The Digital Commodities Consumer Protection Act (DCCPA or S.4760) took centerstage at a 2-1/2 hour hearing of the Senate Committee on Agriculture, Nutrition, and Forestry featuring many of its committee members including Senators Debbie Stabenow (D, MI), Chairwoman, and John Boozman (R, AR), Ranking Member.
Commodity Futures Trading Commission (CFTC) Chair Rostin Behnam, a former Stabenow staffer, led off testimony on DCCPA which he helped create in partnership with the Committee.
Back in February, shortly after Behnam was sworn in as CFTC Chair, a Senate Ag hearing on digital assets laid the groundwork for themes of the bipartisan bill which will classify the cryptocurrencies Bitcoin and Ethereum as commodities and therefore within the jurisdiction of the CFTC.
Senator Boozman stressed during the hearing that DCCPA is not meant to erode the jurisdiction of the SEC over securities.
Self-subsidized
Overall, there were few surprises in the Senate Ag hearing – after all, it’s a bipartisan bill co-sponsored by the Democratic Chair and the Republican Ranking member.
But, a budgetary reality and significant hiring challenge for the Agency were brought into focus.
If DCCPA passes, the $320 million CFTC budget will need to grow by an additional $112 million across the first three years as estimated by Behnam. Presumably headcount will mirror the budget increase and require the hiring of another 75-100 employees with varying degrees of specialization in crypto in addition to the 670+ employees currently at the agency.
Chair Behnam stressed that “user fees” such as those levied on crypto exchanges will pay for the new crypto oversight. The CFTC currently generates around 6x its current budget with fees according to Behnam. Ultimately, the challenge may not be the funds, but the logistics of rapid and sizeable growth for the agency.
The use of Self-Regulatory Organizations (SROs) will be a key component to CFTC regulation according to Behnam’s testimony:
“In requiring digital commodity brokers, dealers, and custodians to join a registered futures association[3], the DCCPA acknowledges the key role that self-regulatory organizations, like the National Futures Association (NFA), our designated registered futures association, play in safeguarding the integrity of markets through strict requirements and oversight.”
In the Q&A portion of Behnam’s testimony, Sen. Dick Durbin (D, IL), seemingly the biggest crypto skeptic of the Committee, provided the most pointed questions of the day.
Durbin asked with some disbelief if it’s “really true” crypto innovators will leave the country for friendlier regulatory climates if the United States doesn’t get regulatory guardrails – i.e. on-ramps – in place soon. Although Behnam said he thought innovation could go elsewhere, he quickly moved on to stress the need for caution, patience and a deliberateness of process for instituting a crypto regulatory framework within the U.S. financial system.
On the budget front, Sen. Durbin believed Chair Behnam was “low-balling” his estimates given what he saw as increasing challenges brought by crypto across many types of existing investments such as Individual Retirement Accounts. Behnam took the feedback as an opportunity to suggest that he’d be open to a bigger budget.
Blockchain industry
Later in the day, blockchain industry executives offered their testimony through a panel format and participated in a Q&A session with committee members.
Presenters included:
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- Todd Phillips, Director, Financial Regulation and Corporate Governance, Center for American Progress (see testimony)
- Sheila Warren, CEO, Crypto Council for Innovation (see testimony)
- Christine Parker, VP, Deputy General Counsel (see testimony)
- Heath Tarbert, Chief Legal Officer, Citadel Securities (see testimony)
- Denelle Dixon, CEO, Stellar Development Foundation (see testimony)
DeFi means inclusivity
During the hearing, Senator Kirsten Gillibrand (D, NY) – co-sponsor of the Responsible Financial Innovation Act (RFIA) along with Senator Cynthia Lummis (R, WY) which was introduced in June – lauded the DCCPA as “transformational.”
And in the Q&A with blockchain industry panelists, Sen. Gillibrand chose to raise up the needs of decentralized finance (DeFi) and “definitions” by asking for more expert input to “improve” the bill and help DeFi:
“Decentralized finance has enormous opportunity to improve innovation and to work collectively towards creating more financial inclusivity. Fewer intermediaries – as many of you have testified about fewer intermediaries – [means] more opportunities for people of all income levels to engage in the financial system. And while this bill does include decentralized finance and its regulatory framework, I don’t know that it is being treated in the way it [needs to be].”
In the evolving framework of the bill, DeFi’s saving grace appears to be most precisely tied to financial inclusivity that takes out the middleman inherent to the existing banking system.
The end
Senator Stabenow concluded the hearing by reminding her fellow Senators that they have 5 days to pose additional questions or add any statements.
After the hearing, Senator Stabenow told The Block she believed the bill could not only be approved by her Committee “in the next couple of weeks” but make it to a vote on the Senate floor sometime after the November elections and before this session of Congress concludes in January.
Still, there is no correlating House bill with the same rapid trajectory which means – at best – something like DCCPA becomes law later in 2023 with the new Congress.