CFTC Chair Rostin Behnam Says Stablecoins Are Commodities At Senate Agriculture Hearing

Today’s Commodity Futures Trading Commission (CFTC) oversight hearing by the Senate Agriculture Committee was broad in its remit as CFTC Chair Rostin Behnam provided an overview of the latest and greatest at his agency.

Video is here.

Chairwoman Sen. Debbie Stabenow’s (D, MI) opening remarks made clear digital assets were on the agenda with an allusion to recent events in digital assets such as the FTX implosion saying, “The massive customer losses caused by this misconduct highlight exactly why we need federal oversight of the crypto industry, and I remain committed to working with my colleagues to hold crypto companies to the same rules as traditional financial firms.”

In spite of the beginning of the hearing, the Digital Commodity Consumer Protection Act (DCCPA) was barely discussed thereafter as was any new specific new digital assets legislation that could come out of Senate Ag.

Ranking Member Sen. Boozman (R, AR) followed with his opening remarks which were complimentary of the CFTC and Behnam. The remarks briefly touched on digital assets: “I am confident the CFTC is suitable for an expanded role in regulating the digital commodity spot market. I am committed to working with Chairwoman Stabenow and our colleagues to create the safeguards the market needs.” Also, Sen. Boozman said that he appreciated the CFTC’s use of “No Action” letters in managing commodity and futures markets perhaps reflecting a more “light touch” approach to regulation by Republicans.

CFTC Chair Behnam built on Stabenow’s and Boozman’s themes and expressed the continued need for comprehensive regulation in digital assets in his opening remarks. He repeated what he has said many times before: “In the absence of direct regulatory and surveillance authority for digital commodities in an underlying cash market, our enforcement authority is by definition reactionary; we can only act after fraud or manipulation has occurred or been uncovered.”

Opening statements:


In the Q&A portion of the hearing, highlights included Senator Tommy Tuberville, (R, AL) asked about global regulation momentum and Behnam saying that he was not concerned about “the race to regulate” around the world or that American crypto companies were leaving the U.S. currently.

Senator Dick Durbin (D, IL) expressed deep skepticism about the digital assets space but concluded ominously: “The American government at this point is not doing its job in regulation.

Arguably the most substantive part of the hearing was the Q&A led by Senator Kirsten Gillibrand (D, NY). She asked a range of digital asset questions during her allotted Q&A time including about the Responsible Financial Innovation Act (RFIA), stablecoins and, finally, commodity designation confusion between the CFTC and SEC around certain digital assets – particularly Ether.

Below is the transcript of their 5-minute interaction (lightly edited for clarity):

SENATOR GILLIBRAND: I really appreciate your statement that you believe it’s time for comprehensive [digital assets] regulation. And as you know, I’ve taken the time to write a bill with Senator Lummis to provide that comprehensive framework. I’d like your assessment of that draft. We’re doing a new draft that will be released mid-April, but our ambition is to make sure there is a place to start a national conversation about a holistic approach to digital assets to make sure that digital assets that have the character of securities are regulated by the SEC; to have the assets that [are] commodities are regulated by the CFTC; to make sure stablecoins can be overseen by the OCC; [and] to make sure that there are tax provisions for the entire industry; to make sure there are cybersecurity requirements for every part of the industry.

So, I’d like your assessment of the direction of that bill. And ways that we can continue to improve upon it. You and I’ve met about this, but I’d like your insights for the record because before we introduce the new version of this bill,

CHAIR BEHNAM: As you point out, I remember months ago at an event [that] what was most important to me in terms of the success of your bill with Senator Lummis and getting it out there is really pushing the conversation because naturally the bill will get amended and get pushed in different directions, but I thought you very carefully and thoughtfully considered all components of the market – not just something that obviously resonates with me as a market regular or the market side but thinking about the stablecoin issues, thinking about settlement, thinking about custody, thinking about cybersecurity risk -so, comprehensive in that nature.

I think given what we experienced and what we saw with FTX -a premium on obviously segregation of assets, on customer conflicts of interest and ensuring that those conflicts are rolled off very carefully. There are different questions that we probably have to ask in many respects with respect to digital assets in light of cybersecurity, vendor risks, third party service providers. So I would just emphasize those are some components that might be worth looking at or taking a second look to ensure that we don’t run into another situation like we did a few months ago.

SENATOR GILLIBRAND: In light of SEC Chairman Gensler’s recent suggestion that all digital assets except for Bitcoin are securities. What does that mean for a number of designated contract markets currently offering futures or swaps on Ether?

CHAIR BEHNAM: Well, it would obviously raise questions about the legality of those DCM’s (designated contract markets) listing these digital assets that are purported to be securities.

I’ve made the argument that Ether is a commodity. It’s been listed on CFTC exchanges for quite some time. And for that reason, it creates a very direct jurisdictional hook for us to police, obviously, the derivatives market but also the underlying market as well.

SENATOR GILLIBRAND: And as a regulator, how do you respond to such a position, given that the SEC interprets the federal securities law? If there is this competition for oversight, what tools do you have to respond to that, given that you have been having oversight over Ether under the commodities market?

CHAIR BEHNAM: Senator, it’s an important question because the process for which an exchange or DCM, as you pointed out, will list a contract is very clear under the law: they could seek approval by the commission or they could self-certify a product. That sort of self-certification process is one that shifts the responsibility to both the CFTC and the market participant. And I would say serious and deep legal analysis goes into the thought process before a product is self-certified. So there’s no doubt in my mind having been at the Commission when Ether futures were listed that both the exchange and the Commission thought very deeply and thoughtfully about what is the product and does it fall within the commodity or security regime.

We would not have allowed the product – in this case the Ether futures product – to be listed on a CFTC exchange if we did not feel strongly that it was a commodity asset because we have litigation risk, we have agency credibility risk if we do something like that without serious legal defense or defenses to support our argument that that asset is a commodity.

SENATOR GILLIBRAND: With regard to [SEC] Chairman Gensler’s position for CFTC’s 2021 settlement with Tether – the undertakings which I presume you’re still monitoring – how do you address those kinds of issues?

CHAIR BEHNAM: Again, Senator, in speaking about stablecoins themselves because there’s a larger question about what direction stablecoins should go in terms of regulation and as you pointed out in the bill that you co drafted with Senator Lummis, and I agree with this, that stablecoins are and should be prudentially regulated financial instruments. Notwithstanding a regulatory framework around stablecoins, they’re going to be commodities in my view.

I know colleagues might have a different opinion, but we’ve done the legal analysis and examining the circumstances around the Tether case, it was clear to our enforcement team and the Commission that Tether stablecoin was a commodity and we needed to move forward and swiftly to police that market and that company.

See the video of the Gillibrand-Behnam conversation.