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tv   Crypto CE Os Testify on Digital Assets  CSPAN  December 9, 2021 6:39am-11:28am EST

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>> ftx is a global cryptocurrency exchange. we are the second or third largest exchange globally depending on what metrics you use processing about $a 15 billion per day of trading volume on the pratt form. about a year and a half ago -- platform. about a year and a half ago we start of up our united states operation. a few broader points. first is i think that the industry has the potential to improve a lot of people's lives. there are a lot of ways this could happen. i think that the payment side of this gets a lot of attention, and rightfully so. every time that a consumer goes to a market to purchase goods,
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they pay multiple percent in fees to intermediaries, and that's if they're lucky. when you look globally, trying to send money back to your loved ones at home is extremely difficult. it can cost tens of percents in fees, it can take weeks to arrive, it can get embezzled by various third party scams in the middle, and in general, the global financial system is not one where sending assets to those important to you is easy to do. and this hits the people who are worst off the hardest, who have the least access to the banks or the ecosystem as it exists today. when you look at the number of people who are underranked or unbanked, both in the united states and globally are, it's indicative of a system that does not work for everyone. and this is a process of the intermediation involved, it's a product of how the larger institutions have evolved, and it's a products of payments
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infrastructure that is difficult and clunky enough to use that it just does not work for most people. cryptocurrencys do provide a potential way address a number of these issues making it easier, cheaper, faster and more equitable for people to do what they need to do to manage their financial lives. a little bit about ftx, we are a cryptocurrency exchange. we have a different structure than the traditional exchanges do as do many digital asset venues. we provide open and free market data to all of our users. you pay tens of millions of dollars per year if you want access to the data of the market that you are expected to be placing orders in. you have minimal access to the same tools and order types that trading firms have if you're
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accessing through the normal set of intermediaries. on ft, and, all of our users have full access to the platform, full access to the same sets of tools that institutions to and access to all of our market data which we make publicly available for free. this is true whether you're accessing by api, a sophisticated education, a web site or by our mobile app. we've also put a lot of work into the risk controls on our platform. this is true from the financial crimes side where we conduct sophisticated know your customer diligence on all of our users in order to identify any ill big kit act -- ill lis kit activity. it's true all of our risk engine which is a 24/7 risk engine that is unlike the traditional ecosystem where there need to be
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separate risk models for overnight, weekends and holidays where hours can go by with no ability to mitigate risk to the system. we have a transparent system where all of our data is all openly available and free where risk parameters are transparent. and we are already regulated and licensed. we have many licenses globally. here in the united states we are regulated by states by the money-transmitting regime, and we are regulated nationally by the cftc where with we have a dco and other licensure. we strive to conduct a all of our business on a transparent, regulated manner. i think that it is coming and it is important, and i think that it's healthy that the industry will be regulated. i think it is already regulated in a number of ways.
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i think there are points that need to be addressed to give oversight of various aspects that do not have sufficient oversight right now. and if i also think that it is important to do so in a reasonable and common sense way that understands the industry. i'm happy to answer any of your questions. >> thank you very much, mr. bankman-fried. mr. brooks, you are now recognized for five minutes to present your oral testimony. >> thank you, chairwoman waters and ranking member mchenry and members of the committee. thank you very much for having me here today to talk about digital assets and the future of finance. the topic is an important one for anyone who compares about competitiveness in the financial ecosystem that empowers users over bank ceos and other powerful central decision makers and the next i'm sorry ration of the internet in which individuals are able to not only read information and write content, but also to own a piece of the networks themselves. i am the ceo of a company that
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provides a suite of infrastructure products and services in support of various aspects of the cryptocurrency ecosystem, referred to as web 3, rewards paid to participants for maintaining a particular decentralized network or an app that operates on such a network. since 2011 this theory has designed to produce eight successive generations on the bitcoin blockchain, a process known informally as bitcoin mining. bit herely developed a series -- theory developed a series of businesses including liquid stack, one of the world's largest immersion cooling systems focused on reducing the energy used in bitcoin mining and other high perform data center by as much as 90%, crystal, trns action monitoring and compliance tools to cryptoexchanges and financial services companies in europe,
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asia and north america, and others. i believe the committee's topic today requires an understanding of three important threshold issues. first, a national policy agenda that takes crypto compliance seriously should assess whether it makes more sense to continue to keep crypto activities largely out of the regulated financial system or whether it makes more sense to bring them inside the system precisely so that they can be supervised and operate with appropriate levels of risk management. for example, is it consistent to take the position that only banks should be allowed to issue stable coins but then fail to grant bank charters to the largest issuers of stable coins? or does it make sense to bring enforcement actions challenging certain crypto assets as securities, butten then fail to allow them to be trade on a
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national security exchange subject to supervision by finra and the sec. second, americans deserve to know what our national policy is for a decentralized web 3 powered by crypto a sets. it would be like treating the original internet in the 1990s as primarily a task policy issue. we didn't do that then. what we had in the 1990s with respect to web 1 that we lacked today with respect to crypto is a comprehensive national policy predicated first on the notion of do no harm to the emerging network. today instead of focusing only on micro questions such as whether a particular token is a security, it would be worthwhile for the elected branches of government to grapple with the bigger questions such as do we believe a user-controlled, decentralized internet is better? do we believe that the financial services sector is any less subject to network effects than
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information and commerce were in earlier iterations of the internet? do we trust big banks more or urban source software more as a tool for allocating credit and and capital? can we recognize the difference between crypto projects for lack of demand just as many publicly-traded companies fail and the difference between individual projects actually being scams unworthy being presented to the fair and sometimes harsh judgment of markets? third, not only risks introduced into the system, but also the risk in the present system that are solved by decentralization. having issued almost a billion dollars in civil money penalties against banks and bank executives during my tenure in the office of the comptroller of the currency, this it is clear e there are plenty of examples of risks and costs and safety and soundness problems that are being addressed in the current system. shouldn't we take seriously the possibility that a algorithms
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and open source software that take a measure of human error, greed, fraud and human bias out of the system might actually make the system better on net even if there's some new risks that need to be understood and regulated? apart from those considerations, i'd like to quickly make two observations. one relates to the effect of u.s. crypto regulation on american competitiveness in both the technology and capital market sectors. there are a number of examples of u.s. regulatory decisions that have driven legitimate activity offshore in ways that harm innovators and workers. can anyone explain why fidelity investments had to go to canada to offer a bitcoin etf? or why physically-settled crypto etfs are safe and legal in germany, brazil, singapore or and elsewhere but somehow not in the united states? can anyone explain why
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cryptoissuers and others can receive e-money access in the united kingdom but in the united states they're exclusively for chartered banks where the cost is roughly four times the cost of that in the u.k.? why is there no clear past for depositories chartered in the state of wyoming like other insured depositories? these are the big questions that i hope to address today. thank you, ranking member, mchenry and madam chairman. >> thank you. you are now recognized for five minutes to present your oral testimony. >> chairwoman water, ranking member mchenry and members of the committee, my name is charles -- ceo and cofounder of access. during any my 22-year career as an analyst, investor and entrepreneur -- [inaudible] firsthand. blockchain infrastructure
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platform. customers include bank of america, paypal, mastercard, interactive brokers, credit suisse and many others. institutions provide their clients with reliable, regulated access. each tax dollar is backed by one u.s. dollar, and as a result, it is not volatile like other types of digital assets. however, to maintain the same property, it can be transferred nearly instantly, overnight and on weekends, and it is programmable, secure and traceable. digital assets and blockchain technologies can create a more sufficient, secure or and innovative financial system and a more inclusive and equitable global economy. a person needs a bank account to safely store money, establish credit, earn interest and borrow. and according to the federal reserve, 18ing % of all americans and 40% of black
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adults are unbanked or underbanked. the current system's expensive and flawed. international and even domestic money transfers can take days. digital assets are vastly more accessible. anyone with a smartphone can download a wallet app, a send and receive app that no bank account is required. they can be sent or received 24/7. there's no waiting around for wire transfers or money orders or for banks to open. and transfers are often very inexpensive. digital assets can also reduce bias in finance. at its heart, it's just a math equation. and blockchain permanently and publicly records transactions reducing errors, fraud and systemic risk. a blockchain-based financial ark
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a techture could settle trades on the same day, thus -- [inaudible] for our part, paxos recently -- [inaudible] supporting the goal of reducing settlement times. pasxos believes regulation is essential for insuring adoption. that's why we sought oversight by a primary financial regulator even though we're not required to do so. paxos became the first regulate ared trust for digital assets in the country when it was approved by the new york state department of financial services. we adhere to the same know your money rule as banks. operations, procedures and capital levels. all products are also regulated. two are issued by paxos. unfortunately, the uncertain
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state is hampering the try's development. it's not to shoe horn digital assets into a regular regulatory system -- [inaudible] we believe a primary state or federal regulator should regulate digital companies and their products. regulation must insure that customer assets are segregated from the company's balance sheet. for stable coins independent auditors should regulate -- [inaudible] or only held in reserve. those reserves should be held in -- accounts and availed to the issue and not available to the issuer's general creditors. if the federal government -- [inaudible] issuers' talent and capital will flee for more welcoming -- that'd be a disaster for consumers, workers and our economy as a whole. without a central bank degeneratival currency and
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infrastructure to supportive, it'll become increasingly unviable for other countries to use the dollar as its reserve currency. we need the government's support to create a new, more secure financial system. the consequence of getting it wrong. thank you for the opportunity to provide my testimony, and i look forward to your questions. >> thank you. very much. ms. dixon, you are now recognized for five minutes to -- your oral testimony. >> god morning chairman waters, ranking member mchenry and members of the committee -- >> could you move your microphone a little bit closer? thank you. >> thank you for inviting me to testify today. i'm honored to be here. i am the ceo and executive director of the stellar developments foundation. i took this role and joined the blockchain industry more than two and a half years ago.
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prior to that, i was the chief operating officer of the no civil la -- mozilla corporation. where i spent time advocating openness and interoperability in web technology. it's those same policy priorities that drew me to blockchain, an industry that i believe can learn from past mistakes made in other areas of web development. stellar is an open, decentralized network that is on optimized for payments. there is no single entity that controls the co-face of the network or its growth. you don't need permission to use this technology. thus, by the underpinnings of the internet, it is ready for use by anyone. importantly, stellar was designed for asset issuance making it possible to create send and trade digital assets backed by nearly any form of value and also designed with compliance tools built in to
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help those asset issuers meet their own compliance obligations. the stellar platform is a pioneer, optimized asset issuance before stable coin was even a word, and over the last few years an ecosystem of businesses and users have built use cases around stellar-based stable coin using their -- to solve many of the problems we see in today's payment landscape. despite the helines, what's happening with -- headlines, what's happening in the world is not just lending, trading and borrowing. other use cases are active and focused on solving real world challenges using the technology. so let me start with money gram international, building a solution on stellar that enable seamless conversion between cash and digital assets. the network integrates with the stellar blockchain to enable cash funding of digital accounts and payout in different currencies of the consumer's
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choice using stable coin. in real terms, consumers will be able to send value in the stable coin and easily convert to local fiat currency for instant pick-up of thousands of participating money gram locations globally. this is in pilot stage right now in the u.s. and is expected to be widely available in 2022. another example -- [inaudible] global fin-tech has built -- who are vulnerable to thefts while carrying across borders. so with leaf's wallet, these users can save their money in multiple currencies and pay for goods and services. that functionality is only possible because they leverage stellar's ability to issue assets, stable cones and exchange value -- [inaudible] use case is live and operational today. the last case is one that is in
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development, best known for its mobile lending app which enables customers to apply for a loan and receive an instant decision regardless of their credit history. they are now working to expand by using stellar app and table coin to help their current customers with credit by allowing borrowing, spending, saving, investing and sending and receiving. there are many more valuable use cases in the stellar ecosystem that i would love to be able to share with you today, but i would just briefly like to mention that in a recent report from the g20 there were five stellar ecosystem companies named for their innovative solutions in digital finance supporting msmes. cases like these are in varying statements of maturity, but their potential value is undeniable, and none of these use cases would be possible without stable coins. stable coins are a core technological component and, by extension, that means stable
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coins are essential on delivering financial inclusion. so that brings me to the pwg report on stable coin which raises legitimate risk, but its recommendations -- its recommended solutions go too far. specifically, to limit stable coin's issuance to insure depository institutions is not narrowly tailored for the simple reason that although there are outliers, most stable coins -- unlike bank deposits, are fully reserved. instead we advocate for a regulatory approach that a focuses more on stable coin reserves by requiring -- be fully reserved by assets, creating clear standards for regular audit and public disclosure of stable coin reserves and key contractual terms regarding exemption and by making it clear that payment stable coins are not security. of course, regulators must be empowered to oversee these
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requirements. narrowly tailored charter of the opc. in our view, this would promote the safety and soundness of stable coin's arrangement. we've started to see how innovation can be hampered in other participant ifs of the world when regulators or lawmakers react prematurely. in nigeria, we're eliminating costly foreign exchange and slow processing times until the central bank of nigeria abruptly ended that business model. many innovators have have consequently been stopped in their tracks. as you walk away from this hearing, i urge you to look at the technology beyond the narrow lens that often dominates the news. thank you for having me today, i look forward to your questions. >> thank you, ms. dixon. ms. hans, you are now recognized for five minutes to give your testimony. >> good morning and thank you so much for this opportunity to
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testify on the future of finance. my name is alicia hasn't, and i serve as the chief financial officer of coinbase global also of coinbase inc., our u.s. subsidiary. i join ised coinbase in 2018 and spent 20 years in the financial services industry. today i'm here to introduce coinbase anded today's regulations and how they could be changed to advance bipartisan goals of protecting consumers and promoting innovation. coinbase's mission is to increase economic freedom in the world. we were founded in 2012 with the idea that anyoneer should be able to easily and securely send and receive bitcoin. over the last nine years, our products and services have expanded to meet our customers' needs in the rapidly involving crypto industry. we have customers in every state
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except the state of hawaii, and as a remote first company, we have employees in 45 states and in the district of columbia including 24 of the 25 states represented by this committee. with now securely store 12% of the world's crypto on our platform. this is over 150 asset types, and we offer customers the opportunity to learn, sell, send, receive and buy more than 100 assets on our platform. additionally, we offer customers the opportunity to spend, to borrow, to earn, and and transact on select assets. we serve more than 73 million customers globally including 10,000 institutions and 185,000 application developers. importantly, nearly 50% of our transacting customers are doing something other than buying and
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selling crypto which indicates to us that crypto has moved past its initial investment phase, and we are now in the long-expected utility phase of this ecosystem. since our founding, coinbase has strived to be the most secure, trusted and legally compliant bridge to the crypto economy. coinbase is federally registered as a money service assistanting, licensed as a money transmitter in 42 states, holds a bit license and trust charter from the new york department of financial services, and we are authorizeed to engage in consumer lending in 15 states. we are one of only two digital asset members of the department of treasury bank secrecy act advisory group. in addition to the various state regulatory regimes, we are subject to federal oversight from treasury, the cftc, sec, ftc and the fpb.
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much like the adoption curve of the internet in the 1990s, we are seeing dramatic advancements in crypto pampleghts there are more than 220 million crypto holders globally and around 16% of americans have invested in, traded or used cryptocurrency. total crypto market capitalization at then end of the third quarter was over $2 trillion up from $800 billion in 2020. coyne base's -- coinbase's platform is a new financial system for the internet age which we believe is a critical infrastructure layer to web 3.0. technologies like nonfungible tokens and decentralized application platforms will lead the way to web 3.0 which will revolutionize the internet. much like the industry was revolutionized when it went to static content to -- that we have today. we believe it's central to
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fueling crypto and adoption. that is why -- [inaudible] which we refer to as df. the df assessed the challenges of the existing regulatory framework and proposed a four-pillar solution. first, we believe the government should recognize digital assets under a new comprehensive framework that a recognizes the innovation underpinning digital assets. second, the responsibility for this new framework should be assigned to a single federal regular late or. this regulator would be charged with establishing a registration process which we refer to as marketplaces for digital assets. third, this new framework should insure that holders of digital assets are empowered and protects. we believe in enhanced transparency through robust and appropriate disclosure requirements. b, we want to protect against fraud and market manipulation. and, c, we want to promote efficiency and strengthen our market resiliency. our fourth and final pillar is
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to insure that regulatory solutions promote interoperability and fair competition. in conclusion, coinbase believes crypto will change society in positive way. this is why our mission to promote economic freedom around the world. disruption always challenges the status quo, we believe sound policies can improve the system for everyone. we applaud chairwoman waters, ranking member mchenry and the members of this committee for holding this important hearing. thank you for the opportunity to discuss these important issues, and i look forward to answering your questions. >> thank you very much. i now recognize myself for five minutes for questions. i'm a bit concerned about your company, paxos', partnership with facebook which is now i calling itself meta. as you know, facebook has
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attempted several times to enter the cryptocurrency market. they founded the libra corporation based in switzerland with the goal of creating a stable could be but suspended these activities after this committee held hearings, and i along with other members and u.s. regulators raised significant concerns leading to a number of association members pulling out. now, in partnership with paxos and coinbase, facebook has launched a pilot project with its digital wallet. for a limit number of individuals in the united states of and guatemala to send or receive money using your stable coin known as usdp or pax dollar. one of the recommendations in the recent president's working group report focuses on mitigating systemic risk by stable coins as well as concentration of economic power concerns. the report, among other things,
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recommends legislation that stable coin uses must comply with activity restrictions that limit affiliation with commercial entities similar to restrictions most banks face to promote the separation of banking and commerce. while your partnership with facebook is reportly a pilot limited -- reportedly a pilot limited to guatemala and the united states, what is stopping facebook from allowing its nearly 3 billion active users to -- [inaudible] with the pax dollar or other previously issued stable coin through a global wallet? if this were allowed at such a scale, how would this not undermean the u.s. dollar -- undermine the u.s. dollar in the world's reserve currency? are you still --
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[inaudible] can you hear me? >> there we go. sorry about that. thank you for the question, chairman. chair wouldn't so i think it's important to know in the case of -- that they are a customer of paxos just like any other customer. they can use that product, and i think they did that because we have the most regulated table coin product. and i think that was an important decision for them, that they wanted to use a well-regulated product. and i think another important point is -- is our customers, a subsidiary of facebook. but it is a regulated money services business. they are regulated operating in almost all the states in the united states, and we have done extensive due diligence on their controls and the regulatory oversight that they have, and we feel very confident that -- [inaudible]
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and so in terms of the noted usage of our product, it's just like anybody else, just like if they had a bank account, which they a do -- [inaudible] and so in that way, the services they're getting from us are no different than services they get from any other financial institutions that they have a relationship with. >> and so this is supposedly a pilot that's limited to a number of users in guatemala and the u.s.? what is stopping facebook, again, from in the future allowing its monthly active users to -- [inaudible] with the pax dollar? how long is this pilot? can you describe it? >> yeah. is so the pilot's controlled, it's something that we work with our regulator on, and they have reviewed our program.
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maybe it'd be best to talk about the plans to expand it, but right now there are pilots that -- [inaudible] the u.s. and guatemala. it's quite limited in scope and size. >> [inaudible] i now recognize the questionman from north carolina, mr. mchenry, who's the ranking member of the committee. you're now recognized for five mcs. >> thank you. mr. brooks, let's ten back from digital assets and blockchain for a moment let's talk about where the internet was, where it's come to, where it's going, right? if we're trying to level-set here for policymakers. so originally the internet was a read-only format in essence. we were consuming information. it became much more interactive. but counterintuitively, much more interactive but much more centralized in web 1, web 2.
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what we're hearing now is web 3. policymakers need to understand the nature of web 3. this is a hearing about a component of web 3. now, along those lines, what are the characteristics that defined web 1 and web 2? >> mr. mchenry, thank you very much for that question. i think that's critical to understanding what we're all trying to build here. so web 1, people remember their original aol are account, was an ability to look in a cure rated, walled garden at a set of content that was presented to you on aol the way that time magazine used to show you the articles they wanted you to see inside of your magazine. you could see it on a screen. the iteration of web 2 was suddenly you could not only read content, but you could write content. this is when the blogosphere became a big thing in the late 90s, 2000s. the reason for that
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centralization, of course, was all that money was being monetized by a small number of companies. facebook, as the chairwoman mentions, google and a few other companies. what makes 3 different is the ability to own the actual network, and that's what crypto assets themselves represent, an ownership stake in an underlying network. so when you hear people talk about, for example, layer one tokens, what they mean is this is your reward for providing the ledger may maintenance servicese computing power to the network that on web 1 and 2 was done by google. so now people in my hometown of pueblo, colorado, can own the ethereum network. that's what the project is all about, allowing people to directly own the networks that have native assets that are supporting it, and that's the nature of decentralization where the token holders -- >> okay. token holders, for our language here on the hill, those are
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digital assets, right, which are the keys to open up the ledger for you to participate, right? >> right. >> so describe to us how those digital assets fit into web 3. >> so the concept is that you have sort of application layer tokens and you have protocol layer tokens. so if i'm the owner of bitcoin, let's say that i'm a minor of bitcoin, somebody who actually crypts bitcoin. the bitcoin is the reward i receive for doing the work to keep the network operational, and that allows me to own a piece of the bitcoin block blockchain. or take ethereum. the ether token, on top of the network are all kinds of apps that get built on the network much like the apps on your phone depend on the underlying network existing that lets the phone operate. so people will make judgments about which network is likely to win, and they will investment ie tokens in that network much the
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same way you might invest in google stock. the deference being here you can vote on what happens in the future of a proof of stake network, for example, you can get rewarded through a proof of work token for maintaining a ledger on something like bitcoin. but the real message here is what happens on the decentralized internet is decided by the investors versus what happens on the main internet is decided by twitter, facebook, google and a small number of other companies. >> okay. so getting this layer on digital assets right, for congress to understand this, everything is built upon that, that onramp to this new internet. so very important for us to be sensitive to how this develops and any actions we take in terms of laws and updating laws to incorporate these new technologies. >> mr. mchenry, couldn't agree more. and i think when you hear about all of the problems of different big tech companies, the
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importance of owner-controlled network becomes clear. >> okay. owner-controlled network rather than a cooperative, right, and thinking in those terms, right in. >> absolutely. >> if you're not a part of management, you're not make a decision. web 2, if you're a participant in the network, you're cooperating in making those decisions. i ask this not to be insulting to the panel, but having a level set here so we have an understanding of what we're talking about. this is not simply about you on this panel, it is about trillions of dollars of assets that did not exist before the white paper 13 years ago. it's about $3 trillion in value at this stage around the development of a whole new range, whole new suite9 of technology that will be developed across the globe whether or not the united states embraces it and wants the compete or if it's pushed offshore. this is a small panel, important as you may be, a small panel
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about the discussion about web 3, and so with that, madam chair, thank you for having us here, and i hope that we can have more understanding about these important con sets. -- concepts. thank you, mr. brooks. >> thank you very much. the gentlewoman from new york, miss maloney, is now recognized for five minutes. enter thank you, chair, for having today's hearing. our financial system has been built up over time with -- from each financial crisis. fixing and adjusting as more financial risks come forward from the great depression and the creation of the fdic and deposit insurance to the reforms after the 2008 financial crisis, we may not all agree on every as sect of those -- aspect of those, but they've made our financial system and our entire economy more resilient and --
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investors more protected when things do go wrong. in 2018 the new york attorney general released a report from it virtual markets integrity initiative which detail a few key findings regarding crypto trading platforms on particular concepts of risk and interests. lack of -- earths to stop, efforts to stop abusive -- [inaudible] and limited protection for customer fund. the report stated and i quote, customers are highly exposed in the event of a hack or unauthorized withdrawal. domestic deposit insurance may compensate customers for certains losses of stolen or misappropriate fiat with currency, most similar company -- no similar compensation is available for -- [inaudible] this is not a theoretical concern. in fact, coinbase was reported the hi the subject of a hack
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earlier this year impacting at least 6,000 customers. ms. haas, what happens today for a coinbase customer in the event of a hack or unauthorized withdrawal? what protections does a customer currently have? fbi -- [inaudible] could you answer that question, please, thank you. >> yes. thank you so much for the question. so coinbase does secure 12% of the world's crypto as i shared earlier, and we have extensive controls. we bifurcate our assets into two different storage systems, one the hot wallet and one cold storage. less than 2% of our assets are held in the hot wallet which was subject of the cyber attack. it was not a hack of the system, but in that event where customers did lose funds due to other losses, we did reimburse customers. we do protect our customers from
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any hack of the coinbase hot wallet, and we have third party insurance, and plus we use our -- >> please take the microphone closer to us and speak into -- to you. >> thank you so much for the clarification. with regards to what losses we typically sew though in the press, we typically see these are account takeovers at the endpoint where a customer has lost their credentials and has had a hack of their own phone and personal device, and that is unfortunately at point in time because that loss is not well protected. that is something that coinbase continues to study and would look to over time -- [inaudible] >> reclaiming my time, reclaiming my time, my time's very limited, is that uniform, the protections you talked about, for all crypto exchanges and wallets or just for yoursesome. >> i'm speaking specifically about the coinbase. >> okay. so it's not available to others. so do you think customers could benefit from uniformity and
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standardized protections if and when customers lose their funds through no fault of their own in. >> i do believe there's opportunity there. >> in addition to this committee, i -- [inaudible] on the oversight committee, and we recently held a committee on the rise of ransomware. isn'ted ransomware payments were reported at the first six months of 2021, and it's getting worse. so it's no surprise to me that these criminals frequently seek payment for ransomware attacks through cryptocurrencies, and fin-sen -- [inaudible] are anti-money laundering requirements paramount to
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prevent fraud, sanctions, invasions and a financial terrorism? and you and your companies have highlighted your compliance programs stating that these are to protect the financial system and to drive trust and adoption. but not everyone in this industry believes that, and many have reject or avoided compliance standards. some actively promote themselves and are not complying. this is an entire financial services ecosystem and one back link exposes the entire system to money laundering risks highlights by the data. could you share why -- have taken your anti-money laundering compliance approach and the benefits of doing so aa cross your products finish across your products and services, and what steps can we take to bolster our anti-money laundering efforts and insure all cryptomarketplaces comply in. >> the gentlewoman's time has
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expired. the the gentlewoman from -- [inaudible] is now recognized for five minutes. >> thank you, madam chairwoman. ms.h ark as, let's continue. sec chairman gensler has anticipated on multiple occasions that, and i quote, the test to determine whether a crypto asset is a security is clear. however, commissioners noted that they believe there to be an obvious lack of clarity for market participants around the application of securities laws to digital assets and their trading. so lack of clarity is clear through the numerous requests that the sec receives for these no-action letters. in your view, is additional guidance defining clear rules of the road for investors or and market participants needed at this time? >> thank you for the question. we believe this is a very
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important area of focus for the sec and this committee. we do agree the laws are clear. however, existing laws, regulation and legal precedent make it clear that blockchain tokens are not securities. so we believe the law clearly shows they're one of two things, either a new form of digital property or a new way to record ownership as brian book spoke earlier about. we do believe that clarity is need because these are new assets, it's a new way of transacting with these new protocols that we spoke about, and i think it would benefit all of us in the ecosystem to have agreed-upon definitions. >> i couldn't agree more, and i would hope that chairman gensler would be listening to his commissioners and some of the feedback that you all are giving. you know, we talk a lot about financial encollusion in this -- inclusion in this committee, and digital assets have the potential to provide fair access to financial services to all americans, and i believe
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mr. bankman-fried brought that up, and many of you did in your written testimony. i've got limited time, i'd like to start with ms. dixon and then, i think, mr. allaire. how to do digital assets and blockchain technology facile anticipate financial institutions -- or financial inclusion and benefit the 1.7 billion unbanked people throughout the world and particularly the millions here in the u.s.? ms. dixson. >> thank you for the question. this is a really important area. understanding the the time is limit, blockchain allows money to flow just like mail, so it's very simple -- like e-mail. the importance of that is it actually can cross borders much more simply than anything else that's out there today, so the value of blockchain is the ability to send from the united states, for example, and send to another country without having to reconcile all the different software intermediaries that
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exist today. so it eliminates intermediaries, it creates less friction in the marketplace, and it allows users who don't have bank accounts or who choose not to that have been derisked by banks to be able to access this technology very cleanly because they can do so with a wallet. >> thank you very much for that input. and mr. allaire. >> thank you, congresswoman. as we think about usec as a payment technology for dollars on the internet enables users to transfer dollars in a fraction of a second with a transaction cost that can be as low as a 20th of a penny and with the throughput of the network. that's a benefit that can be brought to individuals, and i'd like to really emphasize something for the committee which is one of the most powerful things about this technology is that it is the open internet. just like anyone can have an
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e-mail account or a text message or access the internet, this is an open financial system, and when you combine that efficiency and openness, it creates an opportunity for anyone with a mobile device anywhere in the world to seamlessly exchange value with one another. >> thank you. mr. brooks. in your view, what should members of this committee keep in mind to avoid hampering innovation? because that's not what we wanted to do in this new marketplace. and increase the financial inclusion that we talked about here. >> congresswoman wagner, the answer is one word, it is parity. if we treat traditional financial assets in a certain way, we should not treat internet-based financial assets in a worse way. puff a stable coin that is punksing like a payment -- functions like a payment industry, it's not be treated different than a credit card or traveler's check. the answer is parity. >> thank you very much, chairwoman waters, and i will
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yield back the couple of seconds that i have. >> thank you. thank you very much. now we will have the gentlewoman from new york, ms. velazquez, who is the chair of the house committee on small business. you're now recognized for five minutes. >> thank you, madam chair and ranking member, for this important hearing. mr. allaire, it is my understanding that earlier both of your companies stated that your stable coins are now almost entirely backed with cash reserves and u.s. treasuries. can both of you confirm that to be true? >> congresswoman velazquez, thank you for the question. yes, i can confirm that 100% of the reserves that back usdc are held in cash -- >> thank you, thank you. mr. cascarilla? >> i can confirm that as well. >> okay. so are both of you stable coins
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fully 100% backed by cash reserves and u.s. treasuries? >> yes, that's the case. >> mr. cascarilla. >> yes, that's right. and i would add one addendum. all of our u.s. treasuries are maturing in less than three months. they are -- >> thank you. >> -- [inaudible] >> thank you. and you please explain why you're offering a stable coin that wasn't backed by stable currency and what prompted you to make this change? and please be breach. >> thank you, congresswoman. usdc has been governed by the money transaction statutes of the united states, permissible investment rules, the same statutes that govern the balances of the $35 billion with paypal, square, other fin-techs. so we've always been within the statutory requirements. and i think we've reported on that every month since we
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launched in 2018. >> thank you. mr. cascarilha? >> so we have always backed our coin by short-term treasuries or cash e we've lents, and the reason we do that is because we have a regulated stable coin. we're overseen by the new york -- [inaudible] financial services, we operate through a trust company, we have a primary regulator who also regulates our token, and importantly are, that primary regulator sets the supervisely limit with which we're able to then offer our products. >> okay. thank you -- >> and so this was a requirement for us. >> thank you for your answer. and can you guarantee to the global public that your product is and will continue to be backed fully by the u.s. dollar? >> we are committed to a one for one backing, and we look forward to working with congress and federal regulators on, ultimately, the reserve standards that are really needed for stable coins as a financial instrument in the financial system.
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>> thank you. mr. cascarilla. >> yes. we will only be 100% backed by u.s. dollars. >> thank you. well, i do appreciate both of your decisions to back the stable coins with cash and u.s. treasuries. and sharing this with the public. unfortunately, an investigation by the new york state attorney general, letitia james,' office this year calls into question the veracity of the statement made to the public. ms. james' investigation revealed for periods of time that a stable coin -- [inaudible] to back their -- in circulation which was contrary to your representation. so my question to both of you is
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do you think man story reporting of your -- mandatory reporting of your reserves to federal regulators and submitting to their regular examination is a good idea and something you each support? >> congresswoman, i am support i of that federal supervision and of those reporting requirements and mandates, and i think that's critical to make this a mainstream infrastructure that can benefit the u.s. economy. >> thank you. >> it's important to say that we are regulated as a trust company. we are a regulated financial institution, we have been since 2015. we were the first one in the entire country, and we're proud of that. so our products already have a primary regulator that oversees our everybody shines -- >> excuse me. maybe i need in my question federal regulators. mr. allaire? >> yes. we are supportive of federal supervision. >> good. and mr. cascarilla.
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>> i think that can make sense especially for firms that don't have a state regular rater that oversee -- regulators that oversees their activities. >> okay, thank you. ms. haas, asset-trading platforms like yours play an important role in the functioning of stable coins and also raise the question about digital market -- [inaudible] supervision and enforcement. can each of you describe the methods your platforms use to determine the price for exchanging digital currency for fiat currency? i see that my time has expired. thank you. i yield back. [inaudible conversations] enter okay.
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[inaudible] >> agency-only platform. we do not engage in -- [inaudible] on our platform. we offer it for customers to come together, to offer bids and -- so the marketplace is determined by the market participants. >> and -- [inaudible] of the frank -- transaction do you provide -- [inaudible] >> so we have two products. we have a consumer product and we have what we call a pro product for our -- [inaudible] it's important that any customer can choose either program, but we ten to see them choose our easy to use platform. the price displayed on the screen is the price that's locked in and that we guarantee to the customer. >> thank you. >> thank you. the gentlewoman's time is expired. the gentleman from oklahoma is now recognized for five minutes. >> thank you, madam chair.
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ms. haas, you discussed how the future of blockchain might many include new areas of tokennization. could you discuss further what trends you currently see and how new asset classes could arise through blockchain technology? where are we going? >> thank you for the question. so i think it's important to share that anything can be tokennized, any item of value. and this is an a internet of value that we're talking about with web 3.0. we're talking about the protocol layer. we see infrastructure being built and then we see applications being built as the next layer. so bitcoin, ethereum, stellar, these are all important protocol layers, and on top of these we see applications. an interesting article was published yesterday, gaming platform, so video games that many of you may play, your children, gaming with nfts, nonfungible tokens, which means everything is different are are being most actively traded.
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and it was a significant percent of the asset in deplaintiff fi, de-- de-fi. so we're seeing all types of things. we have had early conversations with real estate developers to get more hick bid markets for -- liquid markets for tokens. and a lot of nft digital art. and i think just back in the early '90s we couldn't envision uber, we don't know what the future is, and there's so much ahead of us. >> mr. brooks, it's good to see you before the committee again. could you discuss what key fundamental differences between banks and stable coin issuers are important for congress and regulators to understand when looking at regulatory proposals? >> congressman lucas, thank you so much, and it's nice to see you again as well. one of the historical differences between banks and stable coin issuers is that banks in this country historically have been engaged in multiple different kinds of financial intermediation and
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risk-taking funkings. banks -- funks. banks -- functions. the core feature of stable coin is they're a new payments technology, and payments are one of the core things bank thats do, right? so banks historically innovated in payments by first having check clearing, then later having -- checks then later having prepaid cards. stable coin is the faster, most modern way of transferring those values. stable coins, of course, don't present all of the risks that banking presents, they don't engage in lending or anything else, and this is one of the witness why at the -- reasons why at the occ we look at payment companies, why they might possibly qualify for bank charters. they're engaged in a core banking function but not in the others. sometimes crypto is reducing risk, not increasing risk. >> ms. dixon, could you also discuss this for a moment? >> i think that there's a really
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big opportunity with respect to blockchain. i think when you mentioned before about tokennized assets, there already are tokennized interests in real estate that exist on seller, for example, or in interest in u.s. stocks. so there's opportunity for both there. with respect to what we have with blockchain and what can be accessible, the method that banks already have available but when they derisk populations and derisk individuals out of the banking infrastructure, they can actually asset accounts, hold assets, hold their assets in a digital framework and do a lot of the same things that you can do at banking institutions, but these individuals couldn't get access to it before. so i think blockchain creates that financial inclusion that we're all talking about and that we all want to get to, and it does so, i think, as was anticipated with the different layer withs, the infrastructure layer and the application layers. there's so much create evident that's happening now, so i think we have a long road ahead of us with respect to this technology.
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>> could you respond to the criticism stable coins would be rife for illicit financial axtivity, and -- activity, and could you compare this with other payment rails? >> thank you, congressman. we -- participants in the ecosystem have advance surveillance techniques to prevent financial crimes for all digital assets conducting know your customer -- and blockchain surveillance on an all users' deposits and withdrawals on our platform. and in addition to that, know your customer policies on all issuers -- all issue wants and redemptions of those stable coins. ..
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>> thank you. i yield back. >> the gentleman from texas mr. green who is is the chaif the subcommittee is now recognized for five minutes. >> thank you, madam chair. i thank the witnesses for appearing as well. i trust my point is such that i'm being heard. if you can verify, i greatly appreciated. >> we can hear you very well, mr. green. >> thank you very much, madam chair. in the last year the digital asset market has exploded from about 500 billion, to $3 trillion. and they're still extreme volatility it seems in this marketplace. bitcoin, for example, lost half of its value over two days in
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march, and it rebounded of course later on, but there are many problems leading up to the global financial crisis that soon to be manifesting themselves in the market currently. easy credit the margin investing, lack of transparency, the lack of transparency that i would like to see, and adequate financial disclosure is not readily available. with the explosive growth in cryptocurrencies, at what point should would become concerned about the possibility of a bubble? at what point should we become concerned about the possibility of a bubble? let's start if we my -- if we may with mr. brian brooks. >> thank you. it's terrific to see you again and i always find your questions extreme the perceptive. what i would say about that question is a lot of the price volatility of the clergy has to
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do with the early stage of the market and the thinly traded nature of asset compared to u.s. real estate global equities or anything like that. the message i would land to this committee with response is some of things that make u.s. equity and debt markets more stable and less volatile have to do with the fact there's a lot more price discovery in those areas. what i mean is in the u.s. we have regulated equity mutual funds. we have derivatives products and futures products that allow the free trading on a 24/7 basis that provides the market with forecasts of what's happening in the ecosystem. in the world of crypto the u.s. hasn't responded by developing those tools yet and so the result in a relatively new relatively thinly traded market is that one person unwinding the position can have a massive effect on the price. the last point i would make quickly is something like 80% of bitcoin holders have never sold
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a bitcoin. when here about a day when there was a giant price drop in bitcoin, often it turns out there was one or two large traders who unwinding a leveraged position and the vast majority of voters have enough confidence in it a literally never sold a unit of it. i would argue we need more liquidity and more price discovery to tamp down volatility, not less. >> thank you. let's go to ms. dixon, please. >> thank you for the question. from the standpoint of what's available in the market today one of the things we need to do better and i think were working in the direction is much like the early days of the web. we need to focus on consumer oriented products that have a lot of information about the challenges and brings the person through from a literacy standpoints of the understand you look at user experience, you look at design, all of these things are really important. as we found in the early days of
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the web it happen, came together, we became better at educating the audience about what's available. the nice thing about blockchain is your records that are after they can't be changed. this information is already leveraged by chain analysis for example, to elicit the different things happening on chain and allows us the opportunity to create a lot more foundational efforts with respect to user experience and focus on these consumer protection issues you are talking about. >> mr. samuel bankman, if you would, please. would like to hear from you. >> thank you for the question. one of the really innovative properties of crypto currency markets are a 24/7 risk monitoring engine we do not have overnight risks or we can risk or holiday risk and similar traditional assets do which allow risk monitoring and be risking positions in real-time help mitigate volatility. we have been operating for a number of years with billions of dollars of open interest.
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we've never had customer clawbacks or anything like that. even going through periods of large movements in both directions. we store collateral from users which is not of that in the traditional financial ecosystem to backstop positions. the last thing i will say if you look at what are separated some of the 2008 financial crisis, use a number of -- [inaudible] non-reported transactions happening between parties which come prepackaged and read leveraged again and again and again such that no one knew how much risk was in that system and tell it all fell apart. if you compare that to what happens on ftx or other major crypto currently being used today is complete transparency about the interest come complete transparency of the positions held, a robust consistent risk framework applied.
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>> my time has expired. thank you, madam . thank you, madam chair. i yield back. >> you're welcome. the gentleman from texas, mr. sessions, is now recognized for five and. >> madam chair, thank you very much, and to the panel we appreciate this opportunity to hear from you. i think it's very important for us to hear from you. you are not the inventors but you are the people that are going to make this work. i am tremendously impressed that, from what i see, a lot of the ingenuity, a lot of entrepreneurial spirit and lots of advice about the future about where this can grow is i think they're important for us to listen to. i'm in favor of what you do. i'm not sure i want to go as far as you do on robustness of how much oversight you really want
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because i think in your perhaps infancy, perhaps in your modeling what makes you better is what you are. and i respect that. the question i would ask, and i don't know which one you to ask this, so i would just say we are always interested in a traditional financial model of identifying risk, what is the risk? we get very little into value but a lot into risk. and so i would ask you, the value of much of this could be compared to stocks, ipos when you first come out. they might come out and be worth this amount of money in one year later they are worth immense amount of money. i'm more concerned with the term fraud, of the value that the selling of all these different positions that could be held. what do you do to try and look
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at what might be fraud? i know there's been openness about a lot of discussion about how you allow information to be freely gleaned. you do these things but is there an investigation or an understanding about what might be risky, even though you accept it, or fraud? anyone. >> and happy to take that one. >> thank you very much. >> specific to the coinbase platform, on the coinbase platform we have various tools. one in onboarding, we do kyc it also our assets and offer us imagine over 100 assets for trading on a platform. with a robust assessment of each of those assets. were looking at it for legal risks. we think it has the contours of federal security? we do not listed securities. look at a for compliant reason. is this a scam? are the real people behind those? we are doing a full complaint review of the founders of the
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coin, developers and project and looking at it from a security risk. can we safely secure and store this on a platform or insert underline technology risk that would be rising to a hack? when we look at fraud as we listen asset to make its -- shirts not fraudulent. to our market rules we do have traditional exchange rules for looking for spacing, for washing trading come for all sorts of market inflation on a platform that we are third-party tools as well as employees the came from former regulators or traditional financial services that to 24/7 monitoring much like mr. bankman-fried on the risk model. we do monody on 24/7 basis. we also then monitor lock change. one of the wonderful things about this technology is the transparency and so we can look for transaction activity, look for patterns on the blockchain and then partner with law enforcement, and where traditional approaches much like you'd see in finance but the transparency really changes the way what we can do here.
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>> i think that's the key at least to me, if you talk about the medicare system, yet medicare providers and we had probably 18% fraud. in that system there's a federal system that's been well understood. whenever you open up your door, whatever your storefront is, there somebody there is going to try and find a way to take you, to spoof you come to take advantage of this year it seems like to me that is something that if you have accepted this as part of the duty you have to make sure for the integrity of your system, it seems like to me i have satisfied myself that what you have not just have ongoing, we need to be supportive of you. we need to look at you as a less of, as something that we ought to get in and understand and tackle you and hold you back,
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and more to believe the future should look like for people around the world and people in the united states. i would simply say to you i encourage her integrity. i encourage you to avoid the pitfalls that come from there being some fraud that was hidden for a long period of time in industry knew it. we've seen this happen in companies. i don't need to go through that. where fully vetted market, individuals still did something wrong. so madam chairman i want to thank you for doing this. i think it's good for all of our members and i in particular want to thank my ranking member for his proactive viewpoint of republican members that hope would be supportive of, what you think today. thank you very much. >> thank you. the gentleman from new york mr. meeks was the chair of the house committee on foreign affairs is now recognized for five minutes.
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>> thank you, madam chair. i want to thank you, too, for this very, very important hearing. look, the future, it is an innovation. financial industries is available and get ahead of it, so your foresight and that of the ranking member to do this is really, really important. let me first asked my question to -- [inaudible] as you are aware, communities of color often rely on minority deposit institutes -- [inaudible] for safety to do business and get access to crucial banking needs. given that important role as well as the challenges that they face, i'm a long advocate for the best partnerships whereby nga's or cdfi's can leverage to
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better serve their communities as well as -- [inaudible] for using exploring such partnerships and creating an initiative to the -- [inaudible] usd coin reserves, cdfi's and financial inclusion. so my question, you provide a static update -- [inaudible] system developed to ensure the success of the program. >> thank you, congressman mix. i appreciate the question very much. for those on the committee that are not familiar, we recently announced a new broad-based company initiative called circle impact. includes several key initiatives for some form of something i did reference in my testimony as well, is an initiative to take what we hope will be billions of dollars of the deposits that are
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held behind usdc and actually place those with minority deposit institutions and community banks throughout the united states. one thing that's important to understand is that unlike a bank that wants to may be poured its deposits for its own lending business, as a forward serve model we're not in the business of lending and so is a tremendous opportunity for us to work closely with banking institutions that could benefit from strength and balance sheets, that could strengthen from what that can then come with that in turn can do to open up credit and lending and other opportunities in these underserved communities. this particular initiative is one we just began. we expect to have the first wave of that in place by the end of the first quarter. we are also looking to coordinate with federal banking regulators who have their own
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initiatives that are focused on supporting mdi's and committed banks and we view this as a really critical part of what we can do to foster a more inclusive financial system. final comment is simply that we believe that the technology of digital currency, the frictionless, the way in which individuals with multiple devices can actively participate and not just domestically but interacting with family members around the world and safe exchanging value, that these can also bring significant benefits to these communities. we will certainly keep the committee up-to-date on progress with this initiative. >> thank you very much for that. let me go to ms. haas real quick. you talk about technology. it has met the sure shekino and digital currencies can bring to our financial markets. they are very impressive. i know a lot of communities --
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payment systems to save money -- [inaudible] this type of activity that is extremely useful to our growing economy which is very, very important. but there are also bad actors out there that could use crypto or digital currency to hide cash from illicit activity. also you people could hide cash, not to pay for support payments and other things. my question is, how can we -- [inaudible] to keep the bad actors out there? i know in your testimony, ms. haas, you mentioned there's a small amount of foreign exchange service of work actors benefit from illicit activity. so what's your assessment about stamping out that activity and what more can the united states
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policymakers do to better coordinate with regulators across europe to prevent this arbitrage that refer to? >> thank you so much for the question. as a said on the previous platform we do have qac -- [inaudible] and we ensure that -- [inaudible] and have clarity on those transactions. i know of the u.s. regulated exchanges that we seek to have -- [inaudible] egg and put on the pampered t- [inaudible] that are players who did not follow these and i think that is where regulation should be focused come to make sure there's an expectation on what it is to perform as a digital asset marketplace, and that was part of our policy proposal. >> the gentleman's time has expired, thank you. the gentleman from missouri mr. luetkemeyer is now recognized for five minutes. >> thank you, madam chair. in 2019 the average daily turnover value of the installer constituted 88% 88% of foren exchange market transactions
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globally. this is a key reason why the dollar remains a reserve currency of the world. mr. brooks, welcome back to the committee. it's good to see you again. i think we've actually talked about the subject before in the past but it's become more common in the marketplace with a -- almost three total dollars as ranking member mchenry just said. how do you ensure the u.s. dollar remains the reserve currency? >> while, mr. luetkemeyer, it's terrific to see it again and i would give you a couple of thoughts on that important question. one is if we start with stable coins before talk with other crypto assets, i said for a long time that the secular reduction in dollar holdings as a percentage of global central-bank oldies is alarming and this is been going on for more than ten years at this point, so dollars as as a shf european central bank, the japanese central bank et cetera has shrunk, 80% +2 mach 60% marks 60% in a short amount of time. what that tells me is in the
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future with the rise of china and other major economies, the u.s. dollar can't take its primacy for granted and we need to start thinking about competing on utility, , on features, not just based on a post-world war ii monetary system that we could take for granted the last two generations. that's one of the reasons i've been such a supportive of internet enabled dollars which allows us to compete on the features not only on history. that's critically important. the second thing i would tell you is as we enter your 11 or 12 of the highly inflationary environment, we confronting enormous number of new dollars since financial crisis, there will will come a time gradually then suddenly when the attractiveness of the dollar relative to other currencies could change. one of the benefits of the cryptic economy is it creates some counter instance on the part of the fed to do that kind of policy because people will flee to other kinds of assets. that sort of market competition is something will ultimately shore up our monetary policy and
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keep the dollar what rightfully ought to be, which is at the dominant reserve currency it's been for all of our lives. >> it's a concerning to me if we lose that position our economy, our whole country, a way of life is at risk. mr. allaire, you made a comment with regards to promoting the dollars of primary currency. i assume you have thought on this as well. >> thank you, congressman. absolutely. i think as a introduced in my initial remarks, one of the really interesting moment in times, we're seeing this infrastructure lay, these blockchain proliferate globally at incredible speed. it seems likely to us that they believe to access and interact with these blockchain networks will reach billions of users over the next two to three years, and the question is in that timeframe, support, the dollar and digital dollars in the form of stable coins because they are in the market and
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operations today to help the united states dollar b the competitive currency of the internet. that's the opportunity. it's in front of us right now and it's one of the reasons why we are so focused on this as a national economic and not just national economic and national security priority because clearly if this is the new economic infrastructure of the internet, we want the dollar to play a critical and strategic role. and partnering closely with private companies and use open internet technology comes away for the united states to compete to states that are seeking to nationalize that infrastructure, operate it themselves in a surveillance oriented model. >> it's interesting we're talking a while ago, ms. velazquez asked questions about reserves and i think you were talking about the one-to-one amount of backing of your coin, your asset, was u.s.
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treasury's. so you're looking, i think, at the value you're backing up your digital coin is basically the full faith and trust of the united states government. would i be correct? >> that is exactly correct and i think in many respects the assets that back these dollar digital currencies are in many ways far safer then the dollars in the banking count because dollars and a banking account or lent out. >> i have one quick question for mr. brooks if you talked about the control of owner controls of the network. we and the ship we had mr. zuckerberg and when it's time to talk what is lieber and the control of that, the value was going to do with the commission. my concern is who controls the internet? we have seen twitter, we seen instagram can we seen facebook control people on their platforms. how concerned are you about outside forces controlling
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platform on which those dollars are traded. >> i'll do you want better on your hypothetical which is we've now seen major banks deep laugh from both industry and individual customers for not sharing the right point of use of these are scary ideas. the point of crypto is to have true decentralization and the project that succeed will be the projects that achieve it. bitcoin succeeded because there are literally millions of participants in the node network and so there is no ceo twitter to deplatform, note see all of jp morgan to take away your credit card. you to control. some of these will not achieve it. there will be consigned to the sheet of history i predict. >> thank you very much, i yield back, madam chair,. >> thank you. the german from colorado mr. perlmutter who's also the chair of the subcommittee on consumer protection and financial institutions is now recognize for five minutes. >> thanks madam chair. mr. brooks, good to see another coloradan on the panel. i want to start with the
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question, couple questions for you, mr. bankman freed. ms. haas mentioned knowing your customer. they avoid getting into the securities transaction business, to the best of their ability. that's one of the things they look for. i've got several questions for you, and one of them will be from completely left field, right? so get ready for that one. crypto currency market exchanges such as yours are regulated through a patchwork of different state and federal agencies. for instance, some exchanges register as money services business with simpson at the federal level and also receive money transmitter licenses and you talk a bit about that in your opening -- fincen. how is your company registered in this context? >> thanks for the question, looking for to the rest of the
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question at the end. in addition to a bunch of international licenses, in the united states where participating in that system dereferenced with the money transmitter and many services licenses. in addition to that we are also licensed by the cftc. we have other licensure on them through derivatives and we look for forward to continue to work with them to build out our products. we just submitted an 800 page i believe proposal to them a few days ago. and we're happy to talk with other regulars of potential products in the united states. >> let's talk about another regulator that may touch on what you do. you talk a little bit about derivatives and the fact derivatives were sort of a key component in the failure of the financial markets back in '08 and '09. his ftx registered with the sec?
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>> the core derivative regular is the sec and ftx derivatives is registered with the cftc. with the sec we began discussions and continued discussion. we do not listen securities on a platform now although we can explore in the future under the guidance of the spc. i will also say briefly i would be excited to see a unified adjoint regime with ftc and sec involvement to create harmonious markets regulation between spot derivative contracts and other things. >> now the left-field question. our role here, there's nothing new under the sun. technology may change and in a speed things up, it may make it more transparent but a deal is the deal. who is taking on the risk? who is getting rid of the risk? who is the middleman? one of the things we hear about blockchain is its impenetrable,
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it's something that is super secure. our responsibility is to make sure things are generally safe, generally honest, that people are not swindled. i also sit on the science committee with mr. luetkemeyer and the ranking member was talking about w3, our right? the science committee were doing a lot on quantum computing. so my question to you is, what threats or benefits to a blockchain system will come from quantum computing? >> thank you for the question. in terms of the threats, some cryptographic algorithms are not at least theoretically might not be secure under quantum computing this will depend on what exact details that can come and it's important if and when that comes that blockchain security algorithms are resistant. on the same front it has the
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potential to create basically new cryptographic algorithms that are faster, more secure and more efficient from a number of different perspectives. we will see what happens there. >> i have 1 million of the question but i don't have enough time to ask them. i will yield back. >> thank you very much, mr. perlmutter. the gentleman from kentucky is now recognized for five minutes. >> thank you, madam chair, and thank you for rolling to support hearing. mr. brooks, good to see you back in front of all of our 20. to all of the witnesses thank you for your testimony. mr. brooks, i will start with you and this is a bit of a follow-up to ms. wagner but do you think congress needs to introduce legislation to provide more definitional clarity with respect to digital assets, and if so do you have any specific suggestions? >> i really appreciate the question. that is the most important issue in the short term for the
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industry so let me pick up where ms. wagner left off if the question is is the contest clear, it's clear in the sense we know what it is. it's not clear in that it is a four factor balancing tests for up and think about what luckiest trucking industry would be like if the truckers did know that the speed limit was 75 miles and no, they just added four factor test of general safety haven't you do with how much sleep take up the network, the overall size of the payload and other factors. people need to know what the speed limit is. in my own agency the disabled happen is a banquet come to us with a new activity proposal and we would give them an answer. we would give them a non-objection or give them a non-non-objection. what happened in the united states is you have a new crypto project and you walk into the sec and you described in great detail and ask for guidance and they say we can't tell you, and you list it at your own peril. whether this come some legislation that defines what is the security and what is in the security of whether it comes
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from congress in the form of legislative discretion to an agency to say what is a security i would argue a four factor balancing test is nobody here that it is as truckers drive down the highway guessing what safe is. >> chairman capito has been quoted as saying the test of the crypto asset as a security is clear. mr. brooks, do you agree that test is clear? i take it from your previous answer the answer is no. but could you walk me through the process that exist today to determine if a digital asset is a secure? >> thank you for that. the best test is after is a test several of us on this panel helped to develop about three years ago as part of an industry organization called the crypto rating council. when they came to see several of you several years ago in connection with the crypto rating council the way i described it to you was it's like motion picture ratings for crypto. we don't know what is the security and what isn't because no authority will tell us but what we can do at least is we can jump the difference between an r r-rated asset and a pg rd
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assets and people can make their risk tolerance judgments. the way that process works is it's an objective quantitatively based a process that asks several dozen questions about the asset across each of the dimensions of how we test, digit number and that number tells you how close you might be too dangerous how far away -- >> let me interrupt edges have recognize some rules or federal regulation both digital assets and crypto currency trading platforms might be supportive of bringing clarity but i've never underestimate the ability of the federal government and regulators to stifle innovation. can you give me an example of an overreach that would stifle innovation? >> the idea would be take to let travelers checks existence on the banking system not bring a stable coin inside the banking system with a applied. >> can you talk about the difference between a stable quinn versus a central bank digital currency and what
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advantages does a stable coin offer that a digital dollar say at the fed would not be able to offer? >> thank you, congressman. i'm happy to. i think the first difference is that stable coins are operational and growing in the market today, and they are built on an open internet technology model. when we think about all of the things we've seen built on the open internet come on these open protocols and networks, whether it's ubiquitous information exchange, communications, interaction around the world, that same open internet model is the foundation for stable coins. i think that's a fundamental difference. cbc which is a concept right now, it's not operational, would very likely be a very closed loop technology that's tightly administered and run by the government and would unlikely be accessible in the same way that these open networks are accessible. that's a critical difference but
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i would come back to the most important, which is most payment system innovations in the world have been driven by the private sector and and i think whatg place today with digital currency is no different. >> could to stable coin and your product, could it address some of the concerns about china's advances in terms, and the threat that china's advances posed to sanctions enforcement and protecting the dollars world reserve currency? >> i think yes. i'll try to make this concisely. the united states and u.s. dollar is winning the digital currency space race today. dollar stable coins are doing trillions of dollars of transactions via experimental data of china john has been $10 billion a transaction. the united states is when he picked as a potential to grow at a very significant speed around the world and benefit the u.s.
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dollar. and benefit american businesses and households. i think that's one really ready critical thing to understand and i think the primacy of this, the development of this infrastructure is a strategic national security and national economic priority for the united states and we need to get going on it right now. >> thank you. i have many other questions as well but my time has expired. thank you, madam chair. >> thank thank you very muc. the gentleman from california mr. vargas is now recognized for five minutes. >> thank you very much, madam chair. i appreciate very much you bringing this to our attention. i appreciate ranking member, everyone participating today, especially the witness. one thing that's interesting, i heard a lot of high motives that that's i don't to misquote people but i heard the digital asset world, the open internet model, of all the people, it's easy, cheaper, open, reduces
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risk, it's less friction in the marketplace. these things are all great. it's interesting that most of the people that i know what invested in crypto currency it's not because of that. it's because they think they can get rich quick, and the appreciation of bitcoin is something that they were a part of. it's not because of all these other wonderful things that the internet can do. it's not the reason at all. second, it's interesting when i asked them, well, you know that crypto currency and digital assets and bitcoin -- most of them say no. i just know that make a lot of money i want to invest in what part of it. i want to be able to invest the consent i know -- we've seen this before, , unfortunately, ad allege i think a financial crisis around the world when we're investing in derivatives and other things that people did know what the hell they were
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investing in and then it became very problematic. so i do see the risk in it. i have to say when this was a be issued, a billion-dollar problem, this seem like such a big cubic now that it has become $1 trillion issue, i do think think it is challenging, the supremacy of the dollar around the world, i do think it's potentially a big problem. i do have concerns. i want to follow juan to what mr. barr said -- follow on. the issue of the dollar being the reserve currency and it seems -- [inaudible] does to someone want to commn that? if not i'll pick on somebody. >> i'm happy to comment. i want respond to a couple of things in your comments. i would agree with the fact there are pastor buys and then there are people who are actively building and/or very, very close to the technical innovation, and i think like
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investments in technology companies or in other businesses that we see in the stock market your people investing because they think it's a business or a product that might go up. i may not understand the details of a given pharmaceutical companies science but they believe that perhaps it's an area of innovation, they want to invest in it. i do agree there is that distinction but i think it is, it is certainly incompetent all the industry participants to ensure this great amount of disclosure, financial literacy around these products but more important coming back to the comment about the dollar. i think there is this a growth in digital assets as a new kind of asset class and i think what's important to note is understanding goes in contrast to fiat currencies pick many of the digital assets, in fact, i think the oval and majority of the digital assets are commodities that have utility
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that are used to power some kind of technology network or protocol come more thought of like oil or gas than a fiat currency. so they exhibit those properties and they don't think those will ever rival the dollar. i think it will grow in value because they are utilized to help facilitate all kinds of activity on these web three applications and networks. i do believe the risk innovations like stable coins and dollar digital currencies we could see see a dramatic amf growth in the use of the dollar globally. >> i'm going to reclaim my time for a second because one of the things i see is we do have global digital dollar already. the digital dollar can do all the things you guys are talking about today with the exception that it is a fiat currency. it wouldn't be as easily manipulated by some of the ferries group because they can be controlled by the fed and the united states of america. i do have great apprehension
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that you have these cryptocurrencies that are used by drug traffickers or used by people trafficking of human beings and there's no good way to control it. so i'm all for digital currency but why not the dollar? why can't the dollar be the digital currency? why can't we once again dominate not 60, 80% but but maybe even higher of the digital dollar next to me that makes much more sense and it's much more protected and people will not have the risk. anyway, i yield back my time but i find this a a very interestg discussion, thank you. >> thank you very much. the judgment from texas mr. williams is now recognized for five minutes. >> thank you, madam chair. and for those of you who don't know me, i'm a small business owner in texas and still own those businesses and i'm a former professional baseball player. when i'm trying to wrap my head
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about a new topic like cryptocurrencies i tried related back to something i understand like baseball or business here some of you may know this but modern-day baseball can will be attributed to babe ruth. he brought in the live ball era of the time and introduce power to the baseball diamond with those teams would play small ball. that was very conservative or teams were literally play for one run. the entire object simply to get the ball in play so they could steal the way around the base pass and it was nothing wrong with this all rippling but when the white sox won the world series in 1906 the entire team at a total of six home runs all year. babe ruth came along. babe ruth came along and totally changed everything. in 1920 he set the american league record of home runs with before. to put that in perspective how fantastic his speed was at the time that his feet was at the time, the previous mark set was by socks seybold in 1902 with just 16. to introduce edit new generation
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for the first time ever the new york yankees over 1 million fans came to see him in a single season. now, with that being said many of you are becoming a babe ruth of the financial space services space. you're introducing blotchy technology financial services industry and working up in tradition in the traditional way of doing business. while many economists and so-called expert have been called on the downfall of crypto currency and discounted future blockchain technologies, all of you were working to create something new in order to bring this new technology to the masses. unfortunately it would only take a few misguided curveballs we will say from washington to undo some of the progress you have all put into this motion. so my first question to you, mr. brooks. can you talk about some of the negative consequences that could happen if we take a heavy-handed approach to regulating this developing technology? >> mr. williams come as a
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long-suffering dodgers fans i shall think you're talking that i think the era you're talking was an error when baseball went from focusing on not losing to an airport focus on winning. when he and losing not the same thing. i come back to the question which i think it's a right way to answer your question, mr. vargas asked the question of people have the potential to lose a lot of money. these things are volatile, risky. there are two ways of answering that. one is to prevent as many people as possible from assessing this amazing technology group for example, the way the current legal regime works is certain kinds of assets can will be purchased by accredited investor greenwich people so that all people can get rich are people who are rich. that would be one way of protecting people is to make sure why the richest can access it. another way of addressing it would be to make it safer, the way when it equities a safer 40 years ago, right quickly cleared mutual funds, diversification, sector funds and other things that make it easier for regular
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americans from places like the hometown in colorado to buy equities without having to be stock experts. strangely in the u.s. we refuse to do that so far so we don't allow crypto mutual funds. we don't allow people to diversify. the way they do in canada, germany, singapore, the united arab emirates and a series of a regular the con ed's around world so i would argue the way to win is to bring more people into the system more safely, not to keep them out at their own peril. >> great. second question, we often hear crypto industry is a wild, wild west where there is no regulation guiding the industry. but as you y'all are aware e seller is not true. the sec and cftc are the primary federal regulators and our states also strict regulations that all of you must be abiding by. so mr. bankman-fried, did you discuss the different layers of regulation that ftx must abide by and it's an exchange in order to uphold customers deposits in
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your digital wallets? >> thank you for the question, congressman. putting aside the 190 other regulatory jurisdictions that we take part in and the dozens of licenses we are acquiring each month, in all fairness in the united states there is the sort of state-level money transmitting license regime with money service business which we and many others are part of for any merchant or financed or derivatives transaction in the united united states, there's a cftc regime where there's licensure required for any products that may be a security as a digital asset one would, there definitely exists a current very clear pathway for it but that would be an sec regime for it. obviously there's some discussions about additional registered regime for stable coins and other assets as well.
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>> thank you. i think my time's up, madam chairman. i yield back. >> thank you very much. the gentleman from illinois mr. caston was also the vice chair of the subcommittee on infested protection entrepreneurship and capital markets is now recognized for five minutes. >> thank you, madam chair and they came up vastly for i thought so you you will have to humor me for my ill formed thoughts. really appreciate of witnesses come here i also feel terrible for you because we could have an entirely unstable coin, have an attired in in a blockchain, h have an entire hearing on cdc's us with an probably have an entire hearing on whether or not things that have forced scarcity of inherent value although i think we -- we need to debate it periodically. all that said i want to start just focusing on stable coins if i could. mr. allaire, want to start with
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you and if you're using the presidential working group's report, you know, raising all sorts of issues with stable coins primarily around do they really look like money? you have positioned reserve assets behind them? what are the redemption rules works is her transparency on blockchain, reserve assets. you've read the report i'm sure. first question is simple. to support the recommendations of the report for stable coins? >> so i support a number of things but not uniformly. i think there are a number of issues with the report. i think the first maybe to discuss is really this question of what form of federal charter ought to be in place are round and large-scale dollar stable coins issuer. the report recommends it would be an insured depository institution but one of the critical things to discuss there is an fdic insured bank is fdic
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insured because the bank is taking risk with deposits -- >> i want to just no, sir specifically the issue if i deposit something in the bank that is indexed to a dollar and i perceive as a customer this is, i've eliminate the effects risk but on left thing is actually there one of what it? setting that aside how we get it done, broadly speaking are supported by the idea that if this is going to look and feel and attract investors with expectations this is all the risk and liquidity profiles of adult we should make it has this feature? >> absolutely. so full reserve, disclosures, transparency, i think definitions around what those reserves are and liquidity mandate, those are all critical features and need to calm in place. if it's full reserve, is at an fdic insured product or is it a statutory set of constraints on what the reserve are.
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those are some the things that i think have to be worked through. >> want to get to tumor questions. i'm being a quick pick in the absence of those protections being in place, it seems to me someone is currently holding a stable coin perceive their holding a currency but in reality is holding something that is subject to a lot of exogenous risks be on the control which feels a lot more like a commodity. so if we agree as of right now it's not really a currency, which also be supported by saying we should regulate it as a commodity until such time as at the protections in place to go to the robustness of a a currency the market is expecting of it? >> i don't agree with that but it raises a couple of key points. the first is and they can only really speak on behalf of the circle here. usdc, for example, operates under the same stored value electronic money transmission statutes that govern square and stripe and paypal and the
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balance is there. so today there are consumer protections. there are reserve requirements around holding of those assets, one-for-one reeking ability, any money laundering requirements, bonds that need to be posted to protect consumers, segregation of client funds for benefit of customer accounts so there's a great deal that isn't there. we've operated under such statutes really sent 2014, the first company to go and get all those licenses. there is a framework today i think as these get larger and operating on a global scale i think really does there need to be something more? >> i'm nervous watching the time. let me get to the last question to the whole pan and if were out of time, we will follow up separately. my concern have is a stable coin at the ship is a etf. we regulate those in certain
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ways with expectations of -- [inaudible] we have this emerging world of central bank digital currency these and unsatisfied no central bank wants to allow counterfeiting. they want to protect the integrity of the country so the put those rules in place. any other of the country looked different ideas what kind of data they would like to track the question for any of you feel technically competent to enter this if you have a stable coin that includes some portion of central bank digital currency that a cocking things that we as americans would not like to track, can we design the stable coin to insulate the contamination of that system so somebody who believes they are buying something that looks like a like a dollar is not actually being tracked by our adversaries? would anybody like to comment? >> one quick comment which is when it benefits of this technology is these a stable coins, all of the code that they
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provide and how to interact is all public and open source. everything that functions in sight of that is visible to everyone that interacts with it. there is the ability to have greater transparency, to how are these things function including a foreign issued coins for i'm at a time but i do have -- >> the time of the gentleman has expired. >> thank you. >> the gentleman from ohio mr. davidson is now recognized for five minutes. >> thank you, madam chairwoman, thanks to the ranking member, thanks to our witnesses and, frankly, many people have worked literally years to get to this point to have hearing. the market -- it's been painful to watch in 2017 and since when you see the ico market rife with people committing fraud are just regulatory arbitrage, taking advantage of the fact that our regulators haven't paid attention to bad actors and it's been especially frustrating to watch some of our regulators take aim at people that are
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working very hard and very aggressively to be legitimate businesses to come to compliance with every kind of licensure and regulatory regime that our country currently offers. it's been woefully inadequate and so it is so good to get to this point for the hearing, so thank you. thanks to my colleagues. i've been very encouraged by the amount of preparation many colleagues have done to close the gap in any nose that had an over the past few years the number of members of congress who really understand the space has certainly increased. three years ago we had a hearing, not really a hearing because as a junior member i can hold those are picked him, so in exasperation we just held a meeting over at the library of congress and some of the folks in this room where there are representatives from your companies where there and we came up with the most essential thing was to establish a bright line test, not just for the
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players in industry, not just for the investors but also for the regulars. so somebody at the sec for example, says this looks like a security, it's not a form of interpretive art are juicy t was that this test. we came up with a four-part test which says it's already pretty come it exist, that it is recorded on a distributed secure ledger that is not controlled via a central authority, that permission list peer-to-peer transactions can be done without an intermediary, and it does not represent a financial interest in any entity. more importantly in that particular test is the fact that there is as mr. brooks you highlighted a speed limit. so there's some -- not just as a safe with investors, not just for the participants in the market but for the regulars themselves soviet continuity. if only there were such a body that can provide this clarity. my hope is the next time we have hearing we will have some bills and will be able to talk about
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particular text towards that. so mr. brooks, when you look at stable coins which may be the lowest hanging fruit, some of those are established well and long-standing things like new york trusts. some of those are not true in anything. they are just u.s. dollars stored and evolved. for every token some u.s. that have u.s. dollars in components like u.s. treasury's. some of other things. when you at the occ you provided some clarity and also dealt important with self custody. mr. allaire comes you mentioned the code is literally online can any of us right now during the hearing to download code and could begin to self custody a digital asset. as you look at that how important is it to provide this clarity, mr. brooks? >> specifically on issue of custody and self custody, this is the way that crypto tries to make an advance over the current system. the issue of custodial assets
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we've seen in this committee has looked at many, many times come think about the financial crisis when he was an issue of foreclosures and it was difficult for custodians to produce the original note that proved whoever was entitled to enforce a transaction foreclose on the property because a piece of paper gone missing or the custodian at merge with another company or whatever. one of the think script is trying to do is to use technology so you could safekeep your own assets for free versus having to pay somebody else to custody if you're it also provides a live financial privacy come something this committee usually favors but sometimes strangely doesn't favor. self custody is one of the key things along with self ownership and self-determination on the spirit of value this critical to the nature of the network. >> thank you. as we digitized information it's frankly amazing we finally digitized mine anyway we can move not just the store of value but a means of exchange. they use case for digital assets
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has partially been that, the store of value, sorely stable coins saw the pics on the pointed out bitcoin, for example, doesn't. mr. bankman-fried, one of the ways people have speculated volatility has created in the market isn't by holders of the asset or hang on for dear life come but another big group is traders pick . many of them trade on leverage. when you look at leverage, you made a lot of news by saying we are capping people it 20 times leverage, that's a lot of leverage for joseph went out the average leverage on ftx was run to expert could you talk about the importance of leverage in volatility? >> thank you for the question, congressman. the first thing i will say is encrypted currencies and digital assets as like a century and the financial assets in the world to more volume traits through futures contracts than to the
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spot i suspect the reason is basically economically efficient. it's much more capital efficient. the lack of delivery requirement on the physical creates a much easier ability for people to hedge exposure for people to express opinions. for all those reasons i think they are an important part of the digital ecosystem as a art every other ecosystem. i will briefly say it's important to have robust engines that monarch positions on these assets per week onto multiple very large up-and-down moves and been able to manage positions. >> thanks. thanks again for the hearing. i feel like i have spoken to steve case in like 1990, so thanks for the vision you guys have an thanks for doing, madam chairwoman. >> you're welcome. the gentleman from new york is now recognized for five minutes. >> thank you, madam chair. so i represent the south bronx which is often said to be the poorest district in america, and
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the greatest concern to the other use cases of crypto that would improve the lives of people of the south bronx. i represent every population of immigrants who often paid predatory fees. what can crypto blockchain web three do for that dominican in the south bronx who is burdened by remittance fees that she cannot afford? how much affordably and quickly can the crypto economy facilitate remittances? mr. cascarilla, if you could take that question and please be specific. >> yes. thank you for the question. i think this is a very important element of the technology which again is that it's opened anybody. you need to have a bank account. you don't need to, in fact, with on any intermediary. somebody who is an immigrant dissent remains to any number of country can do that. there's ways to do it both with
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crypto and stable coins. all you need to do is download a wallet and then you can set it to can anyone in the world. so this is a really powerful tool for democratization of assets after the axis of spiced those who have difficulty with bank accounts. there's no cashing fees. they are part of this technology and you can do in some cases for a penny or less and much quicker. .. >> usually if the lags are costly. >> the question about challenge and enforcing laws in a world of decentralization, whether
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it's financial crimes or sec disclosure, how exactly do you enforce the law when there's no entity with which to enforce the law? how do we grapple with that question. >> that's a great question, mr. torres and i would say a couple of things about it. the entity that we're talking about are questions in the supervised system. you've heard me say it, there's a big stable coin issue applied for a bank charter, doesn't look like they would get it. the easiest way would be let them into the banking system and have the authority over it. lots of these protocols are designed to solve the problems for enforcement. most is about some combination of human error, human negligence, human greed or human bias and some of the point of decentralized system is take it out and have those
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deal with them algorithmically. i used to sit on a banking committee and we decided who would get this and who wouldn't. some of what you need goes away in a decentralized system. >> and i know there are critics who say that the block chain might not be as secure and as unhackable as advertised, but for me the proper question is not whether a block chain is perfectly secure and hackable, but the question is whether it's better than anyone else. winston churchill said democracy is the best form of government with the exception of everything else. is there a computer network more secure than the block chain? >> i think the beauty of the block chain it's not perfectly secure, but it's transparent. you can see when-- >> i want to specifically address security. >> is there a security network specifically better than the
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block chain? >> i don't know. we have a ph.d. in physics next to me. >> if you're talking about major use block chain, i don't know of one. there are smaller ones less secure. all the major ones are more secure. >> and crypto, the challenge of the u.s. dollar, but the coin issuers have chosen to peg their stable coins to the dollar which strikes me as a vote of confidence that reinforces rather than challenges the status of the dallas the world's reserve currency, so, what are your thoughts on the relationship between the dollar and crypto? is it as contradictory as many have feared or could it actually be complimentary? >> i'll answer that. i actually don't think that it's-- at all. and what people wants is a u.s.
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bank account and the u.s. dollars and that's the hardest to get. and crypto, with them together. what they want for their spending is dollars. in original tina, you want dollars. if you're anywhere in the world you want access to dollars and that's the hardest we have access to know and that's why tokenized dollars, you don't need a bank account you can have access to a bank account system and tool for inclusion. >> the gentleman's time has expired. the gentleman from michigan, mr. highzinger is recognized for five minutes. >> apologize to the panel, i had to leave the panel for exciting issue of libor. >> thank you. >> you're welcome. we're getting there, madam chair, but to my colleague from new york, i do want to point out that this isn't quite the
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same, but the same idea exists. and committee republicans released a cbdc, central bank digital currency principles recently and of those we had said in this as one of those principles is we need to make sure that the private sector leads the way, but we need to ensure that the u.s. dollar remains as the preeminent currency. and so, that's a common goal, certainly, and we've been very aggressive in trying to lay that out. i've got a short amount of time and i'll try to go through as quickly as possible and i'm going to peek around my colleague from west virginia here, trying to get to mr. bankman freed quickly and i'm not trying to replow ground that's already been gone over.
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how many different types that you engage with? you're world-wide and multiple regulators that you work with, i'm curious if you can peg that number. >> there are dozens, probably hundreds worldwide that we're engaging with and, you know, that includes all across europe, all across asia. and then you know, with the united states engaging with the service business licensure, we had the cftc, and engaging with the sec and i look at more agencies engaged as wellments i want to make sure that we're not overregulating that. one, i'm sure it's cost you untold amount of money so far and i'm sure that everyone that has been dealing with that and no offense to anyone of you, i want to make sure that there are others who are going to be able to enter that space and they're not blocked out and that there is an artificial barrier to entry that's going
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to allow others to do, frankly, what you all did, which was be innovative and supply a product to people who are looking for that product. and i'm going to have to move quickly and go to mr. brooks on a couple of things. would you describe why establishing these clear roles is important before we-- an important step before we add additional regulation and consider that regulation? >> well, it's good to see you again mr. huizenga. >> others make it easier. i came from the middle east where in dubai and abu dhabi they have super clear etf regulations and they're trying to get americans to come over there and moving there. >> how are they different from traditional assets.
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what rubicon have they crossed that we haven't and, you know, why is it important to think about digital assets differently? >> well, i think one of the things that they've figured out is that crypto actually is less fundamentally different than equities in depth than you think it is. it's a risk-on asset that people want to invest in. they want to invest in it in canada so canada builds a regime in it. they want it in germany ab and we're the last to figure that out. people want asset diversification. >> as opposed to traditional assets. >> correct. >> i've got a minute left here. so ms. haas, you indicated in your testimony that, quote, every asset listed on coin-based platform is subject to rigorous legal compliance and security review, closed quote. could you provide us specific details on what coin bases
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process to make at that statement? >> yes, for the legal review we review each and establish a frame work and look at the risk factors and determine whether or not it meets the characteristics, it's a risk-based, and lower risk security before they list them on our platform and we separately do a compliance row view, and we look to make sure it's not a scam. and then we look at a security review, and the underlying code to say can we provide custody for this? is this at heightened risk of an attack or someone taking the value from these assets? security legal compliance before we list an asset. >> i'm hoping that the chair will grant me leave for my
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libor work as my time is up. and number of you brought up the unbanked and underbanked and thrown around all of us on this committee are concerned about it. i help to represent the second poorest county in the state of michigan which is among one of the top poorest in the nation. i understand what it means for the unbanked and underbanked in the process. and what we do not just here today, but in the future we tend to be lag indicators at the government level with regulators rather than on the front end and i'm hopping that we do nothing to harm their opportunities to engage in the process. with that i yield back. >> thank you, very much and thank you for libor. the gentleman from florida, mr. lawson, is now recognize $for five minutes. >> thank you, madam chair. and ranking member henry. this is a very extraordinary meeting and i would like to
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again, as everyone else, welcome all of our people who are testifying today to this committee, which is very important. i'm not sure probably would take me a long time to understand what all we mean by cryptocurrency and i just heard some testimony stating that how we lag behind all other countries in making changes. and this is to everyone of my colleagues and my staff and eight other members of congress, wrote a letter to leadership addressing the digital assets provision that explains the definition of broker on the section 6045 c-1 and of the code in 1986 to include any person who consideration for the regular provision of service transfer of digital assets on behalf of another person. and the provision would include
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minors and elder, as well as software and hardware who do not engage in trading activities and beyond the scope of broker services. what are your thoughts on this provision? do you think this is a good one to require nonbrokers to report on transactions for people who are not even their customer? why or why not? and this is to the whole committee. >> well, maybe i can jump in there, congressman, it's brian brooks speaking her just for a moment. i was that language was sort of like youtube getting a broadcast license because they're engaging in television content. there's a difference between centralized exchanges and two of the biggest represented here and engaged in taxes and versus algorithms, there's no one involved at all and no one to
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provide that tax reporting so that distinction i think is super clear at that technology has enabled people to transact peer-to-peer with no intermediary, who are we asking to do that in the context. >> anyone else? >> one of the problems with this, it may seek to require these entities that actually don't have access to any personal information at all, because as validater's, they're validating the transaction and don't know who the individuals are on the other side of it, it might require them to gain access to that information which i think many of you and us do not want. >> anyone else for the next question? >> well, this question is for-- i hope that there's the coin base has multiple lines of business, have multiple lines of business and how each line of business segregated and
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ranked from one another to a confidential information, if not improperly used, where confidential information not properly used. >> thank you for the question. they have multiple products and in many cases we consider it a product family where we're serving one customer and the customer benefits by having those. and we provide custodial services in a wallet where they can hold crypto assets. and integrated with that, the ability to trade out of that account and to settle new assets back into that account. so, those are different products to be able to store, versus able to buy or sell, but they're integrated products. those we have within one legal entity as an example and they are offered as one product family, and that's different from when we offer products such as our coin-based cloud offering using our technology
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to build in the crypto economy. that is 100% not allowed through any of our other products and we have different engineers and entities and protection. so it depends on the product that you're speaking about, congressman and some we share and some are very much ring fenced. >> and the other, withdrawal fees for taking crypto off the platform, what fees apply? >> no, we do not charge any fees to withdraw crypto from our platform. >> with that, madam chair, i yield back. >> thank you. the gentleman from arkansas, mr. hill recognized for five minutes. >> thank you, madam chair, i appreciate this good productive hearing and the good questions from both sides of the aisle and i appreciate the panel being here. let me start with mr. brooks. you've had some good comments
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about the presidential working group. whether coins should be banks or not. what should members of congress be concerned about in the umbrella of an individual wallet? you intend tens of thousands of wallet providers or hundreds? the working group they suggested it, too, should ab bank or i assume connect today a bank. is that really necessary? talk to me about wallets for our consumers to have access. >> yeah, well, congressman hill, thank you for that question. that's an important one and i think, as i said earlier, the ability of people to self-custody their own assets and send them directly without an intermediary is at the corps of what we're trying to build. if we made it where they have to be held by a bank or regulatory institution, we already have banks pan-- >> and--
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i'm in committee, how things are going. >> mr. lawson. please mute. you're unmuted. please mute. please mute. please mute. thank you. okay. >> so just to finish the thought. meanwhile, back at the ranch. >> exactly. so the ability to subsidy is important, my point about the role of the banking system is simply again to my point of parity, an asset or a transaction that's allowed to be done inside after bank shouldn't be technology specifically it should be agnostic and do that however. wallets are critical. what's missing from this which technologists are building today are crypto native identification protocols that will allow us, without getting the name and the tax i.d. person on the other side to know that it's a safe wallet not a blocked wallet and that's in development today by--
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>> and i think that's critical because, this-- we like the concept of not being spied upon by the actions in our wallet and yet, we all want to comply with the rules around aml, bsa. so anonymously securing that the wallet is in compliance is sort of an important feature of that. >> absolutely. >> ms. haas, community banks have been the backbone of course of local markets and critical and in september it was announced that you partnered with a bank, with your institution to provide crypto banking services. so maybe others can comment, but let's start with you. for aiding a normal community bank customers out there or someone who wants to innovate in a bank and using crypto products, what, are we in a good position regulatorly or--
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>> and crypto has tools to allow any bank for our customers, back our back end services and nine years of crypto assets available to all global users and one way we do this is by letting banks partner with us and white label our tooling to offer this directly to their customers. they does need to be continued innovation and clarity for banks what is admissible and their ability to offer crypto and working with state and regulators to gain clarity what it would be permissible to end to consumers. >> this is a big deal, having spent almost four decades in and out that have business, banks are gun shy with regulatory burdens, as being cleared for that i.t. exam or the new review exam at their board level is really not
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something that bank boards want to be surprised about in this arena. on taxes, do you have an opinion on that or partnering with banks? >> maybe some members know, we have partnerships with banks and we are an infrastructure provider so for us, banks are an important customers set. i think they're trying to update their infrastructure to adapt the new technology through the recognition that the system that's working today, it's not really adapting to what the century needs or the digital autonomy. i think there are important ways in which the current financial system could update itself and traditional can move on block chains, dollars, gold, securities. and not just crypto, exciting as it is, only one piece of the broader transformation that's happening. >> one regulatory issue would
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be important to you at that community bank level and if you would respond to me in writing. thank you, i yield back. >> thank you. the gentleman from illinois, mr. foster, who is also the chair of the task force on the artificial intelligence for five minutesments thank you. and of crucial identity for crypto transactions. recording controlled anonymity for prevention of criminal activities, it seems to me if we wish to prevent crypto assets from being used, for example for ransomware or other criminal payments there is no logical to having all legal traceable identity, someone who can be extradited if they do something criminal and can be to public, must be capable of
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being de-anonamized that this is necessary? no one raised objection to that statement. and we have to start planning for a system where in a court jurisdiction they can any crypto. and that's relevant to crypto assets such as stable coins or cbc's that have stable valuations, but could be used for criminal activities, but for crypto assets which are speulatively traded we have abusive practices and not only the beneficial owner behind a trade, but there has to be a uniquely identified beneficial owner, a regulator that can see, oh, this is a wash trade
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because, you know, even though they look like separate i.d.'s, they're in fact the same person. so that, you know, historically in trading, that has required to have a regulator that can see the true beneficial owners. you know, we've spent a decade trying to get the beneficial owner onto the consolidated audit trail which probably you're aware of. do you think that's also a logically necessary condition to prevent wash trades and similar abuses? >> yeah, i'll say that i think it is-- we-- diligence on all so we do know who the participants are and responsive to governmental inquiry and overseen by -- and i also think that this is a powerful argument in favor of having harmonized frame works between different asset classes where where if you have a
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different regulatory framework for bitcoin, stable coin, stable coin derivatives and other assets, you end up make it not just riskier and harder and annoying for the use tower access and more overhead for the industry, but you make it hard to have good regulatory oversight of a fractured regime. >> i agree completely. i've been working in the deep weeds over a decade in trying to get the split inside congress between the sec and cftc. this is not something anyone would have created, but have you had that discussion with, a number of you expressed enthusiasm for having a single unified national regulator. have you run that past the eg committee? >> look it, i know the answer to that. this is a-- one of the original sins of congress as it's constituted and financial services has been suffering from it for a while.
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now, in terms of tax payments, it seems to me that if there were simply the requirement for any digitally traded asset to be associated with a basically a tax i.d. that you have an api by the government that says, give me a tax i.d., and that that be put publicly on the block chain, then, and that that block chain be listed with the tax authorities, then then the tax authority could run software and calculate how much tax, that seems like a light weight requirement even on a start-up in this business. is there anything wrong with that concept? >> congressman, congressman foster, i think you raised a number of critical issues here around identity and the importance of that for law enforcement and transparency and auditability. i think it's a critical area. i think there are some critical things that have to be balanced, of course. i think most of us would agree,
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i hope, that privacy, security, limiting the leakage of personnel identifiable information and data breaches, these challenges. block xhans chains provide a way of assured data and audit and there's a risk if you connect too much personal identifiable information that these that that could be an i abused. you could crypt graphically inspect it and valid issued by whatever government you claim to be dom miled in issued this and now you know. >> a critical step are digital identity standards using cryptographic proofs, to prove that someone has been kyc'd and-- >> and we have legislation on that subject and thank you.
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and of course, i'll yield back. >> thank you, the gentleman from minnesota is now recognized for five minutes. >> thank you, chairwoman waters and thanks to our witnesses for joining us today. congress really needs to better understand the great opportunities that your businesses are bringing to this country. mr. baronman-fried, i have several questions for you, and quick answers to make the most of the time we have. it offers crypto commodity derivatives products such as futures options. to provide the products in the u.s., they have obtained at least four licenses from cftc which you listed in your testimony. >> that's correct. >> do you know, are there any additional licenses separate from those four listed in your testimony that are required by the cftc for fdx u.s.
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derivatives fully compliant with u.s. derivatives regulation? >> i do note believe so. >> he think that's correct. and where does the price discovery for your crypto commodity derivatives contracts primarily come from? >> so there's a very large market participants. you know, there are hundreds of billions of dollars per day globally of volume in similar products and like other markets, you know, we don't choose that pricing. it's a market-based pricing that comes from a variety of liquidity buyers, individual users and other people. >> and i mean, i'll note that for bitcoin futures contracts that trade on the cme, which is a cftc regulated exchange, 100% of that pricing comes from five u.s. crypto spot exchanges. bit stamp, coin base, gemini,
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fit bit and kraken. and we've seen disapproval on multiple applications, i don't know if you're aware of that. the chair's justification for not allowing bitcoin, spot, etf's to trade is that bitcoin spot markets are vulnerable to fraud and manipulation. now, it's my understanding that ftx uses surveillance trade technology akin to the technology national securities exchanges use to protect investors and ensure sound spot markets. what does this technology and other tools that ftx uses to protect spot manipulation look like? >> like other exchanges we have these technologies and customer policies to identify
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individuals for trade and for unusual trading and manual inspections that is flagged by automated or with-- and we do this. >> and sounds like you're doing a lot to make sure you're not -- and thank you, and the guardrails for exchanges that ftx has sound spot markets for investors. the sec has approved several bitcoin futures etf's that get 100% of their pricing from the u.s. crypto spot markets so i guess i'm left incredibly confused by how the sec's concern over the spot market vulnerability applies to bitcoin spot etf's when it doesn't to bitcoin--
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and it's not a bipartisan issue i've been working with darin soto, block charan co-chair, why? because the bottom line, americans deserve access to a wide diverse range of investment products and choose what investment vogt's they want to put their hard earned money into, but the they're not allowing this when they comes to crypto commodities etf's for reasons that don't make sense, especially after highlighting the extensive measures that crypto exchanges make to protect their spot markets. our strong crypto and three web markets have been in the united states, have been giving the united states an incredible capital market success. these markets are also teeing americans up for incredible capital formation opportunities, but our regulators simply aren't
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capitalizing on the opportunity here and it's my constituents and all of your constituents who are taking the hit because of this and it must change. again, i want to thank the witnesses for being here. i hope this is the first of many of these discussions we have as congress tries to put together a thoughtful, light touch guide framework for the industry. thank you. i yield back. >> thank you very much. we've been joined by mr. sherman from california who has been on the floor working on his beloved bill libor, and i understand it's been put up for a vote and we're looking forward to voting for this bipartisan legislation. so, this gentleman from california who is also the chair of the subcommittee on investor protection, entrepreneurship and capital markets, is now recognized for five minutes. >> crypto is many different things. cryptocurrency is an incredibly volatile investment that aspires to be pa currency that
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might displace or at least compete with the dollar. a stable coin aspires to be incredibly stable and is tied to the dollar. what they share is a culture, a vibe, a stick it to the man moniker, a belief that somehow this is new and hip and an attack on the powers of society, but fact is that the advocates of crypto represent the powers in our society. the powers in our society on wall street and in washington have spent millions and trying to make billions and trillions, and ceo's and musk and zuck
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burg and everyone here is a crypto advocate and we'll hear from the critics. we won't hear from ceo's. we'll hear from academics with their pencils and pens. today we hear from the ceo's with their lobbyists, their pac's and their power and we wonder why we won't be able to protect investors. the regulators need to listen to this hearing very carefully. with all the money and power on one side, we will not be able to pass meaningful legislation, don't cop out and say we're not going to do anything until we pass meaningful legislation. and if you wonder about where the power is, zuckerberg had to come here himself and sit here. brian armstrong sent his number two. and tether doesn't bother to show up at all. zuckerberg did not have a day
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in the park, he did not enjoy it, but he had to come. armstrong didn't and tether ain't here at all. now, the number one threat to cryptocurrency is crypto. bitcoin could be displaced and could be displaced by hamster coin and then there's cobra coin and what could mongoose coin do to crypto coin. in the area of fiat currency, the dollar will always be more important than the uruguayan peso and that's not a joke and they'll always have some value. will mongoose coin also have a value? i don't know i made it up, and i said hamster coin and then i found out there really was a hamster coin. it's not fair to compare fiat currency's current system to what crypto aspires to be. it's true you try to use a
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credit card or debit card to buy a sandwich today, the system takes a percent, half a percent, 50 cents away from merchants. you try to use crypto to buy a sandwich today, i don't know where you can go in washington to use crypto to buy a sandwich at all, but some day. we hope crypto can do to the problems that we face with fiat currencies now, that's not a fair comparison. now, looking at ms. haas from coin base. if i take $100 on your exchange, buy some bitcoin, and then a couple days later say bitcoin happens to be selling at the exact price, i sell it. it's my understanding that i get $94.02 back. am i wrong? >> we have multiple products-- >> yes or no, would i get in
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that exact transaction, 94.02, am i wrong? >> i can't answer the question, it depends on the products. >> are there products where i'd be right. >> there's a product where you could be right. >> so i could lose $6 in two days. what about tether? buy $100 worth of tether, two days later tell $100 or sell the tether could i lose $6? >> yes. >> okay. let's turn to mr. -- >> what? >> it's a 2% charge. >> a 2% charge. i thought it would be 3% charge. it's 2.99 last time i was on your site. >> no. >> okay. i'm looking at coin based fee 2.99 on ustd. we'll put this in the record. in any case, many-- to lose even 2% let alone 3%,
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and then another 2 or 3% on the way out in scarcely a couple of days that's well over 1000% interest lost in that period of time. is your reserves all in instruments that yield less than 1/10 of 1%? >> that's correct. then how do you pay 1% interest on some deposits? >> we don't pay interest on deposits. >> and yet, you have a deal with-- >> oh, my time has expired. >> thank you very much. the gentleman from georgia, mr. laudermilk a recognized for five minutes. >> thank you, madam chair, and thank you for having this hearing, it's intriguing and timely where we are with the progression of technology. i go back and i think about my 30 years i spent in the i.t.
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field, had the government gotten the way of the internet we'd still be using dial-up today to do a lot of what we're doing so i think we have to proceed very cautiously. one thing i've learned in 30 years in the i.t. sector, 10 years i spent in intelligence in the air force, the most important aspect from an i.t. perspective is data security. cyber security, something that we have to be focused on all the time. in fact, in my business, 20 years in the private sector, that was the number one issue for most of my customers and got to the point when i ran for congress i couldn't continue that business, i sold it, primarily because i knew that under the way things were, is that the question wasn't if someone was going to be hacked and lose data it was when. and so one of the things that i learned when i was in the military is one principle is, you don't have to secure what you don't have. so if you don't need data don't
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keep it. but then you have the aspect, yes, we have to secure the data that we need to keep and something that the federal government has yet to learn. you don't need to acquire a whole lot of data and keep that data especially if you're the federal government, the riskiest of anyone out there of letting data get out and then you see more proposals like the one that we've heard recently with the craziest proposal is the banks have to report every transaction by americans in their banks to the federal government. this is the type of thing that we don't need to be doing, however, there is data that is important that we do have, whether you're in the private sector or you're in the public sector. and that's where i see the value of the underlying technology of cryptocurrency, particularly block chain, is a solution to our cyber security problems because of the distributed ledger aspect of it. the data is available, but not centrally located to where it could be taken.
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mr. brooks, can you discuss how block chain and distributed ledger technology can enhance our cyber security posture? >> well, mr. loudermilk, good to see you. block chains are as much about transparency as security. one of the problems with the biggest cyber attack in the united states, how long that it occurred. target and equifax, we found out days and weeks later by accident. if you think about equifax we thought it was a small problem and years later, a small problem and month later gigantic that involved all of our data. every single block is publicly visible to the network and the other thing about block chain, they sent a concensus mechanism
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before you can have a change to the ledger, you have to have the majority to agree that's the correct change. unlike normal networks where one bad guy can defeat the entire system, here you have to have thousands of computers agreeing at the same time the change can be made and everyone sees it. that hiding in plain sight aspect is is why it's so critical to our security infrastructure. and that's one of the most key values of this emerging technology, bringing us into a new era where we can do some of the things that we need to do without amassing this data. another area i've been interested in is really, i've done some work on related issues with the cfpb's and transfer, so ms. dixon. i understand that your organization is active in that space. can you describe how block chain and dlt are used to facilitate payments? >> thank you for the question. this is one of my favorite topics because it's something that's defining the use case of
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what's happening today. i think that there are business that is transact on the network, they can actually have-- they can go from the interoperability to the financial system is remarkable. you can take money from a bank account and put it into a digital asset and transfer to another where it's sent and convert right back into a bank account. the fact that you have complete interoperability with the financial structure to give us all the ability to take excitement about elevating that to the right level to interno evaluate there. payments are something that are constantly on the seller network and done with remittances from the personal standpoint when you live in california, for example, and send money to a family in another country and you can do so in three to five seconds and 100,000 transactions for less than a penny and that's remarkable. >> this is what can happen if government doesn't get in the
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way of the development of technology that benefit the individual. there are several other questions that i have, but i see my time has expired and i want to be respectful of everyone. with that, madam chair, i yield back. >> thank you. >> the gentle woman from iowa, who is at vice chair of the subcommittee on housing, community development insurance. now recognized for five minutes. >> thank you, madam chair and thank you all for meeting here. i would like to start by asking the first question. has a derivative platform and recently ledger access part of that correct. >> yes. >> and that platform is registered with the cftc. is that correct? >> yes. >> perfect. i want to clarify something-- just to get the lay of the land. you also have an exchange for bitcoin and other tokens, but that is not registered with either the cftc or the sec, is
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that correct? >> that's correct. currently neither of them are regulated tort spot, bitcoin-- market. >> thank you, i know you're registered as a money transmitter, but that's not what we'll see from a market regulator and i sit on the agriculture committee and so a gap like this is concerning to me and the big problem i see from what i understand is the cftc doesn't have regulatory authority for spot trading of commodities, just their derivatives. so that means consumers with inconsistent protection, which is a concern that i have. so you and both ms. haas, but investor protections can be whatever the company separately come up with and won't necessarily be the same, is that correct? >> i completely agree. where we do in fact have much the same investor protections
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on our spot markets and derivatives markets, but i would be supportive of a similar regime for spot commodities market like bitcoin as we see for the derivatives markets. >> very good. thank you. okay, so when it comes to oversight, a couple more questions here, do you report your full order history publicly, either you, mr. bankman-fried or ms. haas and making sure that's accurate? >> we report all of our public marking data and available by our ati. we do not charge anyone anything for it and never intend to. i would be supportive of that becoming more than a norman a regulatory standard as well. >> we also make all of our data available and we do not charge data, it's available to our customers. >> is that order history public as well? >> yes, it is. >> okay. thank you. so i just want to make sure i'm
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clear on this. bitcoin, which has almost a trillion dollars invested in it has cftc oversight for people, you know, who are trading futures, but not for people who are trading the currency itself. is that right? >> that is essentially correct. >> okay. so that kind of difference in protections is really what i want to focus on here. i'm not, you know, here to tell anyone what they should or shouldn't buy, that they should have crypto or not have crypto. there are pros and cons and plenty of conversations with my son who wants to get into crypto, but i want to make sure they're protected and they've got the same investment protection that they have for other forms of currency. can you as an industry and seems like you can benefit long-term from having more regulation that sets better standards to protect investors in this area? >> yeah, i absolutely think so and again, i'm not concerned
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about more regulations and getting consumer protection in areas where there is currently not, helpful for a robust eco system and it's in a way that fits the regulators-- >> thank you for that. listen, i agree, i think it's something that we absolutely need to look at and i would certainly ask all of to you think about the steps that you can take within your own organizations to make crypto more safe and trustworthy for investors, but i completely agree we need to do something so we're protecting investors. there are things that you as exchanges have, that you have to help industry long-term on. you mentioned you think we could do some of these regulations and they'd be good for the long-term growth. what do you think that could do to help you build trust and trust for folks in general for cryptocurrency? >> i mean, i will say that, you know, we've had conversations
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with a very large number of institutional players, everyone from investment banks, pension funds and this is the number one thing that comes up, what is the regulatory frame work for the industry? how can we feel that we're protected both from a commercial standpoint, but also from a regulatory standpoint in pursuing options for our investors? and i think it could be extremely helpful. you know, to clarify the regulatory framework and where they're missing and to make sure that we have streamlined and uniform standards that are clearly communicated. >> thank you so much for that. i'd love to make sure that they're more trustworthy for investors, i'll yield back. >> thank you very much. the gentleman from west virginia, mr. mooney, is now recognized for five minutes. >> thank you, madam chair. certainly, thankful to the witnesses for being here and appreciate your expertise as we all learn more about the growing digital currency issue.
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back in august of this year, the cuban government announced their central bank would work on rules to officially recognize digital currencies, i'm wondering whether the country's recent embrace of crypto could be a way for the communist regime to evade tough u.s. sanctions. let's start with mr. bankman-fried, what makes it so that nations like cube pa could evade sanctions. >> we look at the sanctions and block-- that enter and out of our system. >> i want to ask ms. haas pose the same question as relates to coin base. >> largely the same answer. we run tests on our customers on boarding and off going and
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we believe that sanctions are an effective tool of the u.s. government in combatting illegal activity and in addition to monitoring we do surveillance on our transactions on our platform and have tools looking across the industry and we partner with law enforcement on investigations. >> okay. the second question, let me set it up for you, what are the ways that bad actors or rogue states could try to fool exchanges is by using technology like vpn that poof ip addresses fooling them into thinking they're in a different location. go to mr. brooks on this one. can you speak to the importance of moving away from ip addresses and verify locations, what is a way to verify a location? >> well, a couple of quick answers, on the compliance side, i think the use of vpn's to avoid geo location and to avoid sort of geo sensing is something that three years ago was effective and useful and the industry has developed lots
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of technology to make that much, much harder today and some of the decentralized tools and some, have an ability to trace ip addresses based on probablistic information, not just that that might have been issued by an ip in a jurisdiction, but that ip is associated with lots of other transaction that is could only be cuba or only be libya or whatever and the probability assessment is one of the things that makes this much easier, that's why the network is owe important. >> thank you, i referenced cuba. the cuban's government tyranny is personal for my family. my mother fred cuba when she was 25 years old and wrote a book in the aftermath of the revolution, including her time as a political prisoner in the castro regime and the marxist cuban government cannot be allowed to owe press the cuban
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people and president trump's to the rowing government, and i want to work with the panel to ensure this would not allow cuba's communist regime or countries around the world who hate us, kill their people and are tyrannical, i'm sure we share that gome. i know some think that's a role for the federal government for regulations beau you can't do it yourselves. but it's better if we work with you and you can do it better yourselves than the federal government. that might be the answer. thank you, madam chair, i yield back the balance of my time. >> the gentleman from new york and vice chair of the subcommittee of international development and monetary policy, is now recognized for five minutes. >> thank you, madam chairwoman and thank you for all the panelists for making it, very
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grateful. if i can start with mr. bankman-fried. from my roll on the subcommittee i'm commit today ensuring bad actors like terrorists and drug dealers cannot access the financial services contrary to u.s. interests and while the currency could have potential benefits in digital payment space, one for me, the terrorist financing. and as far as they could be used for nefarious purposes. and i introduced my financing prevention act in part for the reporting of cryptocurrency donations to support hamas. two questions fyou don't mind. first, what are they doing today to prevent hacking and bad actors like hamas and others from accessing cryptocurrency markets and in
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what context would you flag a transaction for law enforcement. have you ever flagged transactions for agencies? >> and the security aspect stopping breaches to accounts and all users have two factor identification for all accounts and broad sweeping security practices that all users can access on the site. in addition to also the customers policies. on the bad actor side. we conduct surveillance on all users of the exchange we do that on deposits and withdrawals using multiple tools on the block chain and for fiat currencies and you know, to address your question about law enforcement, we work with law enforcement here in the united states and globally on, you know, tracking down any bad actors and we're in constant communication and we try to be as helpful as we can be. the combination of the customers surveillance that we do, plus the transparency of the block chains, make it a
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powerful tool for tracking down any funds, from illicit activity. we've been participating in freezing an is your standings amount of assets with law enforcement and look forward to work with them global mri. >> thank you so much. the president's working group recent paper on stable coins include a recommendation that they could be ensure deposit institution such as banks and i understand that they intend to be a bank to backed the-- one-to-one and working on a bill potentially could have a number of recommendations. do you think it's necessary for safety and soundness for stable coin issuers themselves to be insured by institutions or partnering with depository institutions and what are the models? >> thank you for the question,
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congressman. i think it's a very important issue as noted, we have decided to pursue a national bank charter and are open to being an fdic insured bank as well. i think, however, there are some subtlety in this topic and i think it's important for the committee to consider it. a full reserve digital currency model such as usdc where 100% of the assets are fully reserved in high quality liquid assets such as cash and short duration u.s. treasuries is not the same as a bank deposit where the bank is in turn taking the deposit and lending it and really, the purpose of fdic purpose is for that fractional lending that makes place. so the question in our minds, it can be powerful for a stable coin issuer to have a federal bank charter to be able to access the fed and hold cash with the fed in terms of the
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ultimate form of safety and soundness for those cash assets, but not necessarily being lending banks that are rehypothicating that. and i know they're looking at important insurance on stable coin issuers so it's a live issue. comparing the am apple to apple on a banking model does raise some questions. i think ultimately coming back to your question, i think that statutes in the united states should support stable coin issuers that are operating at a state level, at a federal level, and support money services businesses as well as banks being active participants in the stable coin eco system and i think it's important that the barrier to entry in the stable coin space not be so high that startups that are innovating as money services businesses can't participate in
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this innovation. >> thank you so much. and i yield back. >> thank you. the gentleman from north carolina, mr. budd, is now recognized for five. >> thank you, chair. the united states has a huge opportunity with crypto, but my fear is that this regulatory state is going to crack down on an industry that the regulators really don't understand yet and it's going to force the next generation of financial tech to be created outside of our country. and while we can't let that happen. mr. brooks, it's good to see you again. where do companies draw the line and say that enough is enough with this anti-innovation, quote, regulation by enforcement? and just decide to take their industry elsewhere to another country? where is it the line? >> well, mr. budd, it's good to see you and thank you for that question. what i would say in some
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aspects it's super clear, there are some products legal in other countries and not legal here so i take some of the investment products, for example, exchange traded funds, one of the things that makes crypto risky consumers may not understand the difference between one token and another token and may want to diversity much as i own a mutual fund. we don't allow that in the united states, we do in canada, singapore, portugal and other places. ... so given your previous experience running the occ i i would love to hear your perspective on where regulators authority begins and ends.
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remember the joke earlier everything is infrastructure. it seems like chairman ginther thinks anything is a digital asset that he can regulate. he cites the test without providing any other explanations. what are we missing? chairman dent ginsburg clearly doesn't see limit to his regulatory authority. >> one thing i learned running my little agency is used, nonspecific to crypto, the u.s. is unique among developed countries in our approach to regulation bill what i hear people talk about the idea when he won regulator for crypto i would say we should first should of one regular for banks that we are three of them or if you're an investment bank five of them. that's inherent in the system we've got. what i say to that is the last thing we need do is add another regulator to system that's all we got dozens of regulators. what we need to do instead is have parity for crypto activity along with traditional finance.
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if i make crypto lending platform i should be regulated by the fdic. if i make crypto trading i should be regulate by the cftc and sec. we treat crypto as new as different and i will argue crypto is just a step function improvement in the system. we have regular system. laws are clear but there something that crypto that scares people. i don't know what it is maybe it's because it's new. when banks were first allowed use computers to keep ledgers people sued over that at the time. when i suspect that your and we got e-mail and they said lawyers can use email because her travel over this mistress network of computers, the same ridiculous today but it seems like we haven't learned the underlying lesson which is technology usually advances human flourishing. we have regulatory system, let's use it. >> thank you for that. ms. haas, , infrastructure that was signed into law last month and had lots of problems for
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digital assets. those very vocal about the need for a fix for this and i was supporting ranking member mchenry to make of the sixes. would you please address your concerns and why those flaws would be so bad for the crypto community? >> thank you and thank you for your support on this important bill. coinbase supports tax payments in crypto. everything at -- there but should be paying taxes. no different than schwab, fidelity. it's important value added service for customers. what concerns us about the of the infrastructure built specifically to the tax provisions was these are complex issue. crypto taxation is complex. technology is new players and we didn't have the public comment period that we would have for something so complex. what happened was the risk of an unintended consequence and we can still solve this. we are not to the place it could be scary but the definition of a broker was potentially overly
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wide and could be interpreted to include players such as miners come such as the hardware wallet that do not have this information that i know billy to comply with reporting machines and then could be consequence, penalties, could be federal risk to them. we thought it was overly broad and separately we thought there was additional reporting risk for privacy and could be deemed overly broad and pull in parties that were not necessarily deemed to be covered by this rule. >> thank you thank you . i just back. >> i think you need to make a correction. you referred to mr. brooks as having been an sec, and he's been saying all along he was at occ. >> i i never made that referenc, but thank you. >> well, thank you very much. we appreciate your presence here today and her expertise in banking law. thank you.
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the gentleman from massachusetts mr. lynch who's also the chair of the task force on financial technology is now recognized for five minutes. >> thank you, madam chair. i want to thank all of our witnesses as well. prior to the creation of the subcommittee on financial services we had a terrorist financial task force i cheered for about eight years so i am keenly sensitive to the issues around know your customer and worked a lot with fincen, the financial enforcement network on traditional banking protections with regard to terrorist financing and money laundering. i know at the end of last year fincen actually issued a rulemaking proposal to acquire
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banks and money service businesses to submit reports to identify beginning of customers involved with wallets, for virtual currency. this particular rulemaking focused on wallets that were hosted in low compliance jurisdictions and identified by fincen as -- [inaudible] not hosted by financial institution called unposted wallets. the requirements that fincen came up with was similar to what we use now for money transmitters. so mr. armstrong, your firm in particular was vocally opposed to that rulemaking and i encourage you to respond to mr. foster into others regarding
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identity. i want to try to understand, can you share why the transactions involving virtual assets and payments involving those wallets that are quite similar to western union transmissions or money grams, why you objected to what looks like a fairly similar regulatory approach? >> mr. allaire, if you might take a crack at. >> thank you for the question. it's a very important question. first i would simply start by saying i think fincen is an excellent job at looking at the issues a money laundering, terrorist financing in the context of virtual assets, virtual currencies. they led the way as the first federal regulators to put in place rules around that back in 2013. tablet from select friends like circle, columbus and others here to put in place licensing supervision around tank secrecy
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act, anti-money laundering provisions and the like. i think the specific issue at hand which you are correct we had some significant objections to was really twofold. one was it was an introduction of an 11th hour rulemaking that did not have significant public comment. at the bottom of that issue is there are some really significant things about the way digital assets and blockchain to work, that want to make sure if we're going to be introducing rules around reporting, that they take account of the unique things with public blockchain infrastructure in particular. notably, public blockchain infrastructures are in some ways like the public internet for the world wide web or e-mail. they are open networks that anyone can connect you join and use. it's one of the powerful things that is made information exchange free. it's one of the things we
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believe with digital assets on black chains -- blockades can make it much more frictionless around the world. -- blocked chains. for an individual to self custody assets with a piece of hardware, piece of software, that piece of software can be downloaded from app store and they are self custody a a stae queen like usdc or bitcoin and that's the software maker itself, it's not involved in facilitating a customer transaction. they're really just a software developer providing that end-users can use. the rule as was outlined would kind of be a square peg round over bit of a blunt force instrument. what we argued and i think is hopefully going to bear fruit significantly over the next year is that what we really need are ways to provide proof of digital identities, a firm like circle or from like ftx coinbase or are
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other folks test like a day could provide a cryptographic proof that someone has been ky seed and approve could be carried around with them and hardware while it were software wallet and then you'd have the ability to know that you've got legitimate actors to be able to have the right information about users without having essentially more pii or personal identifiable information being broadcasted broadly. our view is give the industry more time to develop technology that can allow these forms of transactions up but still preserve privacy and take advantage of the really significant security benefits that come from this. >> okay. that's fair. my time has expired so thank you, madam chair. i yelled back. >> thank you. the gentleman from tennessee mrr five minutes. >> thank you, madam chair thank you also for convening today's
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hearing. thank you to the witnesses. i know we have been her for some time. it's been very informative and i appreciate it and i know we all do. ms. haas, if i could with you, could we talk about the crypto rating council that i believe coinbase and other industry players created to determine what digital assets look more like securities and which ones don't? if you could, could you talk to me about how the council makes its determination and is involved in the process? >> thank you for the question. crypto rating council is an independent entity that works deserve industry participants such as coinbase with an assessment of digital assets underneath how we test. it's looking at the white papers new as the project put forth in making a determination under the test whether or not that new
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project is more likely than not to meet the definition of a security under u.s. federal securities laws. independent law firms are the ones who are doing this assessment or usc could laws experts look at facts and circumstances make an assessment. >> thank you. if i can ask you, you talked about security. can you talk about what degree if any the sec and other stakeholders have been involved in, what the discussions have been with in terms of the framework? >> thank you for the opportunity to address this. so at this point in time the sec is not provided a clear definition about what is or is not a security. they've asked us to let on the howie and recent test and compass like coinbase, ftx and others pay careful attention to ongoing litigation that is existing in the space come news that we see that we are left to interpret based on our interpretation of law for what
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is or is not a security at the time. >> thanks, ms. haas. mr. brooks, if i could could you, thank you also for being here. if i could i think you are, obviously there are people who believe that crypto currency is difficult, maybe even impossible to track. can you talk about that as relates to the blockchain and while we talk about illicit activities, oftentimes being investigated by federal authorities, could you explain maybe the fallacy in that if you're talking to our local police chiefs or local sheriffs? >> sure. thank you for the question, mr. kustoff. i do this talk at local motor clubs and things run the countries i think i can do that pretty well. the easiest way to understand, let's contrast blockchain transactions with normal banking
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transactions to see how much easier it is to trace them on a blockchain and it is in a ranking transaction. let's imagine for a moment i would never do this because it would be flagrantly illegal but let's say i bought your lunch and betsy afterwards you wanted to venmo me your payment back. you hit your venmo button on your iphone and you sent me money. what many people understand is or 700 different steps so all venmo does this in an instruction to your bank, your bank fins receives the instruction, the writer dan into books and records in the senate instruction to to an underlying transferred network, to be automatically has, to be the fed wired such or something else. that system context my bank and inquires whether my bank has enough money to pay you once that's been done and there's a a debit for my account. it's very complicated and in any one of the steps information could be lost, the could be a breach something that could happen. verses in a blockchain there no intermediate. >> unless any instructions to third party to send instructions
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to another third-party provincial century money. i sent you money. when the block is validated i can see might want to address transferred that to your wallet address come simple as that. the easy way to understand this, we had a lot of talk about hacking a cybersecurity, the reason we find the bad guys in the clip pipeline pact was because they asked for bitcoin. if they asked for diamonds cut if they ask for cash, almost any other thing we never would have caught the bad guys. we got the bad guys because not in spite of because they use bitcoin and we could tell exactly where the money went. >> because the blockchain was used it was traceable? >> correct. >> and just briefly because my time is expiring, again as you talking to rotary clubs, you'd get specific examples with the fbi and other federal law enforcement agencies use the blockchain in fact, to help
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trace and help determine -- >> when i used to work at coinbase iran a group that facilitate those customers. they were our clients. we did work for them. >> thank you very much. i yield back. >> thank you. the gentlewoman from north carolina, ms. adams, is now recognized for five minutes. >> thank you, chairwoman waters, to ranking member mchenry, both of you for posting the hearing. mr. cascarilla, i want to touch briefly on the risk that stable courts might pose to our broader financial system. the president working group spent clinton talking about today express concern that they may -- [inaudible] trigger a run on that stable coin. in 2008 we saw the dangers of instability -- [inaudible] and now rating agencies are saying that. how do you respond to the
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assertion by the president's working group that stable coins could cause instability? >> thank you for the question. this is a crucial topic when it comes to stable coins. the key point here is to define stable coin. depending on how you do find it is it creates different risk. the stable coin is backed by only cash. essentially money that city and fdic insured bank account or sitting in t-bills that mature in three months. there is a risk of a run. it is liquid cash. you are taking simply a dollar and just tokenized it. there's very could use for that and is really a reason to set up that way. of course you could decide to back a stable coin with other assets and certain issues do. could be loans. it could be cds. also could be of the types of securities. in that case you start to have
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not really a stable coin but just something that looks more like maybe a bank deposit. in the case it would make a lot of sense for a banking regulatory regime to oversee it. also it could be that looks more like a money market fund because backed by certain types of securities and would make sense for the ftc to oversee it. >> okay. as can ask a stable coins are not similar to money market funds but i think think ye simplification there. ms. haas, in october of this year coinbase -- digital asset policy proposal in which you come what you advocate for the gratian of a a new self-reguly organization and you indicate incorporating and sro into the regulatory division of marketplaces would speed the development and enforcement of inappropriate retail and digital asset industry role.
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so in your view how can congress and industry better come together to begin laying the foundation for successful regulatory framework when digital asset trading platform such as yours? >> thank you so much for this question. we are seeking one single federal regulator. the could be an existing federal regulator. we're not asking for the creation of a new regular. the value of having and sro would be this is complex. there is no innovation happening crypto everything today. we haven't touched on in fte's in this hearing today and we think it's important there is a nimble group that is constantly look at the changes in crypto. that's why we recommend having and sro in addition to single federal regulator. the way would love to work with you is we think this is an important step in the process but we think this hearing is important but we really believe having policymakers deeply understand the technology, getting input from the industry to understand the use cases will
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help craft prudent regulation. we believe we agree with you all on first principles of regulation but the how we get there's going to look very different in crypto that has been a traditional financial markets that reside in intermediaries. many of -- [inaudible] about the challenges and we would love to work with you in partnership. >> thank you. i've wish this to all the witnesses and this can be yes or no. [inaudible] i care deeply about making sure your companies reflect the diversity of our country so, yes, i know would you commit to sharing data about the racial and gender makeup of your companies? i want everyone if you can't answer it quickly yes or no. are you committed to doing that? >> yes. >> yes. >> yes. >> will be happy to get with your office. >> great. we appreciate it very much. it is a conservative not only this committee but certainly of
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one of our cochairs joyce beatty msl and some others, so thank you very much and i thank you for your responses. madam chair, i yield back. >> thank you. next, the gentleman from indian mr. hollingsworth is now recognized for five minutes. >> good afternoon. i appreciate anyone being here. appreciate the dialogue that is been engendered as far. i will admit to you my -- is very, very low and so i'm on a genuine fact-finding mission, not on a confirmation of my preconceived notions about how this could be used. alternatively how it should be treated by regulators. specifically to mr. allaire to start with, would you define stable coin for me? >> sure. thank you for the question, congressman. there are many types of stable coins. stable coins are called stable coins because they are intended
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to hold a stable value. i think the name -- >> can you clarify, the more specific, relative to what? >> relative to some underlying reference asset. >> referenced asset in and of itself may, in fact, be volatile. >> if i said this at 100% correlation with one ounce of gold, right, that would be stable relative to gold but not stable relative and absolute sense. >> that's exactly right. say the purchasing power of a dollar is changing rapidly with inflation and so or in other countries hyperinflation orders deflation assets and so the reference has a a huge impact. >> you brought this up and i wanted to delve further into that and appreciate that. a lot, maybe not a lot, maybe not even the majority, some nontrivial portion of stable coins are backed by u.s. dollars and are transferable to and from dollars, right? so in essence explain to me the value proposition to me owning a
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stable coin that i can convert into dollars as opposed to owning the dollars themselves. what's the value proposition to a consumer? >> it's a really great question and i think it's good to use analogies sometimes on this. it's like the difference between having a postal letter versus an email, a digital version of a letter can move at the speed of the internet. anyone for free. that truly an upgrade to the functionality of a letter, for example. the digital music the same kind of attribute. digital currency dollars inherited this kind of super powers of the internet, the speed, the reach, probability. >> net summary of that, right? it's no different as a story about ten owning dollars because it is convertible to and from dollars that it's different in its transaction characteristics, right? it can move faster and presumably at a a cheaper cosf transaction then perhaps transacting in dollars. is that a fair way to say that. >> with this basically correct although i would say well-designed stable coins are
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safer than bank deposits because bank deposits are taking a risk on the lending book of the underlying bank and so you have run risks picky of default risks of all of the deposits in loans that might sit in the bank. it forward to their form of money which is what a dollar digital currency represents which is a safer form which not just to store a value that has a transaction meeting as all. >> assuming you hold your dollars in a bank. >> that's right. >> there is some level of risk their we've worked hard in this country the through a reguly environment to minimize that but the remains nonzero if the trivial. walk me through the transaction value of owning a stable coin. and here's my view just outside of this, , right? i understand the notion that if i go to a retailer that accepts that stable coin, right, then i can transact with imprisonment at a lower cost the reader of my prices are lower on account of that and i can transact patch with them but there's a nonzero
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transaction cost getting into that stable coin. i have traded this notion of accelerating my pace of transaction lowering the cost was again into the system but there are costs cost to ge system. i have to buy whatever that stable coin is from dollars, right? >> yeah, and and i can speae case of usdc. if an institution wants to transfer dollars into usdc we don't charge a fee for that. you have to get set up to do so. >> i can't is going use my debit card at my bank account. to set up an account representative have some process by which you do that. once i get over the hurdle then i can transact. >> that's correct. many users of stable coins keep the valley in stable coins because they're not able to use a very, very efficient payment medium so that's attributed, , high-growth using is partially attributed to that. >> so is the value proposition this network of those that accept this is going to expand so more people can keep that in
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stable coins? my second question is going to be why can't the same technology that runs a stable coins eventually run the payment system in dollars? what we eventually have to figure how to run that the existing payment system? >> i think there's two points here. one is dollar digital currencies like usccr both protocols and are a form, representation, a factor for a dollar. there are network effects just like network effects in other internet protocols that we use for things and i think that significant. to the second question, i think in some ways it's a question of semantics. when i use the iou settlement system of the visa card, i'm not actually extending dollars per say. there's a bunch of i.o.u.s that are on a centralized
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legibility keeping track and ultimately underneath there's a fed wire the goes from one bank to another. we experience it as well. there's a whole elaborate system underneath that the charges fees. i think what we see, while regulated, stable coins are an upgrade this payment systems to be ready for the internet. >> i appreciate the chair's indulgence. >> the time of the gentleman has expired. the gentlewoman from new york ms. ocasio-cortez is now recognized for five minutes. >> thank you, madam chair, and thank you to all of her witnesses were here today at this hearing. before i get into the heart of my question, my question stay, those a slight discrepancy in some of the testimony and question from earlier. i wanted ms. haas to clarify very quickly. earlier today in the hearing, representative alaska's asked about proprietary trading on the coinbase platform -- velazquez
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-- at the moment i believe you told her quote that coinbase is not engaged in proprietary trading on our platform. all prices are established, et cetera. however, in looking at bit coinbase rules under section 3.21 undergoing phase corporate under coinbase corporate ops it says coinbase point and operates coinbase pro in exchange also trades its own corporate funds on coinbase pro and exchange and want to give you brief the opportunity to clarify. >> thank you so much for the opportunity. there's a few things in a business. what is we have a corporate investment portfolio that every month we make an investment in crypto and at your balance sheet. we've not sold that. we don't traded actively but we do increase the investment on monthly basis on preestablished protocol can to we do violen our exchange product. >> understood. to the heart of the matter, crypt as a know is a growing
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industry, rising in market from 500 billion last year to more than 3 trillion as well as far as november the ship 2021. the reliance of attic tickets,, proponents of the crypto currency industry that discuss -- advocates -- new critical currency and the building safer more inclusive system outside of traditional financial sector but i want to explore this more. a substantial portion of the buying and selling of crypto currency system with stable coins, correct? >> significant amount is a trader with stable coins come a. >> about 75%. does that sound about right to you? >> i don't have the data in funding but it does sound mostly correct. >> these stable coins are designed to be back by certain assets whether they are primarily usdc or safe high
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liquid assets, according to be stable in value so the people can kind of use it in a larger world of cryptoware of the coins could protect press you more undervalue. >> i can speak to the design of usdc. i can't really speak to others so yes usdc is designed as a payment instrument under electronic money law in the united states and so its cash and short duration u.s. government treasury's which is the underlying instruments for the short value. >> you and has a transition to one to one backing and dollars of usdc coin at present only 60% of the coin was back by cash or cash substitutes. if the crypto currency industry, hypothetically, lost its ability to use stable coin as a bridge to trade in come to trade in and out of dollars tomorrow, would
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that cause a significant shift? it seems as though it would not be able to work the witness currently, correct? >> i think a primary reason why stable coins are so powerful is that they are superior form of settlement. and so existing banking system moves slowly. funds take several days for them to move and there are significant fees and access to that can be limited where as block chains operate continuously and settlement happens haven't at the speed of the internet. i think it is important that payments and settlement in these new forms of internet financial audits and services can operate at the speed of the unit. i think it's essential. >> i see, thank you. what would you say to some of the folks who are listening to what some folks are saying not just you on this panel but in the larger world, to folks who say and what you say to folks
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who say basically this doesn't seem like a new financial system per se, but really an extension or perhaps expansion of our present one? >> well, i would disagree with that. i think what i believe we are seeing is a new open infrastructure layer on the internet, a missing infrastructure layer of the internet that is designed around value exchange and economic coordination, that is rooted in immutable data, interact with parties in favor say for that hasn't existed before on the internet. and really many of the efficiencies that the internet brings in terms of moving information, and a moving value but also with greater degrees of security that are often offered to the existing financial system. i really do believe we're building a new global economic infrastructure layer and we are
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-- >> that's not distinct. you would argue that is a distinct, expansion increase in the sophistication of our current financial system? >> i believe for this to take old and needs to be well integrated with our existing financial system and we have long elite in a kind of hybrid model that does that. >> thank you very much. >> thank you. the gentlelady's time has expired. the gentle been from ohio mr. gonzalez is now recognized for five minutes. >> thank you, madam chair. much to appreciate history, it's a great hearing. want to start with mr. brooks. i want to attempt respond to some objections which i believe demonstrate a complete and utter misunderstanding of what we are even doing here today. one contingent is a live of crypto is a stick it to the man by but an actual it is dominant the control but dictate and wall street. while the culture may be somewhat accurately described, the notion that a handful of big tech leaders and wall street banks, created and now control
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crypto is absurd on its face and, frankly, anyone who would make such a claim i believe should be ignored on this topic. my contention is that web three crypto blockchain et cetera by its very structure has the ability to solve some the most difficult frustrating problems the current version of the internet and the financial system have where narrow set of platforms control what we see, how we interact and what we buy millions of americans remain completely disconnected from the financial system. web three can turn this entire thing on its head in a very empowering way. my question silver. i specifically could use web three solving some bigger challenge associate with the current version of the net in te financial system? >> congressman, thanks for the question. when i go back to the criticisms you were just recounted the part that i heard was hip, i'm going with hip the rest of it we can come to but in terms of the problems being solved i think the first issue is the biggest critics of crypto currency have been the biggest banks. those of the people for the most
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concerned about the interesting points into the payment system, about the ability of crypto assets to build networks had away from the clearinghouse. those of the biggest critics and i think that tell you a lot of what you need to know. reason is because the way that web3 solves a lot of problems, it's really twofold. first of all it eliminates the total collector role of traditional banks and traditional broker-dealers. the main thing that they do as they employ large numbers of human beings and ten ten lef account and allocating credit for a fee. it . and of the cryptocurrencies do that without human beings, no fee, and elimination of minimum account balance ease, the $25 five dollars wire transfer fee at your bank charges to give u-3 days as an money, those are gone. the last part is it unlocks value that traditional economic structures don't unlock, the creative economy, played to earn in the game system. though some exist. >> want to go to ms. haas on that. building office in your testimony to mention use cases web3 in the creator and gaining
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economies. could you please outline a specific use case and discuss how web3 can empower creators anarchists over magnetek platforms which was implied earlier? and quickly place if you could let's talk quickly. the one we talked earlier, in the month of november play to earn so these are where video games, one can play a videogame and earn. those are in came expensive if anyone here as young kids who are playing with robots come play with my path, these are experiences where you can buy avatars come in by various things. these can become nft. >> these can be sold for value and so what we're having here is this kind of consequent is played to earn, you can earn money, you can monetize that back in and create these new economies in new communities that have increasing value. >> thank you. mr. backman freed, i believe you live in hong kong? purpose could you repeat that?
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>> you live in hong kong? >> i do not anymore. >> but as the question. >> i did at one point. >> ten years ago shortly 20, 30 is good if one is is for a major internet company hip-hop and one or. he probably wanted to do it where you grew up in stanford on the coast in silicon valley. for whole host of reasons one of which being very, very conducive innovative environment. when i look at web3 web3 it of projects moving overseas. to what degree is the current regulatory environment in the united states contributing to this change where projects are now being built and domiciled in nations not the united states, where as in the previous version of the internet they were? >> i do dash we are optimistic will see changes to frame it over the next few years. that will bring us into an world that can make the united states the source of the deepest and most liquid markets in the
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crypto currency ecosystem. i don't think we see that historically and if you look at the difference between the volume distribution of crypto and digital assets versus most other industries you can see that. >> mr. brooks, do you have any thoughts on that? >> as a said earlier there certain activities that are g20 partis think our proof of the appropriate legitimate a subject to regression that we keep resisting. those have moved abroad. >> thank you and thank you, madam chair. i yield back. >> thank you. the gentlewoman from michigan, ms. tlaib, is now recognized for five minutes. >> thank you, madam chair. thank you so much for all -- [inaudible] to this important issue. crypto currency like bitcoin consumes enough energy to power a small nation and that something that -- [inaudible] around this issue.
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estimated bitcoin -- [inaudible] 121 terawatt hours a year. [inaudible] then the entire country of argentina consumes. that's more than the consumption of google, apple, facebook and microsoft combined. one bitcoin transaction uses the same amount of electricity as a typical use household uses in more than a month. so this is really -- [inaudible] many folks do not notice, many americans -- [inaudible] so can you explain why -- [inaudible] >> thank you for the question. this is really important area. obvious interns assist in building and the focus on what we do in this space that we should always be trying to get
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better and much more efficiently. bitcoin the way that bitcoin consensus is achieved is really complicated mass equations and so there's a lot of energy that needs to be used to be able to make that happen. i know best about the consensus mechanism on stellar which is the stellar consensus protocol which can be done by very small computer, many of the ones you have in front of you. and university of funded did a study itself and the network is low in terms of energy consumption. it's around .00022 kilowatts per hour for each transaction. that's less than a transaction for visa. naturally important comparison for us to think about. so not every consensus mechanism is proof of work or proof of state. again there are many different ones out there and depending on the mechanism it depends on energy consumption but it is important for us to be able to
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try to do this better more efficiently and to consider the sustainability concerns around it. >> so far -- [inaudible] particularly alarmed -- [inaudible] like the one operated in greenwich and seneca falls new york are now online dating crypto currency mining. i don't know if the traveler chl knows this but back in montana coal coal-fired generated stations now providing 100% of its energy to -- for bitcoin mining -- [inaudible] estimated two-thirds of all bitcoin mining takes place in china included in breaches in very -- [inaudible] and other areas. [inaudible] -- taking a more active role in
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monitoring crypto currency in order to bring energy consumption -- in line with their own targets in her own country, the paris agreement. what would that look like? >> it's important for us as an industry to focus on this issue even without regulation. it's something need to always balance about the value of which receive in terms of the harm that is created to the environment. so we constantly have to be doing that analysis. we all need to focus on minimizing the energy consumption as much as possible and then think about how we can work with governments to be able to consider the best way to achieve that kind of, the carbon neutral status a lot of folks want us to get to. i encourage constant discussion. i encourage us to be innovative. this is one of the wonderful things about blockchain and innovation generally. you look end-use technologies help to solve problems just like this. >> yeah, proof -- [inaudible] and so what tools -- what tools
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can policymakers like ourselves look at to move us toward that, away from that model? how can we excitement that transition in terms of mining. we know our planet is burning and the climate crisis this year and i just want -- crypto currency community to be part of the solution and not make the climate crisis worse. can you talk about things you suggest for us to be working on in regards to the issues? >> it's important we've engaged a third-party to be able to look at the additional energy consumption not just for what as a mention the university of london did with respect to the work that they did but it do think it's important to be able and were engaging third-party to look at all of the different transactions and have network can even be better and better with this with respect to stellar. that same kind of work to meet him with all of the different types of consensus mechanisms
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out there so i think research and more focus on what we can do to achieve sustainability and assisting the gills is an important mechanism and would be good to continue that conversation with you. >> thank you and i yield. >> thank you very much. the gentleman from tennessee mr. rose is to recognize for five minutes. >> thank you, chairwoman waters and thanks to ranking member mchenry for holding this hearing, and thanks to our witnesses for hanging in with us for such a long period of time. your testimony and participation today is very important to helping us understand this area and craft the appropriate policies going forward. mr. bankman-fried, ftx and -- has grown purkinje tolls but economic impact from your perspective that ftx u.s. has in this country? >> thank you for the question. in addition to the impact in terms of the hiring that we're doing and the support of a
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number of initiatives in the country related to job training and education, we are also hoping we can help provide financial services to people who if not had easy access to those before. if you think about the number intermediaries involved in the traditional financial transaction, whether it's using a bank or whether it's investing your assets, that's a lot of points that can be very difficult to navigate for number of people both in this country and in the world. we aim to provide service to everyone here, all easy to access on a mobile phone giving inclusive and acquittal access to financial markets that of a missing to a number of people. >> obviously you describe great many benefits the u.s. economy. so in your view how do we keep this innovation happening in the united states? >> i think i'm optimistic that on the regulatory side we are
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not that far from that point and it think there are a few clear vacations they could go a long way. on the market side having a framework with a single regulatory structure, and a might have multiple regulators involved in it, cftc and as he set both likely to be involved to some extent but having a single unified framework for futures and spot digital assets could go a long way towards providing the experience you can offer in a lot of jurisdictions today. i think giving query on the stable coin side, audit requirements for the reserves but without squashing innovation by requiring only a very limited number of institutions could go a long way and last answer is moving away hopefully from a binary distinction of what asset class you are part of where one is very much close to the
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sentence and moving towards a structure where we identify the nsa disclosures for certain digital assets related to the issuance whether to supply, religion anti-fraud measures so that they can all be part of a financial ecosystem with appropriate disclosures and at the front mechanisms regulatory oversight would be really valuable. >> so i'm going to turn to you -- thank you, for a moment, mr. brooks. if you working for a day under going to tell us here's what you need to do to structure the regulatory framework, any minute and 39 seconds tell us what that would look like. >> i can introduce myself in a minute, thank you, congressman do i come back to the concept of parity. i don't know why we believe that incumbent institutions are risk-free and anything new is highly risky. so if i have a platform built on a blockchain that is doing lending i don't know why it's so hard for us to say that can
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participate in our banking system. if i decide that xrt is a security, why will we let a list on the u.s. exchange? the problem is we treat crypto assets differently from all other assets and the answer is just recognize them for what they are. these are assets that represents of underlying activity. it could be network, could been application. they have value that people are willing to buy and sell apps to let him in. that would be my message. let him in. >> okay. i'm going to ask this question and then ask you all to respond after today. i recently read an article entitled the bitcoin boom and the quantum threat. i bet most of you have read this article. arthur herman position you fellow at the hudson institute, the article discussed the fact that quantum computing could pose a security risk to the blockchain technology. my friend mr. perlmutter earlier asked mr. bankman-fried about this topic but i think it's worth revisiting and and i d
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open this question of to all of you and ask you to respond in writing. do any of you worry that in the future of quantum computing could be used to compromise the security of blockchain technology? and i see my time is expiring and i would just quit and yelled back, , madam chairwoman, thank you. >> thank you very much. the gentlewoman from pennsylvania, ms. dean, is now recognized for five minutes. >> i think the chairwoman and i think all of you for being here today and testifying before us. i want to start in a general way and i'm thinking, mr. brooks, of what you said about the practice of law, with the advent of emails i was a younger more event and remember all the fears around it. and so as has been said and this is a follow-up to what mr. green asked long ago, hours ago. it's obviously clearly a fast-growing and a bit mysterious market. looking at the total of crypto currency market capital last
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year some who have reported it exploded from about 500 billion a year ago to now almost 3 trillion as of last month. but it's also clearly a volatile fast-moving market as a last at the total market cap is backed down closer to .4 trillion come another example of volatility in bitcoin which lost half of its value overages two days in march before rebounding. so to that notion, to the people who find all of this a bit mysterious, are we at risk? do we see warning signs of a bubble in this marketplace? if i'm allowed to call it that. what do we do to make sure that the industry does not threaten the overall stability of our financial system? may be mr. brooks i will start with you. >> thank you, congresswoman. it's good to see again. i will give you a quick anecdote. when i was practicing law of reps and what of the largest
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mutual fund complexes and in their market group they had a chart, a physical chart showing the use equity market from 1792 to the president what our member about the shrimp is a was a full city block long and if you stood up into the room and looked at that chart it was a straight line up into the right. but if you want wider close to the church a good very clearly see the civil war and the panic of 1907 and the great depression and all kinds of of the volatility along the way. what i would tell you is in the beginning of a fundamental technological revolution like this the early days are going to see turbulence but the long chart of crypto and only its 11 year history is up into the right just like the u.s. equity market. there are risks, there's disclosures that ought to be had. there's framework regulation should be a top of the fact the price goes up and then doesn't make any difference from u.s. equity markets in the first 100 years of the countries existence. >> that's a great comparison and probably a metaphor for other things were rest of the wir democracy. hopefully the upward trend is the trend let's pray that is so.
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a little more specifically. all digital assets clearly don't fit into our current fiscal regulatory frameworks, and so we're here to try to learn what are the right policies to make sure this is appropriately regulated? do we need to start from scratch and create an entirely new framework for crypto with the new regulator such as has been suggested by coinbase? ms. haas, can you talk about coinbase view that congress should regulate digital assets under a a new framework with a single regular? >> thank you to clarify. we do believe this there'ss to having a single regulator i can address the broad strokes of crypto generally. i share a lot of the views mr. bankman-fried had in his written testimony and share the views of mr. brooks where he says if it is a security vendor is going to fall and sec. if it is a commodity stoking it will fall under sec but we also have new tokens about nft's and
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the when you think about bitcoin itself, when you think about these new protocols where all you're doing is getting a right to government and the protocol they do not fit under the contours of existing frameworks in the definitions i think would benefit from definition taxonomy we benefit from clarity on who we go to, kind of walk to these issues and find one voice and we think we benefit from an sro they can get in the wheat of these issues and help us move up speed to keep up with the pace of the innovation of the industry. >> thank you. mr. cascarilla, you also sit in your testimony that quote a primary provincial state or federal regulator should regulate both digital asset companies and the products there could you elaborate? >> yes, thank you. paxos was the first company to become regulated. we operate using a trust company and the reef we do is because we don't make her own bank deposits
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of trust company is safer than a bank. that's an example using a state regulator, regulatory authority under to oversee our business. i think having primary regulators on the state basis on a federal basis is what we -- consistent application -- [inaudible] reserve rules come customer practice rules. there is no clear way to do that right now. we see this as a sense as a trust company for we don't have reciprocity and state-by-state basis. a clear parity across the board as mr. brooks assaying is very important for the industry. >> i thank you my time has expired. i yield back. >> thank you. the gentleman from wisconsin mrr five minutes. >> thank you very much, madam ci serve as the ranking member on the select committee on the economy along with chairman hines. both of us also members of this committee and we're holding the
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first of two roundtables tomorrow on financial inclusion and access to banking for underserved communities. a topic we talk a lot about also in this committee and an issue front of mine for many underserved communities around the united states. the mr. brooks i would love to get your thoughts on the relevance of today's topic for financial inclusion and have growth in digital assets of the decentralized finance can drive inclusion and can underserved communities benefit from these two love it? >> i love that question, thank you for giving a chance to address it. a couple of things. first of all let's ask wide with some an underpaid people in the united states? the edge is a combination minimum balances, maintenance fees and other things that are hallmarks of the money center model that banking is built on. if you talk to mr. allaire about his brother he would show dittohead minimum balance or monthly maintenance fees. you can keep it as that any tokenized bank deposit for free. that's first and is there are no $10 a month these, though 25-dollar wire charges of those
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things that exist that eat away at your life savings. the next most more thing about crypto is here you have an early-stage asset which unlike the ipo boom, unlike venture capital doesn't require that you know a guy or that you be well-connected or you be an accredited investor to participate. this is a chance are underrepresented canaries to be in on the wealth creation stage of some musing as opposed to coming in at the end. what i always say is that's the way result underrepresentation is to wealth creation. this is an opportunity and that is why there are more minority investors and white infested encryptor in the united states is because speakers i appreciate your comments. general technology is a key aspect with to address the underserved communities in the united states and agree with the comments you may enjoy hearing tomorrow on select committee and economy. to build further, what gcs main regulatory impediments to further innovation in the space that we think will help us on inclusion or aspect?
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>> it's all income with the protection. the big banks don't like this. the big banks have been slow to adopt because the make a lot of money on those these i just mention. >> let me keep going with you if i can mr. brooks in the panda we have. in open test when you talk about the do no harm approach. data helped bring opportunity in web what did you mention some of the countries that u.s. crypto businesses are moving to pick what are some examples positive approaches to digital asset regulation you see in those countries? >> for example, responding to market demand pick up a whole bunch of customers want to buy a bitcoin etf why is our business to say they can't do it? you see this domestically in europe versus rest of the united states, lots of investors like to buy certain tokens. new york will not let new yorkers. why? >> thank you, to shift gears to you, ms. haas affecting pellet ask about your first direction with the sdc. the sec blocked coinbase launching its linn products earlier this year. your ceo brian armstrong been
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very vocal about his concerns of the decision in the process by which it reached that this is but it's important regulars apply standards consistently and so want to better understand how this played out to state you can help us here. has coinbase had for the conversation with the sec aboutt life is not allowed to offer the land product. >> with we have and we still have cleared as like a our party was not able to proceed. >> how would you characterize the discussion javad with the sec? as a bit of a black box? >> we provide a lot of information but not at clarity as to why or why not. >> that's helpful that this committee need to consider looking to as to how we assist technology being developed in the united states rather than abroad and appreciate your comments. if i can't in my final one minute, mr. cascarilla, earlier today's hearing you talk about how people around the world want stability of u.s. dollars we all
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know of countries with out-of-control inflation autocratic governments. can you talk with you about digital asset in web three will help people deal with these challenges? >> yeah, i think it's important to recognize that in the financial system that can be better, sophisticated and relatively stable certainly compared to most place in the world. when you look at the developing world its exits financial services is a real problem. i think it's a significant way one is that there what access u.s. dollars and could do. they want to protect themselves when they're either in politically unstable environments. this technology crates the capacity to create a global interconnected way of being able to operate on an economic basis that is never existed before. the u.s. should take advantage of it. >> thank you very much. i appreciate all of the
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witnesses here today. i yield back. >> thank you to the gentleman from texas ms. garcia who is also the vice chair of the subcommittee on diversity and inclusion is now recognized for five minutes. >> thank you, madam chair, and thank you so much for this hearing on such a fascinating and critical topic. blockchain technology has the potential to change and change how we transact the world, as much in the financial sector and across multiple industries. .. missus dixon, your company is a nonprofit hearing network
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designed to facilitate financial transactions worldwide testimony to say your primary focus is to facilitate remittance transaction for 800 million people supported by funds by migrant workers. in texas, estimated 3.1 million immigrant workers comprise about 22% of all labor force in my district we are 77% latino so this is of great interest to me and to them. many of these workers face the same financial struggles not only financial struggles but also access to the financial services industry and it's multiplied by cultural and language barriers. specifically, what is it you think this sector will be able to do to be able to provide better access to the financial service industry considering economic language barriers many
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migrant face? >> thank you for the question, is another area i'd love to talk about because i think it -- >> we have limited time. >> there are a lot of important pieces. interoperability with existing financial infrastructure means individuals who don't have bank accounts but something like a relationship in texas we have on this network allows the individuals that have cash but might not have the bank account to walk in, convert the cash toward digital asset and send the asset to their family, their friends or anyone they choose using the block chain and those individuals they sent it to put send the assets to money gram location outside the country in those regions participating in they can remove the assets from the block chain. this is getting to the under banks -- >> receiving end, out of a
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convert money gram or i forget what you called it, into local currency? it's involved there for the conversion. >> it's very important on the network layer that we have pricing pressure created by the fact that these networks are low so there's going to be a fee when you have the ability to make that transaction so they want to pick up at the local money gram and will pay a fee but there are no other intermediaries layered and they are much lower than those you see in the traditional financial infrastructure so i feel with this particularly relationship and this technology generally it opens up a world for those users where they get access to the ability to hold the assets to create value for themselves -- >> i will follow-up in writing
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how you plan to reach those communities because i could imagine remote villages, rural areas even in the great state of texas that you won't have access to this wherever you are supposed to pick up the money in the receiving and. i have concerns about the but you can reach out to my office and we can talk. i want to move on -- i'm glad you are sharing a lot of data on your webpage. you can provide transparent information not only on your employment numbers, i know that was asked about but also in terms of your leadership and directors and salaries and wages because at least one of you has already had a review that was not very good and i don't want to pick on anybody i just want a commitment from everyone on
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diversity and inclusion and transparency. yes or no. >> we can commit to that, yes. >> yes. >> as a public company our data is available. our leadership and board and data is available. >> i didn't hear from -- >> yes. >> thank you. thank you so much and i have 15 seconds. the other thing i'd like to see, i could follow-up in writing, demographic data on your users, how many are latino, african-american and also by income i want to make sure users and your leadership reflects that. thank you. >> the gentleman from south
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carolina is recognized for five minutes. >> thank you. we've seen exponential increase in number of attacks over the last months and years and it seems to only get worse. it plays a critical role preventing finance, could you describe how your firms take an active role such as law enforcement and other participants when ransomware attacks occur? i'd like to get a better sense of the centralized exchange role for example, how do you keep track of tokens, transactions and wallets and maybe including your explanation, discuss the colonial pipeline attack and how the fbi was able to retreat substantial portion of the ransomware that was made.
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>> we have worked actively on this and indigestion of deposits and information, we are responsive to law enforcement rights constantly around us, we are out whenever we can in terms of information related to users but also extended history because of the public ledger, we can trace these through and say you should talk to this place next, this is where it seems like the assets probably ended up. we've assisted and i think north of $10 million north of successful. in cooperation with law enforcement related to this. >> follow-up if you can get a percentage back, why can't you get all of it back? >> -- >> seventy or 80% of the
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ransomware's retreat, what is the difference that was successfully retrieved as to the one that's not. >> in general any assets on our platform we can retrieve and some of the people involved were sent assets in one direction and others would send it in another direction and are others who might not be but anything on the platform we can retrieve. >> thank you. follow-up question, you have tools we could help in your toolbox, legislation that would facilitate greater recovery percentages? >> i think speed is one of the more important things here. like any investigation, the fact that law enforcement can act on this, the greater the chances of recovery are so i think we'd
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love to have standardized open minds with law enforcement where they know how to reach out to us we can have phone numbers available because the faster that can be taken from a greater the assets are retrievable. >> thank you. ecosystem-artist popularity with younger more diverse demographic according to research from 18% have a level of experience crypto currency among whites, americans comparable figure for 13%. hispanic 21%. asian 23%. what if 3% of men 18 to 29 invested and traded or used crypto currency these numbers are incredibly diverse. what we see traditional finance, why do you believe that to be the case? >> thank you for the question, congressman. i think what we see with crypto assets digital assets more
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broadly, it is a form of finance that makes sense to young people. a lot of younger people have grown up with the internet and were born with the internet and have an expectation of value being able to be used the same way they can share a jpeg photo or react to something so there's a familiarity and expectation of course everything will be digital so i think the expectations are different. i think a component of digital asset market, concept of democratizing markets and they do that. there is more access, fewer barriers to entry for individuals and it affects the adoption rates in minority communities and more generally on other demographics, those are some of the key contributors. >> thank you. i want to thank you for holding this hearing, it's been very productive and it's a good
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example of how the committee should learn about important issues facing the american people and we need to regulate carefully. thank you, ma'am. >> you're welcome and thank you for your participation. the gentleman from massachusetts, vice chair of the full committee now recognized for five minutes. >> i appreciate expert witnesses that are timely. current regime of regulation by enforcement in which entrepreneurs negotiate with fcc or tfc seek honor offset basis is not fair, efficient or conducing to innovation. they need to provide clarity unpredictability by statute and i'm ready to work with my democratic and republican colleagues to provide back. the rules of the road can be a bipartisan initiative. united states he's our primary regulator and market structure neutral three imperatives.
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it compels disclosure and transparency, prevent fraud and abuse and promotes efficiency and resilience of the market. his primary regulator should work with safe self regulatory sector to establish one light touch rulebook for derivative listings, asset service and cost margin settlement and money laundering, disclosure auditing standards. stable coin standards, which you identified as perhaps the most important innovation, in a recent interview you identified stable.regulation as a substantial forward persisting dollar dominant locally and you said there are going to be stable coins in the world and if you and them, it will be euro points or stable coins. in the written testimony, you proposed a seven part work in
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regulation and i want to thank you for the thoughtfulness behind that. can you identify the single most important thing congress could do right now to regulate stable coins in order to persist dollar dominance? >> thank you for the question. the single biggest thing, the reserves are what they say they are and the fundamental large portion peccary posed from the consumer protection, what if there's a trillion dollar stable coin with $1 billion actually backing it? having periodic third-party audits to confirm they are backed one to one with regulatory processes by far the single most important piece of. >> as any other other members of the panel disagree or want to expound on that? >> i think what sam has outlined is a productive framework.
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i think clarity on this on the disclosure and reporting requirements and also reserve and liquidity requirements, a focused set of statutes could be extremely valuable to provide confidence to the market, confidence market participants in the dollar digital currency to flow on the internet. >> so if you say stable coin is tethered to the value of the u.s. dollar, you've got to disclose on a regular basis you got liquidity and reserves to match back, reduce run risk and you've got to be willing to be audited by a primary regulator? >> absolutely. >> you said you think the most regulatory step u.s. could take but where from the interview you had, makes a be the most important thing you could do, does anybody want to expound on
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that or disagree with that statement? >> i'll add some thoughts here. i agree this is the most important thing the u.s. can do. at the moment, it is not clear how you can trust the dollars stable. money is ultimately a product in the way money is for people leaves a lot to be desired. there were so many problems over this and i think it's crucial for us to set a clear regulatory plan in place that creates this across all the different products so simple if you have a primary regulator, reserves, cash equivalents and creates a level playing field for all different stable coins. >> i appreciate that this is, iy
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regulator and ask for the exposure and auditing requirements for stable. i yield back. >> thank you. gentleman from texas, mr. taylor is now recognized for five minutes. >> thank you, madam chair. appreciate this hearing. as you know, my home state of texas earlier this year created a friendlier jurisdiction for crypto block chain in an effort to be a leader in that space and i saw money gram which has many employees in my district headquarters outside of my district, he developed a partnership with them and i was wondering if you could go into
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further detail of what you are doing and for those who don't know, money gram is a premier any transfer operation, there are countries that literally 20% of the gdp is transferred in by money gram, so it's a pretty important product for a lot of the routes i'm wondering what you are doing for them. >> thank you for the question an important part, demonstrates not just interoperability block chain has with existing financial infrastructure but also demonstrates you can offer services to traditionally under banked folks all over the world leveraging this technology. finally, i think important from the money gram view, it provides instantaneous settlement but they don't have ious, they have the money in the bank account using the stable coin which is important for us to get right soleimani gram relationship, which is a private right now in the u.s. allows -- you don't need a bank account get back on
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the block chain. the hardest part right now about block chain is the on and off ramp, we haven't done that exceptionally well because it's hard unless you have a bank account, it's very hard to get assets and money into digital assets. the money gram relationships could be one of many that demonstrates ease of use you can have. the beautiful thing is money gram who acted quickly less than two months to help develop this technology but there's one part. the other part is, all you have to have as a wallet enabled, a wallet anywhere in the world that doesn't have to be a specific wallet to walk into money gram and get assets onto the block chain using your local fiat and convert to usec, the layers coin and you can have that in your wallet and generate yelled and do a lot of things in respect to the assets you have and then you could send them to family in a different country
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and once it rubble which will be next year, you could go into participating money grab locations and have the assets converted to your local currency which is important so it works well what the cash economy and ecosystem and demonstrate the true interoperability with block chain and traditional financial infrastructure because that's what money gram is and has done exceptionally well and demonstrates the value traditional players bring because they've created this important ecosystem and network of folks all over the world that have feet on the ground and work with cash, individuals with cash to deliver value to them whether to be able to get from family outside of the country or convert these into digital asset so it's really exciting transformational opportunity in my opinion for block chain because of the speed of use and ease at which you can get money on and off the block chain. >> to follow-up about texas, i think all of you testified you have different state regular
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tray licensure, everybody here has state licenses and multiple state licenses. some of you licenses in every state almost. on some level who are seen state sometimes referred to as laboratory democracy come up with their own policy sets, do you think that is working? is not effective? >> don't have to have the licenses because we have the infrastructure but working with companies that have to have that, it is complicated for them to have individualized different licensing structures all over but folks are doing very well, many individuals on the panel have been successful getting the licenses at state level. >> final comment, it seems there is a drive to say you are unregulated, i was surprised reading the memo saying it's an unregulated industry. you any of you feel unregulated? [laughter]
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>> that's an important distinction, the activity itself is already related and when we focus on activity versus technology, he will seek a lot of protection and we should be looking for the gaps instead of trying to create a new regulatory framework. >> i think it's funny when i asked, everybody laughed. the concept, almost the memo is almost laughable. the people that are regulated everyday say your unregulated yahoos, do what you want. i appreciate the opportunity for this discussion, thank you for having us here. >> you're welcome, thank you. i would like to think witnesses for the testimony today. all members have five legislative days to submit additional written questions for the witnesses to the chair. we are told the witnesses for their response. i ask witnesses to please respond as properly as you are able.
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without objection, all members have five legislature days to submit extraneous materials to the chair or inclusion in the records. with that, this meeting is adjourned. [inaudible conversations] [inaudible conversations]
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[inaudible conversations] [inaudible conversations] [inaudible conversations] ♪♪ >> at least six residents recorded conversations, many of the conversations are on c-span podcast. >> season one focuses on the presidency of megan johnson. 1964 civil rights act, 1964 presidential campaign and the
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war in vietnam. not everyone knew they were being reported. >> certain johnson secretary new because they were tasked with transcribing many of the conversations. they were the ones who made sure the conversations were as johnson would signal to him through his office and bears. >> you also hear blunt talk. >> the number of people on the i will stay right behind. >> presidential recorder on c-span now mobile app. ♪♪

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