this is such a high priority for the president, secretary of state. and every day we are focused on everything we can do to solve each of these problems case by case. they are all different and different strategies and we are determined and determined as well to create a norm so that someday this does not continue to happen. mr. rezaian: thank you for all joining today. to learn more go [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. visit ncicap.org] [captions copyright national cable satellite corp. 2022] >> coming up tonight at 8:00 eastern, a discussion with democratic and g.o.p. pollsters on this year's midterm elections. hosted by the dole institute of politics at the university of kansas, you can see it tonight at 8:00 eastern here on c-span. >> next, an oversight hearing on the cryptocurrency industry with

the chair of the commodity futures trading commission. we'll hear about the provisions in the bipartisan digital commodities consumer protection bill. the senate agriculture committee is chaired by debbie stabenow of michigan. sen. stabenow: good morning. call this hearing to order on the senate committee of agriculture, nutrition. so pleased to see all of our colleagues here for this really important hearing and discussion. we're here today because of rapidly increasing number of americans are investing in cryptocurrencies. yet there's no federal oversight over the tokens that make up the majority of this market. and just as quickly as theses ets have risen in popularity, we

have seen their value drop. as a result, hardworking americans have lost billions of dollars. dollars they use to spare their -- to support their families, keep roofs over their head and nestle away for hard-earned retirement. in the past months alone numerous companies have gone bankrupt and the value of some widely traded coins has dwindled to cents on the dollar. meanwhile, 1.9 billion dollars worth of cryptocurrency was stolen in the first seven months of this year alone. up 60% from this time last year. at the same time it's important to recognize that cryptocurrencies and block chain technology offer an alternative to using large financial institutions. 1/3 of americans who have bought or traded crypto learned less than $60,000 a year. some of whom lack trust in these institutions or find them too costly.

they simply cannot afford, though, to lose their savings because of a lack of guard rails in these markets. and that's where we come in. in our responsibility. as overseen federal regulators. we need to have clear, consistent rules of the road that allow good actors to innovate and grow while first and foremost keeping customers safe. as the committee with oversight over one of our nation's true market regulators, it's our job to ensure that we bring the necessary protections to this marketplace. together with my partner, senator boozman, and our colleagues, we have introduced the digital commodities customer protection act. this bill gives the commodity futures trading commission oversight over digital assets that act like commodities.

such as bitcoin and either that currently have -- ether that currently have no federal oversight. this is a glaring hole in our financial system and i believe we must close it. our bipartisan bill will require that all digital commodity platforms register with the cftc. it will set a uniform national standard and allow the cftc to catch fraud before it happens. as its name suggests, our bill is focused on consumer protection. it will require that platforms segregate and safeguard customer assets, hold sufficient capital and abide by rigorous cybersecurity standards. it will eliminate many of the conflicts of interest in this market. and it will mandate that platforms speak truthfully about the risks of trading digital commodities and don't engage in misleading advertising.

the cftc is the right regulator for the job. congress gave the agency oversight over the market in dodd-frank and it responded by setting the global standard. our nation's derivative markets have been a main stay for our producers during recent supply chain disruptions and elevated commodity prices. we'll hear today from chairman behnam shortly about how the cftc has been a leader in policing the crypto markets for fraud and abuse. and this week we received a letter from former republican cftc chairman, christopher giancarlo, expressing his support for the bipartisan bill. and, without objection, i would enter this into the record. so ordered. this bill also gives the agency additional resources to get this job done right. which is so important.

finally, it recognizes that other financial agencies have critical roles to play in regulating digital assets, also important. i'm pleased to see chairman's recent comments about how the cftc and s.e.c. can work together to make this market work, just as we did in putting together dodd-frank. and we've had productive discussions with s.e.c. staff about the bill, which we appreciate and will continue. as president biden has recognized, this is a big responsibility with a lot at stake. and it's going to take all of us at the table working together. at our table today will be some of the brightest leaders in this space. and i look forward to hearing from each of you on how we can continue to bring transparency and accountability to this marketplace. while still enabling the innovation that makes this

technology so promising. i'd like to turn now to my colleague and partner, senator boozman, for his opening remarks. sen. boozman: thank you so much, madam chair. it's great to be with you today as we examine s. 4760, the digital commodities consumer protection act. this bill, which i'm proud to co-sponsor, with the chairwoman, as well as senators thaoupb and booker, will -- thune and booker, will bring much-needed regulatory certainty to the growing digital commodity ecosystem. as this industry continues to grow, questions remain about the proper role of federal regulators will play. i believe regulation must ensure market integrity and consumer protection while also fostering an environment that encouraging innovation -- that encourages innovation. i believe our bill gives the cftc the authority to do just those things. currently the digital asset spotter cash markets are subject to a patchwork of regulations at the state and the federal level.

this is simply inadequate for market structure and consumer protection perspectives. it's without question that digital commodities and related technologies will continue to play an important role in the global economy for decades to come. as a result now's the time to provide regulatory certainty to the market and create a framework that makes sense from both a domestic and an international perspective. it's imperative that both congress and regulators work with industry and consumer advocates to ensure the laws and regulations for market participants are created through a transparent process that results in a clearly understood set of rules. anything less hurts everyone. regulation by enforcement without any meaningful engagement with market participants is no way to police the industry. it's unfair to stakeholders who operate in good faith, but are then punished because they haven't been given clear rules

of the road. ultimately this committee's goal is to establish a framework that allows industry to innovate and grow while providing the cftc the resources necessary to write and enforce rules that protect consumers and provide retail participants the ability to fully understand the functions of the commodities they are buying and selling. i hope today's hearings provide an opportunity for both chairman behnam and our esteemed panel of stakeholders to weigh in on the most important features of our bill, including constructive recommendations to improve the bill as we look forward toward a committee markup in the near future. in closing, i'm confident that cftc can rise to the challenge to be the right fit for an expanded regulatory role in the digital commodities market, and i'm confident that we can work together to protect consumers and allow this ever-growing technology to flourish. i want to thank chairwoman

stabenow for her leadership and look forward to today's discussion, hearing from our witnesses. before i conclude, i would like to welcome one staffer to the committee and then thank another staffer who will be leaving shortly. first i would like to welcome erica chabot. erica is the new majority staff director for chairwoman stabenow, but is certainly no stranger to the senate. for the last 20 years she's served as senator -- has served senator leahy, a member -- and former chairman of this committee, which we all -- who we all know and are going to miss as he retires. but we really look forward to erica and look forward to her service to the committee. secondly, i would like to thank darin guries of my staff for his exceptional service to the senate committee. darin is a native kansan who has spent the last 15 years working for the senate, for the last

seven he's worked for the agriculture committee. first for senator roberts and now for me. the legislation that we're discussing today is largely the product of bipartisan negotiations led by darin and lucy working hand in hand to, i think, produce a very, very good product. the committee and the senate have greatly benefited from darin's expertise, judgment and charm. we will miss darin as he leaves the senate. i wish him great success and many thanks for his service. and we're trying not to be bitter over the people that have hired him. [laughter] thank you, madam chair. sen. stabenow: thank you. thank you so much for recognizing erica. we're so pleased to have her here. welcome. welcome. and darin may think he's leaving, but actually i think we're not going to let him. right in the middle of all this? really? oh, my goodness.

but i do so appreciate our wonderful staff. we have been so fortunate on the committee. past, present, with some of the smart, hardworking people there are. and we very much work in partnership. and certainly on this bill. that has been -- we really appreciate all of that. let me turn now to our first witness. the chairman of the commodities future trading commission and certainly no stranger to this committee either. prior to his time leading the commission, chairman behnam has served as a commissioner. he served since 2017 on the commission. and prior to that was a valuable member of our staff on the agriculture committee. so, welcome, chairman behnam, and we recognize you for five minutes of testimony. mr. behnam: thank you. chairwoman stabenow, ranking member boozman and members of the committee, appreciate the opportunity to be here before you today and discuss the

digital commodities consumer protection act. last february when i testified before this committee, i noted that the unique characteristics of the growing digital asset industry necessitated a comprehensive regulatory regime. i believe that to be more true today and thank the committee for taking steps to address these needs. i have directed staff at the cftc to analyze what additional needs we would have to support its implementation. digital asset commodity cash markets and retail participation often use high assets of hrefbg randle and use arrangements outside of the traditional regulated banking sector. market participants may perceive themselves to be interacting with exchanges and intermediaries regulated like those in other traditional financial markets, but the reality is quite different. since i last testified over $1 trillion in market value has been lost in conjunction with the failure of several large

high-profile firms operating in the shadows. one lesson is that leverage, interconnected markets and contagion can wreak the same havoc in the digital asset ecosystem that they do in our traditional financial markets. as i publicly stated several times including to this committee, many digital assets constitute commodities. as recognized by the dccpa, the cftc's expertise and experience make it the right regulator for the digital asset commodity market. the cftc facilitates customer protections through its principles-based market oversight and disclosure regime aimed at ensuring transparency, integrity and security of transactions. these structures inform customers about who they are dealing with and provide clarity on the risks of participanting in our markets. in requiring digital commodity brokers, dealers and custodians to join the registered futures association, the dccpa

acknowledges the key role that self-regulatory organizations like the national futures association, play in safeguarding the integrity of markets. the cftc has often atkaplted its oversight capabilities -- atkaplted its oversight capabilities to meet the demanding evolving markets. most recently in the 2018 financial crisis, congress provided the cftc authority over approximately 95% of the swath market, serving as the cornerstone of a robust regulatory regime for the $350 trillion swaps market. returning to the digital asset market, since 2014 the cftc has brought almost 60 enforcement cases, including a recent matter involving a 1*dz.7 billion -- $1.7 billion fraudulent bitcoin scheme with a lack of full visibility into the digital commodity asset market, the agency's enforcement program has had to lean primarily on tips and complaints from the public to identify fraud and manipulation. the agency has developed a deep

understanding of this novel market and the underlying innovations that fuel it, hiring specialists, forming internal task forces and working groups, leveraging public-private partnerships, and most recently restructuring the kr-ft's financial -- cftc's financial technology hoh hob into the office of technology innovation. the dccpa leverages the historical strength of the cftc as a market regulator by requiring registration and supervision of digital commodity platforms and digital commodity intermediaries as is required in cftc regulated derivatives markets. digital commodity facilities will be subject to compliance with core principles, prescribing, among other things, that the platforms establish and enforce rules minimizing conflicts of interest, prohibiting abusive trade practices, establishing system safeguards to minimize cybersecurity and other operational risks, ensuring the financial integrity of transactions and intermediaries,

and protecting customer funds. quickly, all digital commodity platforms must maintain adequate financial, operational and managerial resources, segregate customer funds and comply with commission requirements for the treatment of customer assets. these tools have proven effective in preserving customer funds and market operations in times of instability, uncertainty or market misconduct. the dccpa directly addresses the increased role of retail participants in the digitted a commodity assets by directing the commission to adopt customer protection rules requiring platforms to disclose to customers material conflicts of interest and material risks of trading digital commodities. establishing daouadis to communicate -- duties to communicate in a fair and balanced manner and establishing standards for the platforms' marketing and advertising. with the additional resources contemplated by the funding mechanism in the bill, in a

clear mandate for customer education and outreach, to ensure that our efforts reach all demographics, the cftc can swiftly aeffectuate this new regime. on september 21, 1922, nearly 100 years ago to the day, the grain futures act of 1922 was signed into law which led to the near immediate establishment of the then-cftc. with that legislative accomplishment, this committee and the congress swiftly responded to a policy need that arose on the heels of emerging risks to american consumers, because of then-new financial markets and products. technological innovation and the promise of economic development. with the cftc's rich history overseeing commodities markets, coupled with its expertise and track record which rests on a firm foundation as a forceful and disciplined cop on beat, the agency stands ready to tackle these new risks and opportunities one century later. thank you and i look forward to answering your questions.

sen. stabenow: thank you very much, mr. chairman. as you've indicated and i've spoken about as well, cryptocurrencies are traded largely by everyday americans right now. and some people have voiced concerns that the cftc does not have a customer protection mandate and therefore may not have the tools that you need to protect these retail customers. could you respond to that? mr. behnam: thank you, senator. before i get into any details, i would say unequivocally the commodity exchange act and the rules that the commission promulgates from the law directly support customer protections. without question. thinking about the layers, because i think there are several layers to the customer protection regime at the cftc, i think it's important to identify each at the sort of foundational level is the law itself and the rules we implement. which are more prescriptive and have more specific requirements

for the registered entities, which you do in your bill. the core principles can be anything from system safeguards which directly address cybersecurity and operational risks, and this is directly about protecting customer funds and customer assets. conflicts of interest, something you noted, which is a big concern in this issue area. a core principle. we would have to ensure registered entities which our bill contemplates, whether it's the trading platforms, brokers, dealers, custodians, are serving the best interest of the client or the customer only. and no one else. we have core principles about reporting and record keeping. this is information flow that comes to the agency so that we can monitor, for example, disruptive trading practices and making sure that the market is free from fraud and manipulation. also, prohibiting contracts being listed on trading platforms that are readily susceptible to manipulation. these are just a few of the nearly two dozen core principles which make up the regime and

ultimately are manifested through the rules we prescribe. i would say the second layer is how do we make sure that our regulated entities are complying with these rules and regulations? we do this through a series of inspections, examinations and investigations. we work in tandem with our partner, the national futures association, which again is another provision you include in the act to create self-regulatory regime. to ensure that the individuals and institutions regulated by our market are complying with the law. and we make sure that they have the adkwat proficiency -- adequate proficiency and information they need to comply with the law. the other thing i'll mention sent forcement. we have to ensure that -- is enforcement. we have to ensure that individuals are held accountable for breaking the law. this is obviously one of the key components of our requirement as a civil litigator. within our agency and, chairwoman, you know this we've struggled with funding over the

past decade or so. i've looked at some data points. in the past 10 fiscal years, our average budget has just been over $240 million per year. in that same period, this 10-year period, the division of enforcement has assessed penalties on average of over $1.5 billion per year. so six times plus return on investment for the american taxpayer in enforcement penalties. a few months ago i had the privilege of standing next to the attorney general as he announced settlement with one of the largest commodity trading advisors that had manipulated oil markets. this was a civil and criminal case brought by justice and the cftc. over $1 billion. this time we need to ensure our energy markets are free of fraud and manipulation. that case was brought by the cftc. a benchmark, a financial benchmark which underpins trillions of dollars of financial contracts, student loans, mortgages, over 10 years

ago was found to be fraudulent. the setting standard for setting the benchmark itself which is in these trillions of dollars in financial contracts. was in phaeup later -- manipulated. billions of dollars of fines assessed against financial institutions across the globe. that case was uncovered just downtown at the cftc. so these are some examples of the work we do, from the rule set and the implementation, the law, how we enforce it, and the accountability. and i think on top of that, which are all things you include in the bill, which is extremely important, is the bankruptcy protection which is another amendment to your bill to the bankruptcy code. and it's extremely important. we prioritize customer funds and customer assets above all else. above creditors and above security holders. so this in total i think is a very robust, very comprehensive customer protection regime. has worked in our derivatives markets very well for decades and i think as uconn template in your bill, the -- you contemplate in your bill, it will work in a commodities

market. sen. stabenow: thank you so much. the president has talked about a whole settlement response to the regulation of digital assets and this new innovation. take just a moment about how you would move forward in working. obviously two very important agencies, cftc, s.e.c., again, we did it in dodd-frank. we've got two great regulators. just speak about, as you move forward in this space, how you'll press your regulations and how you see working together. mr. behnam: it's not going to be any different than what we've done before and you alluded to it, whether it was 2010 with dodd-frank or even going back 40 years with securities futures and commodity futures, we are constantly talking at the highest level, the chair, enforcement, different divisions. we naturally have intersectionses between our markets, we have -- intersectionses between our markets, we have duly registered tints whether it's the broker dealers or the investment managers, we have to work

together to make this work. because otherwise the markets wouldn't work like they should and like they're intended. so we have a long history of this. i don't think we need to try to fix something that's working right now. and i think it's all about communication, transparency and understanding at a high level what the goal is. right? this is not about us at the cftc. it's not about the s.e.c. it's about the regulatory framework. it's about financial markets. it's about protecting customers and if we keep that goal in mind, i think we'll be title of the bill accomplish what we're tasked with. sta*eub taylor behl thank you very much -- sen. stabenow: thank you very much. senator boozman. sen. boozman: thank you, madam chair. i appreciate your question concerning enforcement. that's one of the things that, you know, comes up in regards to the bill. does the cftc have the ability, are they a strong enough enforcer. and i think you answered that question very, very well, explaining your role and the great job that you're doing with the resources that you have and punching so far above your

weight. and yet while still protecting the customer, while still enabling innovation. so, again, thank you for, again, a great response in that regard. the next thing that comes up is user fees on derivatives. market activities. i've had the opportunity, i've been on the subcommittee on appropriations that has to deal with that and really championed efforts to make clear that the cftc does not have the authority to pose user fees on derivative market activities. that said, our current bill authorizes the cftc to impose a user fee only on digital commodity platforms. do you agree that our bill as written prevents any application of the user fee onto derivative market activity?

mr. behnam: senator, in short, the answer is yes. the law -- the bill as drafted prescriptively to ensure that the fee would only be assessed on the digital commodity platforms and not on traditional derivatives market entities. sen. boozman: right. so it would take congressional authorization to do that. in fact, further, do you believe that it's clear that the only user fee as a result of this bill is to say that it would take additional legislation to authorize user fee in the traditional derivative market, the cftc oversees? mr. behnam: yes. sen. boozman: very good. i also want to thank you and your staff. they've done a very, very good job in providing technical assistance, not only with this bill, but again, you know, just through the many years we've worked with them. one of the suggestions we've heard from numerous industry

stakeholders is about the definition of dealing. because our bill is intended to protect retail consumers, it's not our intent to cover proprietary trading firms that invest only from their own accounts to be cover under the definition of dealer. as currently written, do you believe the legislation covers this kind of nonretail consumer facing market activity? mr. behnam: senator, good question. i think i agree with you in principle that we're trying to focus on retail customers. and in this case, yes, the principal trading firms, the prop traders, as they're more commonly known, would be exempt from the dealer definition. and that's consistent with what the act and this committee and the commission have done with respect to traditional swap dealers. so that's my interpretation and i think it's drafted appropriately to create that carve-out for proprietary traders. sen. boozman: very good.

i think i'm going to yield back my time in the interest of getting all of the questions. we appreciate your answers. you understand the importance of actually answering questions. so again, thank you very much. sen. stabenow: thank you very much, senator boozman. since i went over a few minutes, i think we're back to even. thank you very much for that. i'll now turn to senator klobuchar and then i believe senator ernst will be here shortly and she would be next. senator klobuchar. sen. klobuchar thank you very much, chairwoman. and thank you as well, senator boozman. as you mention this in your testimony, these are volatile markets. we saw that big-time when we saw that when digital currencies were approaching their highest

values and the companies were spending millions on celebrity endorsements, many first-time buyers were convinced to invest just in time for the market to crash. and there are people that are trading on these unregulated platforms, that they may not even realize it. many of the investors haven't even traded on platforms like this before. could you talk a little bit more about how these underlying markets work and why you think the cftc is in a position to oversee such volatile markets? i know you've done such things before. and without regulation, what recourse do consumers have who have been scammed or defrauded by crypto brokers? two different questions. mr. behnam: thanks, senator. i think in response to your first question, in many respects, you know, the markets and the way the unregulated digital asset platforms are set up and operate are very similar to the way our traditional markets operate.

but as you point out, they're unregulated. the regulation is limited to fincen at treasury and some state money transmitter licenses but we don't have that market regulatory structure which provides that transparency and that lens into how the markets are operating. notwithstanding some obvious custody issues because this technology is so unique, the market structure is largely the same and i think as we contemplate this bill, it's about bringing, shedding light on this marketplace that is otherwise in the dark. and we would apply the same principles that we have for decades, that have worked quite well, and you talk about volatility and i think that is in part, we're seeing correlations between the digital asset market and tradition alec which thes markets and bonds market -- traditional equities markets and bonds markets, but we'll see reduced volatility because you'll have more

participants and sort of tighter spreads between individuals willing to buy and sell these digital assets. i think implementing core principles, implementing rules we found to be very successful and effective, focusing on customer protections, focusing on protecting customer money but implementing these core principles that are around trading practices, disrupting trading practices, ensuring financial resources so the platforms can do what they're intended to do. sen. klobuchar: all right. a june f.t.c. report indicated that since 2021 $575 million of the crypto losses were about bogus investment opportunities. many of these originated on social media platforms like instagram and facebook. can you talk about the interaction with the platforms, what their role is and what more could be done on that front? i don't know what your answer's going to be on this. i just notice this number is in

my briefings. mr. behnam: yep, it's a very difficult area because we don't have a lens into the trading platform so we're relying on customers. every case that we brought, 60 enforcement cases has been brought to us through complaints. we don't have that vision or lens into the trading platform. sen. klobuchar: so it will help to give you the transparency into it? mr. behnam: it would provide the cftc to regulate the markets. the fraud and manipulation, much. it would probably go away because we now have a regulator cop on the beat. sen. klobuchar: there's a lot of bad actor activity going on on social media platforms, as you know. this isn't the only thing. but a cop on the beat would be unique compared to a lot of the things going on. when considering the environmental impacts of the significant energy that's

required, can you speak to the way this bill approaches the environmental impacts of cryptocurrencies? mr. behnam: thank you. it provides and requires the cftc to draft a report within six months and report back to this committee and the house ag committee this consultation with other u.s. regulators, most notably those that have expertise in the energy space. and i think this is the appropriate approach to this issue. we've all heard the statistics about the amazing amount of energy used to mine coins. i would say that an event occurred last night which is going to reduce energy consumption, a step in the right direction but not resolving the problem. and i think at its core, the report will stand as a basic starting point so that we can examine what the issues are, where the energy usage is occurring, and what's the correlation between the energy use an and the outcome, the mining of the tokens? from there i think that would lead to future policy

discussions, potentially disclosures and hopefully incentives to move away from carbon-intensive energy sources. sen. klobuchar: thank you very much. i have a lot of faith in you, mr. chairman, and i look forward to working with senator stabenow and boozman and others on this. i did want to point out before we turn it back that we have with us the winning pitcher of the congressional softball game, senator gillibrand, who got four strikeouts. joany knows, she used to play on this team. and against all odds, beat the press, we'll just say, was significantly younger, as we had two grandmothers on our team. and the congressional team beat the press and we should be very pleased with senator gill brand's performance at the -- jill brand's performance as a pitcher. she was incredible. sen. stabenow: way to go. that's terrific. thank you. all right, senator ernst. sen. ernst: wonderful. thank you very much, chairwoman stabenow and ranking member

boozman. today's hearing, it is extremely interesting. i think we probably got a lot of viewers out there that are interested as well. chairman, thank you for being here. we have heard all of these concerns. cryptocurrency companies are being pushed out of the u.s. to other jurisdictions due to the lack of regulatory clarity. so i'd like you to walk through a little bit more how the bill would address those concerns and encourage american competitiveness, but then why also should we want to promote the u.s. as a leader and an attractive jurisdiction for cryptocurrency companies? what benefit does this bring to every american, even those that aren't engaged in cryptocurrency? mr. behnam: thanks, senator. yeah, for sure i've heard probably many of the anecdotes you've heard about companies needing to move overseas because of the regulatory uncertainty. i think this bill in many

respects is one element of the larger digital asset crypto ecosystem but it's also a huge step forward given the size of the market that uconn template regulating and i think with that regulatory certainty, the innovators, the entrepreneurs are going to have more incentives to consider staying within the u.s., raising capital here and starting their businesses here. so it's a regulatory certainty, it's the understanding that the law will be clear and they know how it will impact and intersect with their business and not fear something unknown in the future. to your second point, you know, i view this in many respects like any technological disruption or innovation that's occurred for decades. i mentioned the grain future it's act from 100 years ago -- futures act from 100 years ago in my opening statement. it was a different time when our farmers and ranchers were making futures markets. and here we are 100 years later with a very different technological innovation. but i think it's important at a

minimum, despite where the technology may go, and i cannot predict the success or failure of it, but there certainly is demand, there's certainly optimism and i think there's a vision for it to be implemented into our economy. and when you have those core fundamentals being discussed and being outlined, then i think it's important collectively as elected officials and as regulators we do what we can to balance customer protections against innovation and supporting the technology. sen. ernst: and if you could describe for us, what would happen if we don't move on this in the next six months? if we don't move in the next year? what's the potential there? mr. behnam: so it's always difficult to give an exact timeline to when things may shift within the marketplace. i think quite frankly the u.s. does a very good job. i don't speak only from a financial regulatory position, of balancing the need to move cautiously, to ensure that we're embedding the principles that have worked well for our capital

markets and our derivatives markets for over 100 years, and that means moving slowly, thoughtfully, but moving. and making sure we're advancing the conversation and giving entrepreneurs and innovators a sense of what the direction the country's going take from a policy perspective. so we have to balance the, oh, if you don't do something now we're going to move overseas, i take that with a grain of salt. but we have to have the conversation. we have to engage. we have to come up with the framework and set a timeline and a pathway so that these innovators, these entrepreneurs can do what they do best and i think we're on that path. this is certainly a step in the right direction. it's a very positive step. and i think if we continue to do that, we'll be able to preserve these epbltitys, these companies -- these entities, these companies, these entrepreneurs within the u.s. sen. ernst: fantastic. i really appreciate it. i want to echo what senator klobuchar said. thank you, senator gillibrand. i have played women's congressional softball for many years. i was not able to make the game

last night. we lost all the years that i played. [laughter] and they won last night. so what's the common denominator there? but anyway. thank you. great victory. thank you, i'm going to turn to the winning pitcher. senator gillibrand. senator gillibrand: amy is our commentator and joni has the best arm of the whole team, so you better come back next year. thank you for your leadership on this issue and thank you for being willing to work with this committee and work with me on my legislation as well. this bill, that we are looking at, can be transformational, it is timely and urgent and necessary to create stability in

a market that is growing. and i have talked to colleagues about cryptocurrency and said is this going to go away? it's here for good. and the question that we have as a committee, are we going to be part of the solution are are we not. and what is needed so much are rules of the road. we need rules of the road. market participants and innovators and businesses can have basic clarity how to create their businesses and what level of oversight will be effective and basic safety and soundness and consumer protection and you are being part of this process is essential of getting this bill written. i'm very optimistic. i would like to continue along the line that senator why is it relevant now.

this bill takes jurisdiction over the commodities' part of crypto currency. some are digital assets. but i would like to talk to you about how is this bill getting done now so essential and why and how this bill getting done now to do the rest of the regulatory framework and try to do cyber coins and get s.e.c. regulations for those. talk about why this piece matters now.

mr. behnam: we all have our pieces to contribute to the larger puzzle and the other international forum. and this is a big issue. you mentioned stable coins and this is a banking regulated and thousands of security tokens. there are issues around payments, custody, settlements, so many elements that in many respects is interconnected as much as their own little silos, they are i interconnected and you mentioned the commodity tokens that will be a significant majority of the digital asset marketplace and i think it will push the conversation forward so we can continue to have policy around the different areas of the

digital asset space clarified and complete, because as much as this will bring clarity and transparency and customer protections to this particular market which is significant, we need to complete the larger puzzle because if we see advancement in technology and advancement and the market resilience and financial stability, we need to have this patch work all plugged together from a regulatory perspective and prudential perspective. senator gillibrand: when i first became involved in this issue through my role on the intelligence committee and obvious addressing things like cyberthreats, fraud, and other technology-based crimes by

foreign adverse areas, can you talk about the work that your agency is to be ready to address these types of threats and what needs to be done in the future to ensure success in the commodities market snr. mr. behnam: we are a financial market regulator. as i mentioned in my statement, we have core presumes which -- presumes prpls. and regulated institutions and it addresses this specifically and mentions and leveraging the tools and we understand we are going to have to up our game. the they are largely the same. but this technology, specifically the custody element, how do we hold these tokens and unique nature is

going to require deep thinking and new hires and new expertise. those are the areas i'm concentrated on and it will be to ensure recruit and build out that infrastructure and like colonial pipeline and digital assets will be a touch point to attack the u.s. through important infrastructure. senator gillibrand: thank you, madam chairwoman. >> thank you. thank you all for doing this. we need this. we need this bill and need to regulatory and got people out there investing in this and don't have a clue what they are doing, including me. there are a handful of people who understand what we are talking about and i have been to hours of seminars and books and

it's complicated and need to help the american people and thank you all for doing this and thank you for being accessible and the hard work you are doing. some of your counterparts and some of these other agencies could learn from you. but just a few questions. i learned that over 90% of crypto trades are executed outside the united states. our country dominates equity, bond and derivatives trading. why are we so far behind in this? mr. behnam: it's a great question. we are moving at a great clip but not moving as fast as others and we have to balance the need to preserve the financial integrity and resilience that made our capital markets the best in the world but making sure we are giving a clear sense to the marketplace we are moving

forward. there are several jurisdictions around the world that will use this as an opportunity and think this is a way to increase economic development to either lower standards or lower their regulatory bar so we have institutions coming into their and given the accountability to enforcement, we can move at a clip that is safe, carbous. d.m. anand: i agree with you and i get your sense. this is a step in the right direction and continue this right direction and see it through the finish line and we have the finish line and that statistic that you named greater outside of the united states. >> other countries are starting their digital currencies including china, what do you

think about that and what is the regulatory system going to look like? mr. behnam: i have recognized that and i'm aware of what's going on, there are a number of issues or approaches i would say that china is taking that we should or are taking in the u.s. specifically around privacy issues. the federal reserve and the chairman is working carefully and thoughtfully to contemplate the idea of what a digital dollar would look like. it is a balance and a lot of technical issues andmon tar issues and infrastructure issues that have to be worked through before we can push that out in a bear mode or in full. we are moving at the right clip. we have to be cautious and engaging and moving the conversation forward. >> if we were to pass this bill

tomorrow, do you have the assets to implement this? mr. behnam: one of the great provisions is the user fee that the chair woman pointed to as well, this is a critical component and with the user fee that is focused on the digital platforms, we would be able to implement the bill. >> how is your relationship with d.e.c.? >> it has been positive and i speak with him regularly and we have to work together and building off of a relationship that is decades' old and in order for us to serve customers, taxpayers and market participants, i think we are doing a good job. >> one of our biggest protection is going to be education and people understand what's going on because as i said earlier, a lot of us are behind and it's pretty complicated and i'm

starting to see digital a.t.m. machines in my state. what are your thoughts on that? mr. behnam: i want to commend the alabama security commission on that, very forward thinking and thinking for protecting customers and we work closely with them and i appreciate that relationship. there are a lot of things emerging and i see the aim a.t.m. machines that you are pointing out and this concerns me. on the one hand, we have to let individuals make choices but i think collectively as policy makers we have to make sure the individuals are informed and informed with facts and make the most informed decisions what they are doing with the capital and how they are allocating it. we are not doing it because this market is operating in the shadows. we are putting advisories and

customers' alerts on our website. we have to leverage states and work with their individuals who are boots on the ground to get individuals v.f.w.'s, town halls, churches and schools to get information so when they go to the a.t.m. they know what they are doing. but we are not doing that right now. >> thank you, people this is a failure. this isn't going away and you are at the head of this and hope we can help you any way and we want to continue to be educated and marketed the right way and regulated. senator stabenow: thank you, senator. and that's the reason we have the legislation and make sure those are in place. >> i appreciate the work that

you are doing with this bill to address the regulatory gaps that we have and thinking about digital commodities. and interesting along with my colleague senator brown and senator warnock, i sit on this committee and senator banking committee. and i'm going to be going there next. not on this topic. but this gives us a unique view not only of the derivative markets and the market overall and i would like to how to work this together and i appreciate what you are saying about having a comprehensive approach and the fact that your agency has worked with s.e.c. together for many years. can you talk in more detail about how you see with this bill and the need for regulation and

other capacities around digital assets and work ing together coming together? mr. behnam: it's a good question and as i was pointing out, this bill is a huge step in the right direction but there are other parts that we need to address around stable coins and security and what not. but it creates clarity around the commodity markets and what a digital commodity is. and i think the definition is drafted quite well. it very clearly talks about a digital form of personal property and excludes securities. and it excludes dollars or digital dollar, something that is backed by the u.s. government. with that framework, we then at the f.t.c. what constitutes a

digital commodity.

>> cuss toweddian services that you providing for a client and services both the security side and the commodity side. it may sound complicated but with the efficiencies and the swaps and commodity swaps and commodity futures. we have done this before and dual recommending stressor to broker dealers. so we are not re-inventing the wheel and figure out with the private sector and our sister agency to ensure we are doing it in the efficient way and productive way for customer. >> while there might be complexity, it might be addressed through good

coordination and between the agencies? mr. behnam: absolutely. >> as i understand it, the bill takes the regulatory structure for commodities that exists and applies it to digital assets and applies it to retail investors. could you talk about -- your agency doesn't work directly with retail investors. but could you talk about how that framework will apply to retail investors and how you can address how that works for retail investors? mr. behnam: the majority of our investors are customers and participants are institutional and we have we work closely with the contemplated in this bill to make sure we have boots on the ground and vice president

appropriate disclosures and we have preventing contracts that are susceptible to manipulation. making sure that information is getting to customers through disclosures. i would say as you sit on the banking and this committee, the distinction needs to be drawn. commodities have a different disclosure requirement than a security does. security requirement require in good faith the bridging between the issuer of a security and investor because there is centralized management and financial management and that doesn't exist on the commodity side. we have to protect markets and markets are transparent, fair and orderly and customers understand market-based risk as to how to allocate capital.

senator stabenow: senator fischer. mrs.fischbach: -- >> this would create one rule book between regulators between digital asset and digital asset exchanges. my question to you how important is it that we have that one notebook between all the regulateors? mr. behnam: it is important we have a mutual understanding about how to collectively regulate markets regardless the type of market or special assets. there is an intersection because you have entities and individuals. it is important that we have this mutual understanding in the

form of m.o.u. or handshake agreement because we need to how and what we are going to contemplate these financial assets. >> are you working on an m.o.u. right now? mr. behnam: we are not. we understand what may occur within the context of the security laws if entities were to be registered as securities' platforms and if there is a situation where we need to work on an m.o.u.-type document, i would be willing to make sure it works. >> have you reached out at this point to do that? does congress have to provide guidance? mr. behnam: we have several m.o.u.'s on enforcement matters. >> nebraska passed a law that was introduced by our newest

congressman when he was in the nebraska legislature and it allows digital assets depositories to be created which allowed state-charted banks in nebraska to offer services to customers who have those digital assets. nebraska is just the second state to pass that legislation. but as we see these digital assets grow, questions will be continued to be raised how they should be regulated and state regulateors along the federal regulateors educating investors. can you discuss your relationship between the state regulateors and cftc? mr. behnam: as a former state regulator. it is so important and i used

this statement, boots on the ground. we in washington don't have the capacity or resources to have that and the state regulateors pay a key role and that is so critical that those are touching individuals at the local level, county level or district level. we have a very close relationship and a national association of securities' regulateors. crypto is on top of mine right now. the bill does a good job from a market and preeming states and it does reserve states over anti-fraud. we will covent to use the existing relationships we have

with state regulateors and understand they play a critical role in making sure information and disclosure and swreation is received and also protections. mr. behnam: i have spoken with alabama state securities commissioner and we have known each other for a number of years. he is the president of this association, the national association he may act as a voice for the larger association. i did speak at the annual but i have not heard from nebraska and support them with the resources

and expertise we have. senator durbin: i'm more familiar with the cftc than some members. we established global leadership and the futures market. and people trust it. it has a level of integrity that makes a difference. there is global competition, but we seem to do pretty well and the question is whether or not we can establish the same standard of integrity when it comes to this whole crypto world. i was surprised to learn that one in five americans has traded

crypto and a significant number of these investors or lower income individuals who took quite a hit recently. no wonder that the average american is interested in this. after all, investment advisers like larry davidville told them this is a good investment. that isn't the case. the value of the crypto market has fallen below $1 trillion losing 70% of its value. and bitcoin has from $20,000 from a peak of 60,000. in june, crypto platform suspended and filed for. in may stable coin collapsed

resulting in a loss and yet it was marketed as a stable coin. don't get me wrong. there is risk in speculation and applies to a lot of different circumstances. luck i for us they have not been tied to our banking system. and we have companies like fidelity saying they are going to include bit coins and cryptocurrency in retirement accounts. if we went through another melt down like we did this year with retirement accounts and life savings at stake, it will be a much greater impact. my concern is this, i'm glad we are talking about regulation. we have to have it. but i worry that we are doing enough to solve our conscience

and not doing enough to put up guardrails on the crypto express. in this term, regulatory certainty, i have learned that before as term, if we don't perform regulatory certainty they will leave and go to malta or portugal. really, do you think that is a possibility? mr. behnam: it is, but not a concern of mine. i appreciate the point. we in the u.s. have to balance our approach to regulation and done it very well. we have to be deliberate and cautious and instill the principles that have made our capital markets and derivative markets the best in the world. coupled with that caution and deliberation, we need to move forward and need to engage and

understand this is a new technology that is disrupting financial markets. senator durbin: how much money does it need? mr. behnam: it was my november hearing, it could have been february, i said $100 million and that was the number that we received the past few years in the financial crisis and where our funding level went to.

senator durbin: from the crypto world in a user fee. mr. behnam: exactly. senator stabenow: senator thune and then senator booker. senator thune: thank you for holding today's legislative hearing. i want to thank both of you for your leadership on this legislation and legislation on digital commodities.

technology continues to transform and the federal government has the proper tools to regulate and provide certainty when it comes to digital and i'm the original co-sponsor of the bill. it would clarify the regulatory uncertainty surrounding cryptocurrency and to establish rules and regulations to oversee commodities and establish guardrails for the market. so i want to thank all the witnesses who are here today for your input and look forward to advance what i think is important legislation. in your testimony, you highlighted the role that cftc has played. can you walk us through, a lot of time through the experience and successes in regulating digital commodities?

mr. behnam: wife futures contracts, bit coin and others and we are continuing to see even in the past few years native or incumbent firms purchasing cft krmp entities. the move is swift and quick and forcing us to learn and i think that puts us in a big position to implement this bill. senator thune: given what you shared and the recent efforts, what is your response that cftc is not equipped to play the role for digital commodities? mr. behnam: if you look at what

we have done going back to 2014 and i shared some of our enforcement statistics. we are one of the toughest cops on the beat. we had expertise because of this with technology and the user fee that is included we would be able to leveraging that authority and hire the right individuals and train individuals and hit the ground running. senator thune: i know you have addressed this issue already where does the united states rank in technology and if enacted what effect would this legislation have on u.s. competitiveness in the space? mr. behnam: because of the size of our markets, the capital and private equity, we are always at the top, but i think there are other jurisdictions that have

taken an approach and capture innovators as senator durbin pointed out. and comes with risk.

>> and level that pushes us to writing more prescriptive rules and through investigations and if someone breaks the law keeping them accountable and making sure we are deterring future actions. if it is a customer protection regime and what has been very successful for decades and no doubt that this regime that we do could be applied as equally and successfully in digital assets. senator thune: my time has expired. senator stabenow: senator

booker. senator booker: i'm grateful for your leadership in this space and honored to be a partner on what i think is an important bill. it is good to see you, another jersey boy doing ok. and so, just really quickly, i'm really optimistic not necessarily about the coins and commodities but the technology underlying this and when it comes to this. we have real issues and concerns right now that i think this bill addresses. we have seen scams being perpetrated and risky projects with inadequate disclosures and evaluate the assets they are purchasing with their hard-earned money and we have

seen that they are guaranteeing profits and seeming like huck steers as they put forward. we don't have significant guardrails or transparency and we need better regulations. and only three things to do. we can do knowing, which will allow a lot of this to continue and people create rules and make it illegal or impossible to access the market or undermine the strong security laws and opening flood gates that would a select few and creating chaos or do what this bill does and dig in and allowing this space to thrive or innovation to occur and give solid protection that would curb increase transparency

and accountability and increase the safety and strength of our financial system. that's why this bill to me is so utterly important and doing nothing is unacceptable. i want you to address some of the criticisms i hear out there specifically about the cftc. some people say this is going to a light touch in the crypto market without the capacity to bring stability. what do you have to say to those who think the cftc would bring a regulatory touch that would be too light and how you as chair will work with the commissioners to make sure that there are strong regulatory provisions in place? mr. behnam: i can say our rules are based on customer protections. the data, if someone took time

and drawing this narrative, if they took time to see what the cftc does and examine how our rules are structured and the success of the markets which senator durbin was pointing out, we are one of the toughest cops on the beat in the world and known for that. our enforcement statistics speaks for them. and these are the individuals within the agency that these are sophisticated, whether swaps, futures or options and the case against a commodity trader, to create some net benefit between cash. senator booker: just for the sake of time, with the exrar resources as well, you will be able to have significant enforcement as well.

and shift to another criticism about the energy consumption. i want you to touch on that. and president biden has tried to deal with this. what will you do? mr. behnam: the bill is very effective in requiring us to write a report and work with other regulateors in the u.s. government and those who have expertise in energy market and tooth and nail of what energy consumption is and the utility and come back to this committee of what our recommendations are or incentives for folks as you mentioned indirectly to move away from proof of work or other methods to reduce carbon emissions. senator booker: the last thing

is some part of the bill and i have been grateful to the chair woman to help me shape this but i'm concerned about equity issues that are out there, disparities in wealth that are persisting, african-americans are underrepresented in the world of digital assets which is concerning because of the lack of regulation and something that i think could actually help to create more opportunity for wealth in our nation. this bill directs to have demographics and to use that information to inform the rulemaking.

mr. behnam: we have moved the office phs public affairs office and infrastructure to leveraging what the bill requires us to do to have a wider outreach to communities and get boots on the ground to educate and inform and do the where these investors are and where these individuals are risking capital. it's going to be a priority of mine and look forward to working with you and in a good place and this bill's authority coupled with the user fee should springboard us. senator booker: you make jersey proud. you are not quite bonjovi. i can't stay for the next panel.

the next panel doesn't have the jersey authenticity. senator stabenow: thank you so much. specifically on those provisions that are important as which go forward. thank you very much. so senator. >> thank you. thanks for being here and appreciate it. now you are going to be regulating in the spot market versus futures, can you tell me what your thoughts are in regard to that? is that going to make a difference for you in a significant way and does it important tend other futures in the spot market? mr. behnam: it doesn't. as i said a few times, this particular commodity market is unique as it relates to traditional, agricultural, metal

or commodities market because it is speculative and we have a very porl role to play as compared to the more traditiona- >> how should this work. there are multiple agencies that have a role. what should that look like? not just your role but we don't end up with a maze who is responsible for what is not only difficult for the providers? what should it look like? mr. behnam: it looks like what we do in financial markets and i will use our sister regulator but we have relationships because we have dual registered entities but we have been worked to work with them because they have access and intersections

with both our markets and advisers with mod commit pools or investment pools and registered. so we have the framework and the foundation to do exactly what we have been doing for decades in this space and no doubt to do it. goodwill and good faith and we can get to it. and the reason why i think it's going to work well and has worked well is that the u.s. has the strongest deepest capital market and derivatives market. if we didn't do our job we wouldn't have those statistics and that data. >> are you interfacing with those agencies? and is there a blueprint as to how that interface will work? and are there other bills with other contest of jurisdiction that you are coordinating with

this legislation? mr. behnam: i have most contact with the s.e.c. because of the relationship we have through our markets. and i work with federal regulateors from through the president's working group and the oversight council. we are working on several projects. president biden's e.o. has forced us to work on these issues specifically and will continue to do it. we don't have any set structure but there is a little bit of a vacuum in terms of what regulation might look like. some on cash markets. but this is a step in the right direction and needs to be moved. one piece of the puzzle and as it becomes more clear and what the landscape we will move forward as leg you lateors and how we are going to work this.

>> how does that package of legislation actually works? mr. behnam: pi who does that versus various committees of jurisdiction. mr. behnam: i would say the best plus print to look at now, the most recent is dodd-frank and this was the derivatives title and multiple titles that affected several financial regulateors. >> not everybody is a fan of dodd-frank. >> i appreciate that. it is a blueprint of how congress passes a law and we need to work together to implement the law in an effective way with appropriate

oversight. >> i think that coordination is important with cryptocurrency. and we are trying to understand it, right? one other question, i -- you have not used the user-fee concept before and that is something we are familiar with because of f.d.a. and i am on agriculture and some good aspects. what is your thought? mr. behnam: it should not be difficult to implement. i think it is critically important that the user fee is structured in a way we have to work with appropriators to set the level of what we can set in terms of fees and don't set them independently. we have to work in coordination with most user fees. i would say it is critical

important and not do the job that the bill requires us to do unless we have the resources to do it. senator stabenow: seeing no further questions from colleagues, thank you for joining us and we'll take a moment to bring up our witnesses, our second panel. and so pleased that all of you are with us. i will indicate that we will see a vote starting shortly and you will see us coming and going and doesn't mean that senator boozman doesn't like what you are saying. we will be going back and forth and probably have other colleagues as well. i don't believe that has started yet. so, welcome.

appreciate all of you taking the time to be with us. and i will begin our introductions. first, todd phillips the director of financial regulation at the center of american progress. his experience in congress and the executive branch having served as an attorney for the federal deposit insurance corporation and the administrative conference of the united states. and on the staff of the oversight and reform committee of the house of representatives. we welcome you. sheila warren, c.e.o. of the crypto council of and prior to joining c.p.i., she served as the world economic forum deputy global head of data and digital assets with a focus on making the industry. thank you for being with us.

christine parker is krpt and deputy general counsel the largest u.s. base crypto exchange and joined from reed smith and before that practiced at sullivan and cromwell and no stranger having worked as counsel to senator schumer. we will not hold that against you. the c.e.o. of the sola and nonprofit that creates to global financial systems and he was the c.o.o. and general counsel and legal adviser in private equity and technology and turn to senator boozman for our last introduction. senator boozman: our next bipartisan witness is dr. tall bert, he is the chief and

responsible for the legal compliance regulatory affairs for one of the world's leadest. and he was the chair and for the trading commission and vice chairman of the securities commission. during his tenure, they advanced 41 final rules 90% of them on a bipartisan basis. the cftc had enforcement and more than 20 actions and orderly trading. before joining, he was assist ant secretary of treasury for international markets and served as a supreme court clerk and associate white house counsel to the senate banking committee and thank you for all of the witnesses. this is an outstanding panel.

senator stabenow: we are pleased you are all here and will recognize our witnesses for five minutes and welcome any other information you would like to give to the committee. we will begin with mr. phillips. >> thank you. thank you for the opportunity to discuss the digital commodities consumer protection act. i applaud your quoll blags and the work of your staff which will provide oversight of the digital commodities act. and the expansion can likely be explained not only by the innovativeness of the technology and crypto is revolutionizing. and market manipulation plague

it. 2.9 billion was stolen in the first four months of 2022. these are risks to investors that invest their lifesavings and they assume they are protected by the regulations that apply to other financial assets. there is the lack of federal regulation for crypto assets. they are securities or commodities and if a token, a pledgetterra applies. if it is a commodity, the cftc has limited authority over it. because the crypto that most assets are commodities, issuers are not enforced to protect retail investors. whether an asset is a crypto or commodity and that is left to the court.

i expect many assets and subject to c fmp tc rules. bit coin. today bit coin accounts for the market by volume and lack of regulatory regime for it. some courts have applied legal tests, the case law is in its infancy and seen most of them regulatory will be able to regulate them. the digital commodities provided is a need for digital commodities and desperately needed authority. here are some of the bill's most important provisions. will it grant the regulatory authority over digital commodities. it excludes from the definition anything that is a security.

existing laws would appropriately continue to applying to crypto from oversight. second, the dccpa would limit protections including protections from platforms and from engaging from manipulative practices and more. these are protections that apply to the securities market. further, where investors and securities have ready access to a variety of written disclosures, investors are limited to servers for inconsistent and unverifiable information. to address the lack of consolidated disclosures, it would require platforms to disclose plain language information about listed assets to customers. it would protect investors by

requiring them to hold assets not co-mingled and upgrade the bankruptcy code. third, the dccpa would require to help address the effects on climate change and would require to examine the energy consumption used in connection with the commodities and publish those estimates. this could help issuers to migrate and to migrate their capital following the impact. the bill would require the cftc to study underserved communities and use this information to inform its protection regulations. my written testimony has different recommendations, this is a critical step and i applaud

the chair and ranking member for developing this bill. i support the digital consumer protection act and i encourage the congress to support this bipartisan bill. senator stabenow: we'll now here from our next witness. >> members of the committee, thank you for the opportunity to testify on both the tremendous benefits and opportunities associated with the digital assets in the united states. i'm grateful for the leadership shown by so many on this committee. there is a pressing need for regulatory while protecting consumers. this can provide some of the certainty needed to create jobs and improve financial inclusion. a global alliance of leaders. we are using evidence-based

approach to support leaders who are shaping of this innovation. over the past two decades, my time as an attorney, interviewed diversity and inclusion. over the past six years i worked with leaders to advance the responsibility and now i see crypto as this nation's best chance of addressing inequity. crypto can provide a more equal crypto can provide a more equal playing field for people and communities that don't have meaningful access to these systems. and as we shift to a more ownership-based global digital economy, the building of an open and transparent regulatory framework is crucial. the digital commodities consumer protection act is critical for shaping -- is a pivotal step in

achieving the clarity and oversight that are greatly needed, and i applaud this committee for its bipartisan work on this legislation. ii. crypto refers broadly to a wide -- cross-border payments underpinned by blockchain could save $4 billion each year. by contrast, crypto service providers can process payments with indices of a percent of 3%, a significant cost savings to consumers, crypto represent an unprecedented opportunity to increase financial equity, a federal reserve study found 20 million americans have neither access to a bank account for other access to financial services of other means. this problem missing a file higher among those low income, less educated, racial minor matters -- minorities. this is because they often do not trust a traditional bank. by contrast, a poll found in the

united states, 7% of the under banked -- 37% of the under banked population reported owning cryptocurrency. this is key for -- in the case of foreign aid, within days of the aid -- invasion of ukraine, crypto was a catalyst in the bridge to institutional support. the reality is that crypto is global by nature. simply put other countries are not waiting for the united states to act. the european union came to a landmark agreement other marketing crypto assets package. the united kingdom has set out a plan to make the u.k. a global crypto acid technology hodge -- hub. it is said to be in shape by the first half of 2023, it is clear china is already poised to lever

the digital you want as a tool to achieve foreign policy goals in the emerging markets and the aunt. -- and beyond. it is paramount to national security, financial services have been an important lever for the u.s. government. practice policy making now is critical to maintaining a competitive position and industry this complex details are important, it will be critical to study things like decentralized finance and deify before putting them into policy making. that the ftc --cftc acts as a revelatory partner maker to the ftc. i am particularly excited to see the report and energy reports included in this proposal. i believe the actual facts of these reports service will show crypto can be a tool that can support an impact goal policy goals.

thank you again for the opportunity to discuss these important questions are the for to answering your questions. >> thank you very much, ms. parker welcome. >> good morning, members of the committee thank you for inviting me to testify about the digital commodities consumer protection act and the need for a comprehensive revelatory regime for crypto. i am the vice president and deputy counsel for regulatory legal counsel. prior, i spoke on commodities, derivatives, digital asset. i spent years advising clients associated with title vii of. frank and commodities exchange act. i have the pleasure of working with senate majority leader chuck schumer for five years prior to joining private practice.

i believe we are at a crossroads when it comes to crypto, u.s. government and great day regulatory remark that embraces the transformative nature of crypto products consumers or could impose an unworkable revelatory framework that will push jobs and innovations oversees. i will caution members that are skeptical about crypto that the second path will lead to the reality where retail investors continue to access web three through foreign unregulated companies that are not obligated to comply with the anti-mond -- anti-money laundering, consumer protections and safety for the financial markets. as the largest crypto trading platform in the united states and the only one that is a u.s. public company we are committed to the first path, that is why we applaud the chairwoman, the ranking members and other

cosponsors for introducing a bill we believe will create a robust framework for the effective regulation of digital assets. i want think the staff and committee for the hard work and focus in solving the technological challenges presented in drafting this. the current regulatory environment for crypto is complex and disjointed, at the federal level they have relied on laws that have not kept up with technologies. at the state level, laws and regulation have emergent recent years with little consistency across jurisdictions. digital commodities consumer protection act will create an much-needed framework. it will fill in the existing gap in federal organist -- oversight. the bill importantly draws on the cftc existing framework for regular futures and derivatives as copperheads of a well understood. to that point i know coin base operates a cftc regulated

exchange. hopefully we are a few months away from operating a cftc regulated futures commissions merchant. it is including, but not limited to bitcoin and eth. it is not say what is or was not a digital asset security. what is a digital asset? currency, commodity, security? all of those or something entirely different? at coin base we employ a rigorous sting -- listing process to determine if an asset is legal and secure. whether or not the asset would make it a security under u.s. security laws. we have approved enlisted to 19 assets for trading and we are confident they are not securities. this is not scalable across the

industry and forces coin base to reject many assets we might otherwise be lawfully permitted to list. we believe the bill can be strengthened by further defining digital asset commodities that assets are not meet the definition of securities is regulated by the cftc and not by enforcement through the fcc, we urge congress to draw these distinct lines to ensure that they are overseen by the appropriate federal you later. -- regulator. this would offer new innovations to consumers in a safe and reliable way. coin base believes the digital commodities consumer protection act create a strong foundation for the regulation of digital assets. we understand the bill will continue to evolve as they consider other issues and agencies that intersect with the regulation of digital assets. we will continue to work with all interested parties to pass a law soon as possible in this important area. i look forward to answering your

questions. >> thank you very much. dr. tarbert welcome. >> thank you for inviting me. i dealt with digital badges as cftc vinay: -- chair and today i'm here as chief officer of citadel securities, it is great to be back to support the historic work on digital commodities. digital commodities consumer protection act achieves three potential goals. number one, addressing a critical gap in the cftc jurisdiction. when i was chair we brought 20 cases to protect market integrity, we cannot write any walls to stop bad behavior for happened -- any rules to stop bad behavior before happened. cftc does not have that authority. it was ill-suited for a national market. that has been demonstrated by

the so-called crypto winter, many of the most vulnerable americans has suffered massive losses as a result of hacks, bankruptcy, outright fraud. this bill addresses that revelatory gap. this with randy cftc -- grant the cftc the ability to regulate. we at citadel securities are proud of our 20 year track record, of reducing costs, increasing transparency, improving resilience and broadening access to markets here and around the world. with rules of the road in place for digital commodities, citadel securities and other traditional layers are more likely to get off of the sidelines and onto the field. they bring real stability to the market and replace the boiler rooms. number two, the bill produces -- promotes u.s. leadership in

asset markets. focusing specifically on abusive trading practices, lack of transparency, conflict of interest. in addition all platforms would be subject to financial and system safeguard requirements to improve their zillions, and optional cells suffocation of new exchange -- it would encourage responsible action by americans. number three, this bill is designed to stand the test of time. this is a bipartisan bill, history teaches that laws with bipartisan support are likely to whether political change. the bill would allow regional, yet flexible compliance with court principles -- core principles, it also would avoid loopholes. relatedly the bill would supplement the cftc new authority with a self-regulatory first line of defense. finally the bill recognizes the

important contributions of regulars other than cftc. it will not tie congress his hands on the many other issues digital assets raise for the u.s. financial system. all in all the bill is a huge step for, the same time i think the bill could be fine-tuned. first, the committee should find the -- refine the definition the digital commodities brokers and dealers. second, the bill should have safeguards to protect those that trade digital commodities that have been self certified for other wares --words approved but later d -- reclassified as secured is. third, the cftc proactively wrote rules and provide guidance. congress should make the -- make it clear this is not to make rules reactive for enforcement.

we afford to discussing these and other aspects of the bill. we also look forward to sharing our expertise in improving investor protection, transparency, market resilience. let me say, paradoxically 2022 looks a lot like 1922. 100 years ago this committee created the grains future act passed in september of 1922 establishing the grains future commission an early forerunner of the cftc. the problem then was similar to what is now. futures and wheat, corn, grain emerged to a financial market, but subject to a patchwork of laws protecting americans. the answer then is the same as now. i therefore applaud the committee and staff for advancing this prickly important initiative and thank you so much for having me -- critically important initiative and thank you so much for having me.

>> thank you. welcome. >> thank you for inviting me to testify today, i am so honored to be here, i look forward to discussing the digital commodities consumer protection act. my name is denelle dixon and i am the chief executive officer of the -- of the stellar development foundation. i would like to share more about us and the real world solutions develop -- built with this technology. it was established alongside the stellar work in 2014 with the mission of creating equitable access to the global financial system by using the underlying technology presented by stellar. the stellar network is an open permission less decentralized ledger. for a blockchain network. optimize for payments and asset issuance.

particularly useful with stable coins and payments. today, rather than talking about the things we read about in the press with respect to trading and speculation i would like to highlight a payment service that was built on stellar, launched in the dead of the crypto winter this summer. in june, money gram, circle, a growing number of digital wallets launched a first of its kind global service that enables everyone -- anyone to convert cash to digital assets without a bank, think account, or credit card -- bank account or credit card. it uses the stellar blockchain and the usd stable coin to allow cash payouts and currencies all around the world. it provides the digital rails to make payments fast and secure. usdc provides a truly stable digital asset, money gram provides a global network of cash in cash out networks.

this is true the interoperability of the existing financial system. in practical terms, this means an emigrant farmworker in michigan, kansas, california, anywhere in the world can send her hard earned cash to her family in her own country without -- home country without experiencing fees or wait times. she can walk into a money gram location with $100 in cash and an minutes, from start to finish she can convert that $100 into virtual dollars in usdc it is deposited directly into her digital wallet. on the other side of the transaction her parents, can visit their local money gram location and cash out of their own usdc from their digital wallet that she sent them into their local fiat currency. this is available right now and being used right now. this novel service gives

neglected,unbanked under banked, cash reliant populations a pathway to enter the digital economy. let me turn now to the legislation. the dccpa goes a long way to allowing the kind of reglet tory framework will offer the opportunity -- reglet tory framework to will offer the opportunity for these types of payment services to flourish. by identifying the cftc as the spot market regulator the agencies history of betting and approving new --vetting and approving new products shows it is well-suited for this type of response ability. we applaud the focus on consumer protection, education, and the inclusion of the study on energy consumption related to digital commodities. it is encouraging to see that this bill sets out a process for listing stable coins. that is consistent with the pwg

report as payment stable coins not included as securities that is necessary for payments. rightfully the dccpa has defined a digital commodity while recognizing the cftc jurisdiction. unfortunately it fails to address the fundamental questions that plagues this industry and far too long. when is a digital asset considered a commodity versus a security? the test is not included definition and is not an agency created rule. we need a definition and the digital commodities consumer protection act is a need for it not all digital assets is created equal. i referenced the minnesota and iowa state fairs in my testimony that require tickets in order to express the full fair experiences much like you need digital assets to engage with different -- particular networks and services. we need a practical principles based framework that focuses on asset functionality. an appropriate and clear policy

and reglet tory and work -- regular tory framework, it is offering financial for millions of people. i believe the dccpa is a consequential step to creating this vision. thank you for giving me the opportunity to testify today. >> thank you very much, we appreciate the suggestions we can further improve this legislation. thank you very much. let's start with mr. phillips, one of the important goals of the legislation is to make sure we are bringing the trading of digital assets under federal oversight, we know that the security in straight -- exchange commissions regulate securities, we want them to do their work. not all as we know of digital asset is securities. what are the risks for consumers if congress does not pass legislation giving the cftc

oversight over digital commodities? >> thank you, senator. there are somebody risks to consumers that we have seen of the past couple of years. consumers have lost millions, hundreds of millions, billions of dollars through scams, rug poles, --pulls, hacks. this bill would allow the cftc to write appropriate rules to protect consumers against all of those things. for example the access to exchange data these would allow the cftc to find market manipulation using technology and force the anti-fraud and anti-mini ablation -- manipulation authority. it would require platforms to provide appropriate disclosure. it would allow the cftc to write

enforceable rules for cybersecurity for various platforms. this bill would do so much protect customers. i appreciate the fact that all of these provisions are in the bill. >> thank you very much. ms. warren we know a large number of individuals, including those in and -- historically underserved communities are using in trading crypto right now. we directed the cftc to study the racial, demographic, gender data to use this to inform outreach and education on rulemaking efforts. drawing on your experience in the industry, in the nonprofit sector do you have recommendations for the cftc about how to do outreach so that we can really reach all these customers? >> i certainly do, thank you for

the question. it is critically important to begin with communiqué need. the -- community need. we center these committees that have historically underserved and even excluded by formal financial and technical systems to articulate what their needs are and how crypto can be a tool of support. providing financial access that they desperately need for themselves and families. it is critical this time -- kind of analysis and forms disclosures, in plain english so consumers can make risk assessments that they themselves are best to make in their -- beginning with communities themselves it is impaired -- it is of paramount importance. we need to have education that begins not just on crypto

itself, but on fundamental and baseline digital literacy. that needs to be spread throughout our community colleges system, postsecondary, even secondary schools to ensure that americans are prepared for the global digital economy regardless of background or opportunities they have from being wealthier families for higher income populations -- or higher income publishes. >> houston financial services committee is working on legislation on stable coins, how would that legislation interact with our bill given the cftc authority to regular digital commodities? >> thank you, senator is such a great opportunity to have these bills work together, have a clear definition of what is a stable coins is so important. we see in this bill there is a process for listing stable coins, it is important, a lot of what we read about in the early

days of the summer focused on things related to stable coins but were not 1 to 1 back with fiat. did not have audit requirements. did not have the transparency we think is important just for american consumers, people that want to leverage the stable coin like i mentioned in the money gram example. holding assets in a secured financial depository account, taking sure that if you do have a run on the bank there is not a problem for the constituents that used to get the money out. these are really important pieces that need to be addressed. receipt not just a bill in the house, but also the proposal senator gillibrand put together with respect to stable coins and defining stable coins. elective division -- we like the innovation in the space, regulated innovation around table coins. >> i have numerous other questions, i will stop at this point. i will go ,vote, leave the

committee in the cable -- capable hands of senator boseman. do not mess it up. >> i am getting a little bit of responsibility. , would you like to go -- would you like to go? this is our star pitcher. >> thank you, i want to talk aboutdefi -- about defi. this is an area where we can improve this bill. for those focused on this issue decentralized finance has enormous opportunities to improve innovation, work collectively to create more financial inclusivity. many of you have pacified about fewer intermediaries, more opportunities for those at all income levels to engage the financial system. while this bill does include decentralized finance and its framework, i do not know if it is treated in the way it needs

to be treated to continue to participate. i want talk more specifically about the benefit of the staff working on the next iteration of the spell. what would you suggest, laying out in terms of protocols that would apply and map for decentralized finance better than the definitions right now that seem to be overly broad and encompass intimate things that do not really apply. >> thank you, senator, i agree the definition proposed now, is frankly a bit unworkable and have -- in how defi operates. crypto is not a monolith, i have been in crypto for almost six years it did not exist in the space it is brand-new. the cutting edge is being reflected in what we see in the space, the market has not had time to decide which model makes sense, let alone settle into

parameters and bottles that are consistent -- and models that are consistent. i echo your concern that this is critically important edge of financial inclusion. it will provide overtime increasing advantages to those who cannot access other forms of financial services because they have been historically underserved as they report named in the dccpa so amply named. what is also important is to ensure that defi remains of the nine states as a local information. the concern -- united states as a local innovation. we will see off shoring of this innovation space, in a way the other colleagues have noted will not embed the pencil frameworks that are critical to ensure -- principal frameworks that are critical to ensure americans get the protection they deserve. in a general matter we do recommend this is a space that

requires a lot of study, requires a lot of focus on what is happening, what is coming, the trajectory or. also i -- trajectory here. also a bit more time to settle before we box it into something that may wind up cutting up avenues that could benefit to men's groups of people. >> can you explain it more -- benefit to tremendous groups of people. >> can you explain it? if you have defi protocol that does not take custody of assets, can you explain the difference and why these definitions, unfortunately may include, and therefore exclude defi entirely? can you explain the difference for the committee, chairman boseman, the staff so they understand why it needs a separate study for this part. making sure it is not being excluded. >> we working definitions. the way that defi works, it is

an immediate pass through. it enables a precise peer connection between two parties engaging in a transaction without an intermediary between that. it is software, not an entity, not like a group of people managing order -- an organization. it is code. code that is governing this exchange. that leads to a lot of exciting innovations, but also challenging to figure out how you graded framework around that. we talked about 1922, this is about as opposite from that kind of model you could get. there is not an entity in the middle of this that is directing the flow of funds and pointing things to where they should go. it is code. it is conducting the same service and same opportunity. it does behoove us, think very carefully about the president being set when we think about a codebase that is serving a

primary financial service function. how we should think of regulation there in a way that it protects the consumer and maintains the innovation edge and most importantly it is grounded in u.s. historical approach to financial services underlying all that. >> thank you, mr. phillips are like to thank you as well for your readership and the work you have done with this committee and with my staff on writing portions of this legislation. in terms of ideas and awfulness. -- thoughtfulness. i want talk about the issues people have concerns about. energy use, the way this bill will create a steady and protocol to create better disclosure or other recommendations. so participants can make informed choices. can you talk about how you do that, which other regulartory

agencies, can help with that and how it will help long-term? >> absolutely, senator, this bill would require the cftc to conduct a study along with other regular tear -- other regulators about the impacts of other digital commodities. in addition to studying and creating recommendations and how to reduce the energy impacts would also require the cftc list of the energy impacts of a variety of different digital asset commodities. so that investors can see those disclosures and make investing decisions based on what they see. if there is a token that has an extremely high energy impact compared to something else, that is a similar type of token, it is reasonable believe that investors would move to lower

energy intensive asset incentivizing high energy in to reduce their impact by moving to a different watching. -- different block chain. as the reg -- as for the regulators the cftc should speak with about this, the oversight of the nation's energy market, the securities and exchange commission. which i would want them to examine the energy impacts of those digital assets securities. in addition to potentially the bank regulars and absolved -- fsoc that oversee regulation and those markets. >> i have more questions if you want me to filibuster. >> if you want to ask another question. as long as they do not get mad at you. >> ms. warren, i want talk a

little bit about what happened after the days of russia's invasion of ukraine. people work concerned that -- were concerned that could occur and see would be used by russia oligarchs to evade sanctions. that was not the story that we heard. it wind up being a very important example of how this industry and blockchain technology can be a solution for families, countries, unstable governments that need resources to get them quickly. i thought she made excellent points about remittances and how it is important for world financial markets. i care deeply about access to capital for communities that are disadvantaged, unbanked and under banked. i would like you to augment the testimony and talk about the really positive stories about how this industry and this

technology can transform who has access to capital at urgent times of the. -- at urgent times of need. use ukraine as an example to add to the record. >> i think it is most acute. there is really no question, i do not want to sound dramatic, would be a very different situation in that conflict if the crypto amenity had not mobilized in response to civic request from the ukrainian government. the president's office asking for donations of bridget a catalyst -- bridge as a catalyst until the international community could provide the aid that resulted in where we are. the ability of the ukrainian people to stand up to this little -- this brutal invasion. it was a bridge, catalyst, and to give the international community through traditional financial means to provide capital.

we know, because we can see on the block explore, where the money went, what it was used for. based on the accounts that comes from the ukrainian government, it was medical supplies, arms, critically and vitally important at that time. we have seen crypto be a critical tool for activists. those that are working with the u.s. government against rogue states to actually provide money. to get people out of the country at times when their lives are in crisis because of political happenings around the. we see this all -- around them. we see this in afghanistan, when the taliban came in they were looking to seize inappropriate funds, to community, women were using crypto as a way to shield assets from that seizure. it was critical and provide the ability for people in the country to resist the authoritarian regime must upon

them -- pushed upon them. these are examples in other countries, they are so critical, and underline, it in my opinion the nature of crypto and white is so important in times of crisis. -- in times -- and why it is so important in times of crisis. and the night states, it is a choir -- in the united states it is a quieter example, nevertheless there are communities here that have also been unable to get access to financial services are turning to crypto. numbers speak to. themselves, recorded them already. whether or not you are in a acute situation, or crisis, preserving the opportunity at this innovation presents is avenue critical importance. grounding that in a -- this opportunity presents is of critical importance. >> i appreciate the testimony

and the information you get to this counsel of the urgency importance of grading these regulartory frameworks. -- in creating these regulatory marks. -- frameworks. >> we appreciate the good work you and your organization is doing and educating the public and what we are trying to accomplish. this topic is something that is anything,but easy to understand. one of the things we are hearing from other consumer advocacy groups is that this would erode the sec authority to police the crypto market and the cftc is ill prepared to make sure retail consumers are protected. would you agree, when it comes to those assets deem securities and only looks to provide the cftc regulatory authority over digital commodities?

the other thing we are hearing along with that, somehow, they would be underfunded, they would not be able to do this. you might reiterate the importance of user fees, and that would be fine. again, like i said those are two of the major things we are hearing. if you would address that that would be helpful. >> thank you senator. this bill, as i read it, specifically differs authorities over crypto securities to the securities and exchange commission and reserves for the cftc authority over the assets that are crypto commodities. my understanding, since introduction there have been one or two places it is been identified that the sec authority may be impinged. in my written testimony i make recommendations to address that. i want the sec to take -- obtain

authority over securities and the cftc over monty's. -- commodities. the cftc with this bill would have the revelatory capacity and expertise to address these markets. the cftc is an excellent read later. the can -- regulator. the commissioner and chairman are excellent regulators. as for the underfunding, i think all of our regulators need additional resources i encourage congress if they enact the bill to increase the cftc's budget. the user fees that the cftc be able to collect would make it easier for congress to increase the budget to a point where the cftc appropriately regulate this industry. we heard the chairman say he expected the cftc need an

increase of a hundred and $12 million over the next three years, that sounds like an excellent bang for your buck and it comes to doing these assets appropriately related. >> thank you, ms. warren i was about to ask you a question about the defi. i appreciate the discussion you and senator gillibrand had. that is something we are concerned about getting right. we appreciate that. miss parker, your testimony discusses the current regulatory framework that crypto currency exchange operates. speak about the state and federal regulators of coin base with a might be gaps relating to consumer protection measures and why is it -- and why it makes sense to provide cftc with exclusive regulation of digital commodities set forth in the bill. >> thank you, senator.

that is a great question. there are many state and federal regulators that regulate coin base. one of our big challenges, respect to consumer protection, is that it falls to the state banking regulators under the money transmitting license to carry that mandate. it is not that we are unregulated, or there are gaps in the regulation. it is not consistent across state. i would point to our disclosure environments. each state has a own set of disclosure environment for consumers, not all tailored to digital assets. this bill saul's -- solves a critical gap and that it would bring in a unitary federal regulator providing a consistent set of consumer protection requirements that would apply equally to all consumers and do so in a way that is tailored to the nature of the markets and asset.

the cftc has been active in this space for a number of years. this regulation fills the gap with respect to commodity spot regulation in the commodity spot market. we would welcome that role for the cftc in the space. >> dr. tarbert, your testimony raises an important part -- point. how the registration requirements for listing a digital commodity. it runs into a threat to reclassify what appears to be a digital commodity as a security. how can we address that problem? >> thank you so much senator, and your leadership on this issue. that is the key here, many established market participants like citadel securities on the over that coherence. one of the issues is if

something is reclassified after the effect -- after the fact, we would want the certainty that comes from safe harbor during the time which we are trading those instruments to be later on not base civil litigation -- face civil litigation. other kinds of enforcement actions by a change of the regulator itself. >> very good. again, another thing, this has been discussed already. i think it is important, it does come up, it is my understanding the energy consumption for proof of work consensus mechanism transaction validation can be significant. that is why i am glad our legislation is to set an issue. what is your ability to measure energy uses when it comes to consensus in the crypto space? >> think of for you -- thank you

for your question and leadership. what this bill creeps opposes -- presupposes about the steady needing to be done about the consensus mechanisms is so important. it is something we do in other industries to figure out the benefits and harms each of the industries have. the different challenges they bring to the united states. all consensus mechanisms are not alike. what we can do when we are hopeful the study does is create a framework to help to measure the carbon output. figure out when you -- what we need to do as an industry to approve it. we saw last night it 2:34 a.m. eastern time if therein -- etherium move from proof of work to provide state. that is a shift demonstrating increased sustainability for that network to moving proof of state -- stake.

not all mechanisms are created equally. when we think about a framework, we have engaged pwc to create that kind of framework to consider how you should -- have done it with respect to the stellar network, what pieces of this tele-network and what pieces of the transaction should be viewed -- the stellar network and what piece of the transaction should be viewed when you look at as a whole. we think the industry needs that to create consistency and understand, really, truly the value and also the potential and harmon what weekend do to improve -- harm and what we can do to improve on it. >> madam chair. >> thank you so much to all of you, we appreciate your testimony and look forward to continue working with you, also appreciate so much, the chairman and his leadership at the cftc that will be so critical moving forward. we saw last year a lot of volatility in the marketplace. we have a bill that will address that to make a digital -- that

will make digital commodities safer to use and trade. investing in supporting the innovation, opportunities as well. i think this is a really important opportunity for us to move forward. i am hoping our colleagues will join us on this bipartisan bill so that we will get the cftc to work. thank you, the record will remain open for five this and stays for members to submit -- five business days for members to submit additional questions. without further comment the meeting is adjourned. thank you. [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. visit ncicap.org] [captions copyright national cable satellite corp. 2022]

>> coming up tonight at 8 p.m. eastern, a discussion with democrat and gop posters on the midterm elections. you can see it tonight at 8:00 eastern here on c-span. >> president biden marked hispanic heritage month that recognizes the contributions and influence of hispanic americans. he spoke at the 45th annual hispanic caucus in washington