering that. One is to prevent as many people as possible from accessing this amazing technology. For example, the way the current legal regime works is certain kinds of assets can only be purchased by accredited investors, meaning rich people. So the only people who can get rich on this are people who are already rich. That'd be one way of protecting people from losing money.

This guy slays it every time.

Can access it.

This guy slays it every time.

It would be to make it safer the way that we made equities safer 40 years ago, right? We created mutual funds, diversification. Sector funds and other things that make it easier for regular Americans from places like my hometown in Colorado to buy equities without having to be stock experts. Strangely, in the U.S., we've refused to do that so far. So we don't allow crypto mutual funds. We don't allow people to diversify the way that they do in Canada, Germany, Singapore, the United Arab Emirates, and a series of other regulated economies around the world. So I would argue the way to win is to bring more people into the system more safely, not to keep them out at their own peril.

Great, bro. He has a brain. He has common sense.

Here, that crypto industry is the wild, wild west where there is no regulation guiding the industry. But as all of you are aware, that simply is not true. The SEC and the CFTC are the primary federal regulators, and our states also have strict regulations that all of you must be abiding by. So Mr. Bankman-Fried, can you discuss the different layers of regulation that FTX must abide by as an exchange, and also in order to uphold customers' deposits in your digital wallets?

Uh, yeah, thank you for the question, Congressman. And, um, you know, putting aside the 190 other regulatory jurisdictions that we take part in and the dozens of licenses that we are acquiring each month in all of those, um, in the United States There is the sort of state-level money transmitting license regime with, you know, money service business and MTLs, which, you know, we and many others are part of. For any margined or financed or derivatives transactions in the United States, there is a CFTC regime where, you know, there is licensure required to offer those products. For any products that might be security as a digital asset, One would— it's, you know, there doesn't exist a current very clear pathway for it, but that would be an SEC-registered regime for it. Obviously, there's been lots of discussions about additional registered regimes for stablecoins and other assets as well.

That's the CEO of FTX, by the way.

Thank you very much.

So far, this is pretty bullish, to be honest.

Mr. Mason, who is also the Vice Chair of the Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets, is now recognized for 5 minutes.

Thank you, Madam Chair, and I came up vastly before I thought I was going to, which means that you'll have to humor me for my ill-formed thoughts. I really appreciate our witnesses coming here, and I also feel terrible for you, because we could have an entire hearing on stablecoin, we could have an entire hearing on blockchain, we could have an entire hearing on CBDCs, I suppose. And we could probably have an entire hearing on whether or not things that have forced scarcity are inherent stores of value, except that I think we resolved that 100 years ago, but yet we still sort of need to debate it periodically. Um, all that said, I want to start just focusing on stablecoins if I could. Um, and, and Mr. Allaire, want to, want to start with you. And I'm sure you've seen the Presidential Working Group's report. Raising all sorts of issues with stablecoins, primarily around, do they really look like money? Do they have sufficient reserve assets behind them? What are the redemption rules? Is there transparency around permissioned blockchains, the custody of reserve assets? You've read the report, I'm sure. I see you nodding, could go on. First question is really simple. Do you support the recommendations of that report for stablecoins?

I support a number of things, but not, not uniformly. I think there are a number of challenges with the report. I think the first maybe to discuss is really this question of what form of federal charter ought to be in place around a large-scale dollar stablecoin issuer. I think the report recommends that it would be an insured depository institution. But I think one of the really critical things to discuss there is an FDIC-insured bank is FDIC-insured because the bank is taking risk with deposits.

And if I could—

and I'm—

I apologize to get you off, but I'm— I want to just narrow sort of specifically to the issue of if I deposit something in a bank that is indexed to a dollar and I perceive as a customer that this is— I've eliminated the FX risk, right? But now I'm left saying, is it actually there when I want it? And now there's a vision. So setting aside how we get it get it done, broadly speaking, are you supportive of the idea that if this is going to look and feel and attract investors with the expectations that this has all the risk and liquidity profiles of a dollar, that we should make sure that it actually has those features?

Absolutely. So full reserve disclosures, transparency, I think definitions around what those reserves are and the liquidity mandate on it, those are all really critical features that need to come in place. If it's full reserve, is it Is it an FDIC-insured product, or is it a statutory set of constraints around what the reserves are? So those are some of the things that I think have to be worked through.

So, and I want to get to two more questions, so I apologize if I'm being quick, but in the absence of those protections being in place, it seems to me that somebody who is currently holding a stablecoin perceives that they are holding a currency, but in reality is holding something that is subject to a lot of exogenous risks beyond their control, which feels a lot more like a commodity. So if we agree that as of right now it's not really a currency, would you also be supportive of saying, well, we should regulate it as a commodity until such time as we have the protections in place to give it the robustness of a currency that the market is expecting of it?

So I don't agree with that, but I think it raises a couple of key points. So the first is, and I can only really speak on behalf of Circle here, USDC, for example, operates under the same stored-value electronic money and electronic money transmission statutes that govern Square and Stripe and PayPal and the balances there. So today, there are consumer protections, there are reserve requirements around holding of those assets, one-for-one redeemability, anti-money laundering requirements, surety bonds that need to be posted to protect consumers, segregation of client funds, funds and for benefit of customer accounts. So there's a great deal that's there. And so— and we have operated under such statutes really since 2014. We were the first company to go and get all those licenses. So there is a framework today. I think as these get larger and are operating at a global scale, I think really it's does there need to be something more that's more bespoke to this?

Let me, if I could, because I'm just nervous watching the time here. Let me Let me sort of get to the last question, leave it to the whole panel, and if we're out of time, we'll follow up separately. The concern I have is that a stablecoin at some level is an ETF, right? And we could imagine a stablecoin indexed to all sorts of different currencies and some kind of baskets of currencies that are behind there, and we regulate those in certain ways with expectations of who is bearing the risk, to Mr. Perlmutter's question. We have this emerging world of central bank digital currencies, and I'm satisfied that no central bank wants to allow counterfeiting. They all want to protect the integrity integrity of their currency, and so they'll put those rules in place. On the other hand, different countries are going to have very different ideas about what kind of data they would like to track when we trade a central bank digital currency. And so a question for any of you who feel technically competent to answer this: if you have a stablecoin that includes some portion of central bank digital currencies that are tracking things that we as Americans would not like to track, can we design the stablecoin to insulate the contamination of that system so that somebody who believes that they are buying something that looks like a dollar is not actually being tracked by our adversaries. Anybody like to comment on that?

I'll make one quick comment, which is one of the benefits of this technology is the— these stablecoins, all of the code that they, that they provide and how they interact is all public and open source. And so everything that functions inside of that is visible to everyone that interacts with it. And so there is the ability to have, I think, greater transparency into how are these things functioning, including a foreignly— a foreign-issued coin.

I'm out of time, but I do have some concerns about these crypto rules as well. Thank you. If anyone would like to follow up, I'd love to.

The gentleman from Ohio, Mr. Davidson, is now recognized for 5 minutes.

Thank you, Madam Chairwoman. And thanks to the ranking member. Thanks to our witnesses and frankly, many people who've worked literally years to get to this point. To have a hearing. The market has been way ahead of this, and frankly, it's been painful to watch, you know, in 2017 and since, when you see the ICO market ripe with people committing fraud or just regulatory arbitrage, taking advantage of the fact that our regulators haven't paid attention to bad actors. And it's been especially frustrating to watch some of our regulators take aim at people that are working very hard and very aggressively aggressively to be legitimate businesses, to come into compliance with every kind of licensure and regulatory regime that our, that our country currently offers. It's been woefully inadequate. And so it's so good to get to this point for the hearing. So thank you. And thanks to my colleagues. I've been very encouraged by the amount of preparation many colleagues have done to close the gap in any knowledge they've had. And over the past few years, the number of members of Congress that really understand this space has certainly increased. 3 years ago, we had a hearing, not really a hearing, because as a junior member, I can't hold those or pick them. So in exasperation, we just held a meeting over at the Library of Congress, and some of the folks in this room were there, or representatives from your companies were there. And we came up with the most essential thing was to establish a bright line test. Not just for the players in the industry, not just for the investors, but also for the regulators. So that if somebody at the SEC, for example, says this looks like a security, it's not a form of interpretive art to say, does it really fit this test? Uh, interpretive art test that said it's already created, it exists, uh, that it is recorded on a distributed, secure, and immutable ledger that is not controlled by a central authority. That permissionless peer-to-peer transactions can be done without an intermediary, and it does not represent a financial interest in any entity. More important than that particular test is the fact that there is, as Mr. Brooks, you highlighted, a speed limit so that there's some clear thing, not just, as I say, for the investors, not just for the participants in the market, but for the regulators themselves so that we have continuity. If only there were such a body that could provide this clarity. My hope is that the next time we have a hearing, we will notice some bills and we'll be able to talk about particular text towards that. So, you know, Mr. Brooks, when you look at stablecoins, which maybe is the lowest hanging fruit, some of those are established well in longstanding things like New York Trusts. Some of those aren't traded in anything. They're just US dollars stored in a vault for every token. Some have US dollars in components of M2, like US Treasuries. Some have other things. When you were at the OCC, you provided some clarity there, and you also dealt importantly with self-custody. You know, Mr. O'Leary, you mentioned that, um, the code is literally online. Any of us right now during the hearing could download code and could begin to self-custody a digital asset. So as you look at that, how important is it to provide this clarity, Mr. Brooks?

Well, specifically on the issue of custody and self-custody, this is a way that crypto tries to make an advance over the current system. So the issue with custodial assets we've seen, and this committee has looked at many, many times— think about the financial crisis when there was an issue of foreclosures and it was difficult for custodians to produce the original note that proved whoever was entitled to enforce that transaction and foreclose on a property because the piece of paper had gone missing or the custodian had merged with another custody company or whatever. One of the things crypto is trying to do is to use technology so that you can safekeep your own assets for free versus having to pay somebody else to custody it. That also provides a layer of financial privacy, something that this committee usually favors, but sometimes strangely doesn't favor. So self-custody is one of the key things, along with self-ownership and self-determination on this internet of value, that's really critical to the nature of the network.

Yeah, thank you. And as we've digitized information, it's, it's frankly, you know, amazing that we finally digitized money in a way that we can move not just a store of value, but a means of exchange. The, the, the use case for digital assets has partially been that, that it's this stable store of value. Certainly stablecoins solve that. Some have pointed out that Bitcoin, for example, doesn't. And, you know, Mr. Bankman-Fried, one of the ways that people have speculated that the volatility is created in the market isn't by holders of the asset or hodlers, hold-on-for-dear lifers, as has become known in the space, but by the other big group that owns these assets, which are traders. Many of them trade on leverage. And so when you look at leverage, you made a lot of news by saying, you know, we're capping people at 20 times leverage. That's a lot of leverage. She also pointed out that the average leverage on FTX was around 2x. So could you talk about the importance of leverage in volatility?

Thank you for the question, Congressman. The first thing that I'll say is in cryptocurrencies, in digital assets, as like essentially every other financial asset in the world, more volume trades through futures contracts than through the spot asset. The reason for this is basically it's more economically efficient. It's much more capital efficient. The lack of an immediate delivery requirement on the physical creates a much easier ability for people to hedge exposure, for people to express opinions. And so for all those reasons, You know, I think that they are an important part of the digital asset ecosystem, as they are of every other ecosystem. I'll just briefly say it's important to have robust risk engines that monitor the positions on these assets. We've gone through multiple very large up and down moves and been able to manage positions both times.

Brooks does hit a home run every time.

Thanks again for the hearing. I feel like I've spoken to Steve Case in like 1990. So thanks for the vision that you guys have and thanks for the hearing, Madam Chair.

You're welcome. The gentleman from New York, Mr. Torres, is now recognized for 5 minutes.

Thank you, Madam Chair. So I represent the South Bronx, which is often said to be the poorest congressional district in America. And of greatest concern to me are the use cases of crypto that would improve the lives of the people of the South Bronx. I represent a heavy population of immigrants who often pay predatory fees in order to send remittances to their loved ones abroad. So what can crypto, blockchain, Web3 do for that Dominican immigrant in the South Bronx who is burdened by remittance fees that she cannot afford? How much more affordably and quickly can the crypto economy facilitate remittances? Mr. Cascarelli, if you could take that question and please be specific.

Yes, thank you for the question. I think this is a really important element of the technology. Which, again, is that it's open to anybody. You don't need to have a bank account. You don't need to, in fact, rely on any intermediary. So somebody who's an immigrant and wants to send remittance to a family member in another country is able to do that. And there are ways to do it with both crypto and to do it with a stablecoin. And all you need to do is download a wallet, and then you can send it to somebody else anywhere in the world. And so this is a really powerful tool for democratization of access, especially for those who have difficulty getting bank accounts. There's no minimum fees. There's no minimum balances. There's no check cashing fees that are part of this technology. And you can do it, in some cases, for a penny or less.

And how much quicker?

Well, this is an important point. Blockchains, part of the beauty of them is that they're operating 24 hours, 7 days a week, 365 days a year. So it can be sent just about instantaneously. There's no multi-day lags that you have right now, and that change in the speed is just crucial because usually it's these lags that really are very costly.

I'm going to interject. Mr. Brooks, I have a question about the challenge of enforcing laws in a world of decentralization, whether it be law enforcement relating to financial crimes or SEC disclosure. How exactly do you enforce the law when there is no central entity against which to enforce the law? How do we grapple with that challenge?

That is a great question, Mr. Torres. I really appreciate you asking it. So I'd say a couple things about it. First of all, to the extent that some of the activity we're talking about is parallel to activity that happens in the supervised system, my question is, why don't we allow it in the supervised system? Again, you've heard me say it before this morning, but you have on this panel a big stablecoin issuer who's applied for a bank charter. It doesn't look like they're going to get it. Easiest way to supervise that would be to let them in the banking system and have the OCC have authority over them. So, I'd start with that. The second point is lots of these decentralization protocols are designed to solve the exact problems that create the need for enforcement in the first place, because most enforcement in the securities and banking system is about some combination of human error, human negligence, human greed, or human bias. And the point of some of these decentralized systems is to take that out and have an open-source piece of software everybody can look at and do those things algorithmically So, as an example, I used to sit on a bank credit committee. We would decide who got credit and who didn't. And I think we had a really good system for it, but we were human beings. We might have been indulging in implicit bias. We might have made mistakes. Algorithms don't do that. So, some of the need for what you're talking about goes away in a decentralized system.

And I know there are, you know, there are critics who have said that the blockchain might not be as secure and as unhackable as advertised. But for me, the proper question is not whether the blockchain is perfectly secure and unhackable. The question is whether it's better than everything else. Like Winston Churchill famously said, democracy is the worst form of government with the exception of everything else. Is there a computer network that is more secure than the blockchain?

Yes, Hashgraph.

Well, I think the beauty of the blockchain is not that it's perfectly secure, it's that it's perfectly transparent. So you can see when somebody's screwed around.

But I want to specifically address security. Is there a computer network, to your knowledge, that is more secure than the blockchain?

Yes, Hashgraph technology.

I don't know of one, but we have a PhD in physics sitting right next to me, so we'll let him answer.

If you're talking about any major globally used blockchain, I don't know of one. There are small blockchains that are less secure. All the major ones are incredibly secure.

Okay, how about Hashgraph? That's not blockchain technology.

Is that that it would present a challenge to the supremacy of the US dollar as the world's reserve currency. But what I have found striking is that the leading stablecoin issuers have actually chosen to peg their stablecoins to the dollar, which strikes me as a vote of confidence that reinforces rather than challenges the status of the dollar as the world's reserve currency. So what are your thoughts on the relationship between the dollar and the crypto? Is it, is it as contradictory as many feared, or could it be actually complementary?

I'll answer that. I actually don't think that it's contradictory at all. What people want is a US dollar bank account. Everywhere in the world, people want to be able to have US dollars. And actually, that's the hardest thing to get. And crypto is a tool for a lot of different things, including bringing communities together. But what people want in order for their everyday spending, it's dollars. If you're in Argentina, you want dollars. If you're somebody anywhere in the world, You want to have access to dollars, and that's the hardest thing to get access to right now. And that's why tokenized dollars is so valuable, because you don't need to have a bank account, yet you can have access to the dollar-based system. And then very, very important tool for inclusion.

Man, that was a weird question by him.

The gentleman's time has expired. I like that question from Michigan. Mr. Heisinger is now recognized for 5 minutes.

Uh, uh, Thank you, Madam Chair, and my apologies to the panel. I had to leave to manage a bill on the House floor dealing with a very exciting issue of LIBOR. Thank you.

You're welcome.

We're getting there, Madam Chair. But to my colleague from New York, I do want to point out that this isn't quite the same, but the same idea exists. Committee Republicans released a CBDC, a central bank digital currency currency principles recently, and of those, we had said in this, as one of those principles, is we need to make sure that the private sector leads the way, but we need to ensure that the U.S. dollar remains the preeminent currency. And so that is a common goal, certainly, and we've been very aggressive in trying to lay that out. Um, I've got a short amount of time. I'm gonna try and go through as quickly as possible, uh, and I'm gonna peek around my colleague from West Virginia here.

Yes, this is bullish, by the way. Uh, so far this is all bullish.

Bankman-Fried, real quickly, all bullish. Um, and again, I apologize, I'm not trying to replow ground that has already been, uh—

I have been wrong so far on thinking it's coming back.

Various levels and types of regulators, do you currently engage with? Because I know you are worldwide. You've indicated that you have multiple regulators that you currently work with. I'm curious if you can even peg that number.

Yeah. So, I mean, there are dozens, probably soon hundreds worldwide that we're engaging with. And, you know, that includes all across Europe, all across Asia. And then, you know, within the United States, we're engaging with state money transmitter money service business licensure. We have a CFTC license. For derivatives. We're engaging with the SEC. And, you know, I anticipate more agencies getting involved soon as well.

Well, yes. And I want to make sure that, that we are not overregulating that one. I'm sure it has cost you an untold amount of money so far, and I'm sure everyone has been dealing with that. But I also want to make sure— and no offense to any of you— I want to make sure that there are others who are going to be able to enter that space and that they are not, not being blocked out out, and that there is an artificial barrier to entry that is going to allow others to do, frankly, what you all did, which was be innovative and supply a product to, uh, to people who are looking for that product. Um, I'm gonna have to move really quickly. I'm going to go to Mr. Brooks on a couple of things. Um, would you describe why establishing these clear rules of the road is important before we— an important step before we, uh, add additional regulation and, and consider that regulation?

Well, Mr. Heisinger, it's good to see you again. I think the most important reason of many is international competitiveness. So other countries make this easier. Okay, let me just make clear, other companies make this easier, other countries. I just came yesterday from the Middle East where in Dubai and Abu Dhabi they have super clear derivatives regulations, super clear ETF regulation. They're trying to lure Americans over there to build these products and they're moving there.

So how are they viewing these crypto assets differently than traditional assets? I mean, what, what have they— what, what Rubicon have they crossed that, that, that we haven't? And, you know, why is it important to think about digital assets differently?

Well, I think one of the things that they've figured out is that crypto actually is less fundamentally different than equities and debt than you think it is. It's a risk-on asset that people want to invest in. They want to invest it in Canada, so Canada builds a regime for it. They want to do it in Germany, Germany— it's— we're the last country standing that hasn't figured that out.

Wow.

Yeah, it's a risk-on asset that people want exposure to as part of asset diversification, as opposed to traditional assets. Correct.

Okay.

Um, okay, uh, I've got minute left here. So, uh, Ms. Haas, if you indicated in your testimony that, quote, every asset listed on Coinbase platform is subject to rigorous legal compliance and security review, close quote, could you provide us specific details on, uh, on what Coinbase's process has been to be able to make that type of statement?

Thank you for the question. Yes, so specifically for the legal review, we assess We assess each asset under the Howey Test where we, as Brian Brooks spoke about earlier, through the Crypto Ratings Council have established a framework where we look at the risk factors and we determine whether or not it meets characteristics of the Howey Test. It's a risk-based assessment. It is not a black and white test. But based on our assessment, we believe it's lower risk that these are securities and before we list them on our platform. We separately do a compliance review. Our compliance review includes looking at the developers of the token, ensuring they're not on an OFAC sanctions list. We look at to make sure it's not a scam, that there's actual people using this coin, that it was developed in sound manners. And then we look at a security review to understand the underlying code, to say, can we provide custody for this? Is this at heightened risk of an attack or someone pulling the value from these assets? So it's security, legal, and compliance before we list an asset.

Okay.

And I'm hoping that the chair will grant me leave for my LIBOR work work, to just end with a closing statement as my time is up here.

Uh, it's—

a number of you have brought up the unbanked and underbanked, and despite rhetoric that gets thrown around, all of us on this committee are very concerned about it. I happen to represent the second poorest county in the state of Michigan, which is in the top 100 poorest counties in the nation, and I understand what it means for these unbanked and underbanked folks to be involved in process. What I want to make sure is what we do, not just here today but in the future— we tend to be lag indicators at the government level and with regulators rather than on that front end. Oh, definitely. And I'm hoping that we do nothing to harm their opportunity to engage in the process. With that, I yield back.

Thank you very much, and thank you for live work. Um, the gentleman from Florida, Mr. Lawson, is now recognized for 5 minutes.

Uh, thank you, Madam Chair, and, uh, and Ranking Member Henry. Uh, this is a very extraordinary meeting, and I would like to, again, as everyone else, welcome, uh, all our people who are testifying today, uh, to, uh, uh, this committee, which is very important.

I'm not sure—

probably it would take me a long time to, uh, understand what all we mean by cryptocurrency. And I just heard some testimony stating that how we lag behind all other countries in making changes. And this is to everyone. My colleagues, Representative Soto and myself, and 8 other members of Congress led a letter to leadership addressing the digital assets provisions that expand the definition of broker under Section 6045(c)(1) of the Internal Revenue Code in 1986. To include any person who, for consideration, is responsible for the regular provision and service of effectively transfer of digital assets on behalf of another person. As drafted, the provision would include miners and other validators, as well as software and hardware wallet makers who do not engage in trading activities and are beyond the scope broker services. What are your thoughts on this provision? Do you think this is a good tax policy, requiring non-brokers to report on transactions for people who are not even their customer? Why or why not? And this is to the whole committee.

Well, maybe I can jump in there, Congressman. It's Brian Brooks speaking here just for a moment. I, I've said many times that that language would be sort of like requiring YouTube to get an FCC broadcast license because they're a person engaged in distributing television content. I think what we need to recognize is there's a difference between centralized exchanges— you have two of the biggest ones represented here who all agree that they should be engaged in tax reporting, and they do that— versus decentralized algorithms where there is no company involved in the transactions at all, and there's no one well situated to provide that kind of tax reporting. So that distinction is, I think, super clear. The technology has enabled people to transact peer-to-peer with no intermediary. So who is it that we're asking to do the tax reporting in that context?

Anyone else would like to speak on that?

Yeah, just one. This is, um, Danielle Dixon from the Stellar Development Foundation. One of the, the issues that I think that is a problem with this is that it may seek to require these entities that actually don't have access to any personal information.

She is from Stellar XLM, by the way.

They're actually just validating the transaction and don't know who those individuals are that are on the other side of it, it might require them to gain access to that information, which is exactly what I think many of you and us do not want.

Anyone else before I go to the next question? Well, this question is for Miss— I hope I pronounce this right— Ms. Haas. Does Coinbase have multiple lines of business? Have multiple lines of business? How each line of business segregated and ring-fenced from one another to a confidential information is not improperly used, where confident confidential information not improperly used.

Thank you for the question. Coinbase does have multiple products. In many cases, we consider our products a product family where we're serving one customer, and the customer benefits by having those products products within one application. So for example, we provide custodial services, which is in, for all intents and purposes, a wallet where they can hold their crypto assets. But then integrated with that is the ability to trade out of that account and then to settle new assets back into that account. So those are different products to be able to store versus be able to buy or sell, but they're integrated products. Those we have within one legal entity. As an example, they are offered as one product family. That is different from when we offer products such as our Coinbase Cloud offering, where we're using our technology to allow others to build in the crypto economy. That data is 100% ring-fenced, not allowed through any of our other products. And we do segregate data. We have different engineers, we have different legal entities, and provide a lot of protection. So it depends on the product that you're speaking about, Congressman, and some we share and some are very much ring-fenced.

Okay, real quick, another question. Do withdrawal fees apply to taking crypto off the platform, what fees apply? How are these fees calculated?

No, we do not charge any fees to withdraw crypto from our platform.

Why is that a question?

Madam Chair, I yield back.

Thank you. The gentleman from Arkansas, Mr. Hill, is recognized for 5 minutes.

Make sure y'all subscribe to the channel as well. We could hit 100K right now.

I would love that. Productive hearing. Good morning and the good questions from both sides of the aisle, and appreciate the panel being here. Let me start with Mr. Brooks. You've had some good comments about the presidential working group on whether stablecoins should be banks or not, but on the issue of the wallet, what should members of Congress be concerned about in sort of that regulatory umbrella of any individual people's wallet? You anticipate really tens of thousands of wallet providers, or hundreds, or— and I know in the working group they suggested it too should be a bank, or I assume connected to a bank. So is that really necessary? And talk to me about wallets for our consumers to have access.

Yeah, Congressman Hill, thank you for that question. That, that is an important one, and I I think, as I said earlier, the ability of people to self-custody their own assets and to send them directly without using an intermediary is at the core of what we're trying to build. So if we made it so that wallets had to be hosted by a bank or some other regular institution, you know, we already have that. We already have banks, and that'll take time.

I'm in committee. How things going? I said I'm in committee. How things are going?

Uh, Mr. Lawson, what the heck was that?

There does need to be continued innovation and clarity on behalf of many banks about what is permissible activities for them. And the banks that we partner with and speak about their ability to offer crypto to their end customers are working with their various state and federal regulators to gain clarity about what would be permissible for them to offer to their end consumers.

Thank you. This is a big deal because having spent almost 4 decades in and out of that business, banks are gun-shy about their regulatory burden as as Mr. Brooks certainly knows, and being cleared for that IT exam or their new product review exam at their board level is really not something that bank boards want to be surprised about in this arena. Mr. Kaskerla, on Paxos, you have a view on that, on partnering with banks?

Yes. As maybe some members know, we have a number of partnerships with banks, and they work with us today. I think we're an infrastructure provider. So, for us, banks are an important customer set. I think that they're trying to upgrade their infrastructure to be able to adapt to this new technology. There's a recognition that the way the current financial system is working today is not really adapting to the 21st century needs of a digital economy. And so, I think that there are important ways in which The current financial system can upgrade itself. Traditional assets can now move on blockchains—dollars, gold, securities—and it's not just about crypto, which, as exciting as it is, is only one piece of this broader transformation that's happening. Thanks.

What one regulatory issue would be important to you at that community bank level? And if you would respond to me in writing, thank you.

I yield back. Thank you. The gentleman from Illinois, Mr. Foster. Mr. Mason Versluis, who is also the chair of the Task Force on Artificial Intelligence, is now recognized for 5 minutes.

Thank you, Madam Chair, and to our witnesses. I'd like to focus on what I think is the crucial importance of having a secure digital identity for crypto asset transactions.

First, regarding controlled anonymity for prevention of criminal activities, it seems to me that if we wish to prevent crypto assets from being used, for example, for ransomware or other criminal is a powerful argument in favor of having harmonized regulatory and market frameworks, in particular between different asset classes, where if you end up with a different regulatory framework for the market's regulation of Bitcoin, Bitcoin derivatives, stablecoins, stablecoin derivatives, you know, Ethereum, Ethereum derivatives, and other assets, you end up making it not just riskier and harder and more annoying for the user to access and more overhead for the industry, but you make it hard to have consistent regulatory oversight of a fractured regime.

No, I agree completely. Look, I have been lurking in the deep weeds for over a decade and trying to get this split inside Congress and between the SEC and CFTC. It just, you know, this is not something anyone would have created. But have you had that discussion with— yeah, a number of you expressed enthusiasm for having single unified national regulator. Have you run that past the Ag Committee? No, look, I know the answer to that. I mean, this is one of the original sins of Congress as it's constituted, and financial services have been suffering from it for a while. Now, in terms of tax payments, it seems to me that if there was simply the requirement for any any digitally traded asset to be associated with a pseudonymized, basically a tax ID, that you have an API provided by the government that says, I want to— give me a pseudonymous tax ID, and that that be put publicly on the blockchain, then, and that that blockchain be listed with the tax authorities, that then the tax authorities could just run a piece of software and calculate how much tax everyone sold. It seems like that's a very lightweight requirement even on a startup in this business. Is there anything wrong with that concept?

Congressman Foster, I think you've raised a number of really critical issues here around identity and the importance of that for law enforcement and transparency and auditability. I think it's a critical area. I think there's some critical things that have to be balanced, of course. I think most of us would agree, I hope, that privacy, security, limiting the leakage of personal identifiable information in data breaches, these are real challenges. Blockchains provide a very powerful way to have assured data. They also provide auditability and transparency. And so there's actually a risk of if you connect too much personal identifiable information to these that that could be abused.

And so I think the only personal identifier is a pseudonymous— you can cryptographically inspect it, make sure it's valid, issued by, you know, whatever government you claim to be domiciled in has issued this, and then that's all you need to know. So I would agree with that.

I think really a critical next step for this industry are digital identity standards that allow using cryptographic proofs, using using crypto technology itself to prove that someone has been KYC'd, prove that someone— I agree. And yeah, this is a—

we have legislation on that subject. And thank you. And I was—

of course, I yield back.

Thank you, Christina.

The gentleman from Minnesota, Mr. Emmer, is now recognized for 5 minutes.

Thank you, Chairwoman Waters, and thanks to our witnesses for joining us today. Congress really needs to better understand the great opportunities that your businesses are bringing to this country. Mr. Bankman-Fried, I have several questions for you and would appreciate as much as you can quick answers so we can make the most of the time that we have. FTX US offers crypto commodity derivatives products such as futures and options contracts to provide these products in the United States. It's my understanding that FTX US has obtained at least 4 licenses from the CFTC, which you listed in your testimony. That's correct. Do you know, are there any additional licenses separate from those 4 listed in your testimony that are required by the CFTC for FTX US derivatives to be fully compliant with US derivatives regulation?

I do not believe so. I think that's correct.

And, uh, where does the price discovery sir, for your CFTC-regulated crypto commodity derivatives contracts primarily come from?

So, uh, there's a very large number of market participants that, um, you know, participate in those. There are hundreds of billions of dollars per day globally of volume, um, in similar products. And, uh, like other markets, you know, we don't choose that pricing. It's a market-based pricing that comes from, you know, a variety of liquidity buyers, market-making firms, individual users, and other people. Right.

And I mean, I'll note that for Bitcoin futures contracts that trade on the CME, which is a CFTC-regulated exchange, 100% of that pricing comes from 5 US crypto spot exchanges: Bitstamp, Coinbase, Gemini, itBit, and Kraken. We have seen disapproval letters from the SEC on multiple Bitcoin spot spot ETF applications. I don't know if you're aware of that. The Chair Gensler's justification for not allowing Bitcoin spot ETFs to trade is his belief that Bitcoin spot markets are, quote, vulnerable to fraud and manipulation. Now, it's my understanding that FTX uses surveillance trade technology akin to the technology securities exchanges use to protect investors and ensure sound spot markets. What does this technology and any other tools FTX uses to protect the spot market from fraud and manipulation look like?

Yeah, so, you know, like other exchanges, we do have these technologies in addition to the, you know, know your customer policies that we can identify individuals associated with trades. We have surveillance for unusual trading activity. We have manual inspections of anything that gets flagged either by the automated surveillance or by manual inspection. And we do this with the trading activity, with the deposits, the withdrawals, and everything else.

Sounds like you're doing a lot to make sure there is no fraud or other manipulation. I thank you, Mr. Bankman-Fried, again, for helping us understand the extensive guardrails a cryptocurrency exchange like FTX has in place to ensure sound crypto spot markets for investors. The SEC has approved several Bitcoin futures ETFs that get 100% of their pricing from US crypto spot markets. So I guess I'm left incredibly confused by how the SEC's concern over spot market vulnerability applies to Bitcoin spot ETFs when it doesn't apply to Bitcoin futures. ETFs. And by the way, this is not a partisan issue. I've been working closely with Darren Soto, our blockchain caucus co-chair, on this very issue. Why? Because the bottom line is that Americans deserve access to a wide, diverse range of investment products. They deserve to choose what investment vehicle they want to put their hard-earned money into. But the SEC is not providing Americans this choice when it comes to crypto commodity ETFs for reasons, again, that just don't make a lot of sense, especially after highlighting the extensive measures crypto exchanges take to protect their spot markets. Our strong crypto and Web3 markets have been, have been in the United States, have been giving the United States incredible capital market success. These markets are also teeing Americans up for incredible capital formation opportunities, but our regular regulators simply aren't capitalizing on the opportunity here. And it's my constituents and all of your constituents who are taking the hit because of this, and it must change. Just reading the script. Witnesses, for being here, I hope this is the first of many of these discussions we have as Congress tries to to put together a thoughtful, light-touch, uh, guide, guide framework for the industry.

Thank you. Just reading his script, man.

Thank you very much. We've been joined by Mr. Sherman from California, who's been on the floor working on his beloved bill on LIBOR. And obviously we're going to wrap this up after, you know, looking forward to voting for this bipartisan legislation. So this gentleman from California, who is also the chair of the Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets, is now recognized for 5 minutes. Crypto is many different things.

Cryptocurrency is an incredibly volatile investment that aspires to be a currency that might displace or at least compete with the dollar. A stablecoin aspires to be incredibly stable. And is tied to the dollar. What they share is a culture, a vibe, a stick-it-to-the-man moniker, a belief that somehow this is new and hip and an attack on the powers of society. But the fact is that the ad— that The advocates of crypto represent the powers in our society. The powers in our society on Wall Street and in Washington have spent millions and are trying to make billions or trillions in the crypto world. These include Goldman Sachs, JPMorgan, Visa, BlackRock, Citadel, Musk, and Zuckerberg, not to mention the CEOs that are before us here today. Everyone before us today is a crypto advocate. We will at some point hear from the crypto critics. We won't hear from CEOs. We'll hear from academics with their pencils and pens. Today we hear from the CEOs with their lobbyists, their PACs, and their power. And we wonder why we won't be able to protect investors. The regulators need to listen to this hearing very carefully. With all the money and power on one side, we will not be able to pass meaningful legislation. Don't cop out and say, well, you're not going to do anything until we pass meaningful legislation. And if you wonder about where the power is, Zuckerberg had to come here himself and sit there. Brian Armstrong sent his number two.

I can't answer the question. It depends on the product.

Okay. Are there products where I'd be right?

There is a product where you'd be right.

Okay. So I could lose $6 in 2 days. What about tether? Buy $100 worth of tether, 2 days later sell $100 worth of tether or sell the tether. Could I lose $6? Yes. Okay. Let's turn to Mr. What? It's a 2% charge. A 2% charge? I thought it would be a 3% charge. It's $2.99 last time I was on your site. No. Um, okay. Um, I'm looking at Coinbase fee, $2.99 on US TD. Uh, we'll put this in the record. In any case, many a to lose even 2%, let alone 3%, and then another 2 or 3% on the way out in scarcely a couple of days, that's well over 1,000% interest lost in that period of time. Mr. Allaire, is your reserves all in instruments that yield less than 0.1%?

Uh, that is correct. Then how do you pay 1% interest on some deposits? We don't pay interest on deposits.

Uh, and yet you have a deal with, uh, um, uh, oh, my time has expired.

Good, you're an L, buddy. Good, time expired.

Is recognized for 5 minutes.

Well, thank you, Madam Chair, and, uh, thank you for having this hearing. I think it's very intriguing. And, you know, very timely with where we are with the progression of technology.

Mr.

Loudermilk, my 30 years I spent in the IT field, had the government gotten in the way of the internet, we would still be using dial-up today to do a lot of what we're doing. So I think we have to proceed very cautiously. One thing I've learned in the 30 years in the IT sector, especially 10 years that I spent in the intelligence realm in the Air Force, is, uh, the, the most important aspect from an IT perspective is data security, cybersecurity. It's something we have to be focused on all the time. In fact, in my business, 20 years in the private sector, that was the number one issue for most of my customers. And really got to the point when I ran for Congress, of course I couldn't continue that business, I sold it, primarily because I knew that under the, the way things were, is it— the question wasn't if someone was going to be hacked and lose data, it was when. And so one of the things that I learned when I was in, in the military is one principle is you don't have to secure what you don't have. So if you don't need data, don't keep it. But then you have the aspect of, yes, we have to secure the data that we do need to keep. Now, this is one thing that the federal government has yet to learn is you don't need to acquire a whole lot of data and keep that data, especially if you're the federal government, which is the riskiest of anyone out there of, of letting data get out. And then you see more proposals like the one that we've heard recently with the craziest proposal is the banks have to report every transaction by Americans in their banks to the federal government. This is the type of thing that we don't need to be doing. However, there is data that is important that we do have, whether you're in the private sector, whether you're in public sector. And that's where I see the value of the underlying technology of cryptocurrency, particularly blockchain, is a solution to our cybersecurity problems because of the distributed ledger aspect of it, is the data is available but is not centrally located to where it could be taken. Mr. Brooks, um, can you discuss how blockchain and distributed ledger technology can enhance our cybersecurity posture?

Well, Mr. Laddermilk, it's good to see you, and I appreciate the question. The, um, the simplest answer, as I said earlier today, is that blockchains are as much about transparency as they are about security. So one of the biggest problems when you think about the biggest cyber hacks we've ever had in the United States is how long it took for us to figure out that they occurred. The case of Target, the case of Equifax, some of these We found out days and weeks later, by accident, that they occurred. And if you think about the Equifax hack in particular, initially we thought it was a small problem. Weeks later, we learned it was a medium-sized problem, and only months later did we learn it was a gigantic problem that involved all of our data, because there was no transparency. The thing about blockchains is every single block, as it is validated, is publicly visible to the network. The other thing about blockchain is it's based on a consensus mechanism. So before you can have a change to the ledger, you have to have a significant majority of all of the validators agree that that's the correct change. And so unlike normal networks where one bad guy can defeat the entire system, here you have to have thousands of computers agreeing at the same time that the change can be made, and even then everyone sees it. That hiding in plain sight aspect is the safest thing about blockchain. That's why it's so critical to our security infrastructure.

And I think that's one of the most key values of this emerging technology, is bringing us into a new era where we can do some of the things that we need to do without amassing this data. Another area I've been interested in is, is really with payments, and I've done some work on a related issue with the CFPB's regulation of remittance transfer. So, Miss Dixon, I understand that your organization is active in that space. Can you describe how blockchain and DLT are being used to facilitate payments?

Yeah, thank you for the question. This is one of my favorite topics because it's something that actually is defining the use case that's happening today. I think that there are businesses that transact on the network. They can actually have— they can go from the interoperability with the traditional financial system is remarkable. You can actually take money from a bank account, put it in a digital asset, transfer that value to another, to the end, wherever it's being used. Sent, and then it can convert right back into a bank account. The fact that you have such, such complete interoperability with the existing finance— financial infrastructure should give us all the ability to take like excitement about elevating that technology to the right level so that we continue to innovate there. So payments are something that are constantly being leveraged on the Stellar network. They're done with business payments. They're also done with remittances from the personal standpoint. When you live in California, for example, and you want to send money to your family in another country, you can do so in 3 to 5 seconds and 100,000 transactions for less than a penny on the Stellar network.

She's just promoting Stellar.

Oh my goodness. And this is what can happen if we let— if government doesn't get in the way of the development of technologies that benefit the individual. And so there are several other questions I have, but I see my time has, uh, has expired.

—LauterMilk has expired. The LauterMilk's time has expired.

From Iowa, Ms. Acne, who is also the vice chair of the Subcommittee on Housing, Community Development Insurance, is now recognized for 5 minutes.

Thank you, Madam Chair, and thank you all for being here. Mr. Bankman-Fried, I'd like to start by asking you the first question. FTX US has a derivatives platform and recently bought LedgerX as part of that. Is that correct? Yes. Okay. Thank you. And that platform is registered with the CFTC. Is that correct? Yep. Okay, perfect. So I just want to clarify something, and this isn't to say anybody's doing any wrong. It's just to get the lay of the land. You also have an exchange for Bitcoin and other tokens, but that is not registered with either the CFTC or the SEC. Is that correct? That's correct.

Currently, neither of them are primary markets regulators for spot Bitcoin to USD markets.

Okay, thank you. And, and I know you're registered as a money transmitter, but that's not the same kind of oversight that we'll see from a federal market regulator. I also sit on the Agriculture Committee, which oversees the CFTC, so a gap like this is especially concerning to me. And the big problem that I see here, from what I understand, is that the CFTC doesn't have regulatory authority for spot trading of commodities, just their derivatives. So that leaves consumers with inconsistent protections, which is a concern that I have. So, Mr. Bankman-Fried, you and both Ms. Haas run exchanges, but the investor protections basically can be whatever the companies separately come up with, and they won't necessarily be the same. Is that correct?

I completely agree with your worry. We do, in fact, have much the same investor protections on our spot markets. As on our derivatives markets. But I would be very much supportive of a similar regime for spot commodities markets like Bitcoin USD markets as we see for the derivatives markets.

Oh, very good.

Thank you. Okay, so when it comes to oversight, a couple more questions here. Do you report your full order history publicly, um, either you, Mr. Bankman-Fried, or Ms. Haas? And are there public standards for that to make sure it's accurate?

We do report all of our public market data. It's available on our website, available via our API. We do not charge anyone anything for it and never intend to. I would be supportive of that becoming more than just a norm, but a regulatory standard as well.

We also— we also make all of our data available and we do not charge for our data. It's available to our customers.

And is that order history public as well? Yes, it is. Okay, thank you. So I just want to make sure I'm clear on this. Bitcoin, which has almost $1 trillion invested in it, has CFTC oversight for people to, you know, who are trading futures and options, but not for people who are trading the currency itself. Is that right?

Uh, that is essentially correct. Okay, okay.

So that kind of difference in protections is really what I want to focus on here. I'm not, you know, here to tell anyone what they should or shouldn't buy, that they should have crypto or not have crypto. I think there's, you know, pros and cons. And certainly I've had plenty of conversations with my own son who wants to get into crypto. But I'll tell you what, what I care about is that when folks do, I want to make sure that they're protected and they've got the same investor protections that they would for other forms of currency. So I'm asking, can you as an industry industry, and it sounds like it seems like you can benefit long term from having more regulation that sets better standards to protect investors in this area.

Yeah, I absolutely think so. And I think it's, you know, I'm not concerned about more regulation. I think getting consumer protection in areas where there is not currently enough can be extremely helpful for a robust ecosystem. I think it's just important to do so in a way that fits the product and in a way that fits the regulators as they are.

Okay. Thank you for that. And listen, I agree. I think it's something that we absolutely need to look at. And I would certainly ask all of you to think about the steps that you can take within your own organizations to make crypto more safe and trustworthy for investors. But I completely agree with you that we've got to be doing something to make sure that we're protecting investors. There are things that you as exchanges have that, you know, that you have to help industry long term. You mentioned that you think we could do some of these regulations and they'd be good for the long-term growth. What do you think that could do to help you build trust and trust for folks in general for cryptocurrency?

And I will say that, you know, we've had conversations with a very large number of institutional players, you know, everyone from banks, investment banks, pension funds, and this is the number one thing that comes up is what is the regulatory framework for the industry? How can we feel that we are protected both from a commercial standpoint but also from a regulatory standpoint in pursuing these options for our investors? And I think it could be extremely helpful, you know, to clarify the regulatory frameworks, to build them out where they are missing, and to make sure that we have streamlined and uniform standards that are clearly communicated.

Thank you so much for that. I'd love to make sure that crypto is safer and more trustworthy for investors. I yield back.

Thank you very much. The gentleman from West Virginia, Mr. Mooney, is now recognized for 5 minutes. Thank you, Madam Chair.

Certainly thankful to the witnesses for being here. Appreciate your expertise as we all learn more about the growing digital currency issue.

Mr. Mooney, are we serious?

Cuban government announced their central bank would work on rules to officially recognize digital currencies. So I'm wondering whether the country's recent embrace of crypto could be a way for the communist regime to evade tough U.S. sanctions. So let's start with Mr. Bankman-Fried. What process does FTX use to ensure that rogue and frankly murderous autocratic regimes like Cuba cannot use an exchange to evade United States sanctions?

Uh, we run sanctions checks on all of our users. We conduct, uh, know your customer surveillance on them. In addition to that, we conduct surveillance on the blockchain and fiat assets that transfer into and out of our system.

Okay, thank you. Uh, wanted to ask Mrs. Haas— Miss Haas the same question, propose the same question to you as it relates to Coinbase.

Largely same answer. We similarly run OFAC on all of our customers, both on onboarding and then ongoing. We believe that sanctions are an effective tool of the U.S. government in combating illegal activity. In addition to our onboarding controls, we do transaction monitoring. We do surveillance on all of our transactions on our platform, but also have tools that are looking across the industry, looking— and we partner with law enforcement on investigations.

Okay. So, second question, uh, let me set it up for you. One of the ways that bad actors or rogue states could try to fool exchanges is by using technology like VPN that spoof IP addresses, fooling others into thinking that they're in a different location. So let's go with Mr. Brooks on this one. Can you speak to the importance of moving away from IP addresses to verify location? And follow-up to that, what is an alternative way of verifying location?

Well, um, a couple of quick answers. So on the compliance side, I think The use of VPNs to avoid geolocation and to avoid sort of geofencing is something that 3 years ago was effective and useful, and the industry has developed lots of technologies that make that much, much harder today. So, you know, some of these decentralized tools, several of the companies have been mentioned already, Chainalysis, Elliptic, and some others, have an ability to actually trace IP addresses based on probabilistic sort of network information. So it's not just that that IP address might have been issued by an ISP in a given jurisdiction. It's also that that IP address is associated with lots of other transactions that could only be Cuba or could only be Libya or whatever. And the probability assessment is one of the things that makes this much easier. That's why the network is so important.

Okay. Well, thank you. I referenced Cuba. The Cuban government's continued tyranny is personal for me and my family. My mother fled communist Cuba when she was 20 years old to come to the United States. She even recently wrote a book about the horrific experiences in the aftermath of the revolution there, including her time as a political prisoner in the Castro regime. And the Marxist Cuban government cannot be allowed to continue to oppress the Cuban people. Former President Trump's tough sanctions restricted— restrict access to resources for Cuba's rogue government. And I want to work with the members of this panel to ensure that the digital marketplace does not enable the communist Cuban regime or other bad countries around the world who hate us and, and kill their own people and are tyrannical.

Somebody said, when will this end?

I'll share that goal. I don't know. There are those who think that that's a role for the federal government to come in and issue a whole set of regulations because you can't do it yourselves. But I think it's better if we work with you, and if you can do it yourselves, better than the federal government. That might be the answer. So thank you, Madam Chair, and I yield back the balance of my time.

Thank you. The gentleman from New York, Mr. Gottheimer, who is also the vice chair of the Subcommittee on National Security, International Development, and Monetary Policy, is now recognized for 5 minutes.

Thank you, Madam Chairwoman, and thank you for all our panelists for being here today. Very grateful. If I can start with Mr. Bankman-Fried. First, please. From my role on the National Security Subcommittee on Financial Services, I'm committed to ensuring bad actors like terrorists and drug dealers cannot access the financial services sector for purposes contrary to U.S. interests. And while obviously I support cryptocurrency and its potential benefits in the digital payments space, one area that's particularly concerning for me, the theft of cryptocurrency The page has timed out.

Hold on.

What the hell?

These issues are also good insofar as stolen funds may be used for nefarious purposes. I introduced my bill, H.R. 3685, the Hamas International Financing Prevention Act, in part because of the increased reporting around the use of cryptocurrency donations to support Hamas. Two questions, if you don't mind. First, what are exchanges doing today to both ensure that consumers are protected from hacking and theft and to prevent bad actors such as Hamas and other terrorist organizations from accessing cryptocurrency markets? And in what context to— well, what context would you flag a transaction to law enforcement? And have you ever flagged transactions for law enforcement agencies?

Yeah. So I guess I'll first briefly talk about the security aspect of this, about stopping breaches to accounts where we mandate that all users have two-factor authentication for all of their accounts. We have a very broad suite of security practices that all users can access on the site. In addition to all the know your customer policies on the bad actor side, you know, we conduct KYC surveillance on all users of the exchange. We do that on all deposits and withdrawals using multiple tools on the blockchain and for fiat currencies. And, you know, to address, I think, your question about law enforcement, we work cooperatively with law enforcement here in the United States and globally on, you know, tracking down any bad actors. We are in constant communication. We strive to be as helpful as we can be. The combination of the know-your-customer surveillance that we do, plus the transparency of the public ledgers of blockchains, actually can make it a really powerful tool for tracking down any funds from illicit activity. We've used that. We have been, you know, participating in freezing a substantial amount of assets on our platform in cooperation with law enforcement. And, you know, look forward to continuing to work with them globally. Somebody said this is dragging on.

I agree. We're going to, we're going to summary it at the end, though.

The president's working group's recent paper on stablecoins included a recommendation that all stablecoin issuers be required to become insured depository institutions such as banks. I understand that Circle has stated that it intends to become a bank, but currently backs the USDC in circulation one-to-one with reserves held at partner banks. I'm working on a bill that could potentially implement a number of these recommendations. If I can ask, do you think it is necessary for safety and soundness for stablecoin issuers to themselves be insured depository institutions, or is partnering with insured depository institutions sufficient? And what are the pros and cons of each model, please? Thank you for the question, Congressman.

Um, I think it's a very important issue. As noted, we have decided to pursue a national bank charter and are open to being an FDIC-insured bank as well. I think it— however, there's some subtlety in this topic, and I think it's important for the committee to consider it. A full-reserve digital currency model such as USDC, where 100% of the assets are fully reserved in high-quality liquid assets such as cash and short-duration U.S. Treasuries is not the same as a bank deposit where the bank is in turn taking the deposit and rehypothecating it and lending it. And really the purpose of FDIC insurance is for that fractional reserve lending that takes place. And so I think the real question in our minds is I think it can be really powerful for a stablecoin issuer to have a federal bank charter. To be able to access the Fed and hold cash at the Fed in terms of the ultimate form of, of safety and soundness for those cash assets, but not necessarily being lending banks that are rehypothecating capital. The form of insurance perhaps could be investigated. I know that the FDIC itself has been thinking about what are potential appropriate forms of insurance on stablecoin issuers, and so I think it's a live issue. But just applying the kind of apples-to-apples model on a full-reserve banking model, I think, does raise some questions. So I think ultimately, coming back to your question, I think that, you know, statutes in the United States should support stablecoin issuers that are operating at a state level, at a federal level, and support money services businesses as well as banks being active participants in the stablecoin ecosystem. And I I think it's important that the barrier to entry in the stablecoin space not be so high that startups that are innovating as money services businesses can't participate in this innovation.

Thank you so much, and I yield back.

Thank you. The gentleman from North Carolina, Mr. Budd, is now recognized for 5 minutes.

I thank the Chair. The United States has a huge opportunity with crypto.