There may have never been a bigger moment in the confluence of blockchain technology and U.S. federal government policymaking as Congress came to the crypto throngs last Friday for a “Town Hall” at Consensus 2022 in Austin, Texas.
Seated from left to right were Senators Pat Toomey (R, PA), Kirsten Gillibrand (D, NY), Cynthia Lummis (R, WY) and Congressman Patrick McHenry (R, NYC) who acted as a team and appeared to be keenly interested in creating a relationship with the thousands in attendance. CoinDesk’s Jesse Hamilton moderated.
The new Lummis/Gillibrand “Responsible Financial Innovation Act” was the calling card in Austin, and clearly the Congressional members knew that a key constituency for helping create, refine and pass effective blockchain-related legislation in the years to come was seated before them. The congressional leaders also seemed to understand the audience’s skepticism about Congress and its ability to pass any helpful legislation quickly.
Senator Toomey, whose term ends this coming January, didn’t hesitate to stoke the fires of expediency at the outset by suggesting that stablecoin legislation – such as his – could be passed this year.
Concurring with the senator from Pennsylvania, Congressman McHenry said (lightly edited for clarity):
“The reason why we will be able to move on stablecoins is because there’s alignment around the essentials of asset-backed stablecoins. Algos (algorithmic stablecoins) are a different deal. But, asset-backed stablecoins – that regime is a very reasonable one for us to come to terms with (…). We’re about 50% aligned on the most extreme pieces of legislation here. And that’s pretty darn good for Washington. So then we can get into the finer points of some questions like: ‘Who’s the regulator?’ which are more preference issues than ideologies driving those conversations, but the need is there. And there is a understanding among Republicans and Democrats in the House and Senate on the basic things we need to do on stablecoins. We have to [build definitions on stablecoins and address] definitional issues around digital assets and the regulatory framework of the exchanges that they are on.”
McHenry added that the new Lummis/Gillibrand bill had moved the conversation forward.
It appears even more legislation is imminent. Commodity Futures Trading Commission (CFTC) Chairman Rostin Behnam mentioned as much on Thursday at Consensus saying “more bills” are on the way.
And then Friday, Senator Gillibrand offered on stage that Senator Debbie Stabenow (D, MI), Chair of the Senate Agriculture Committee, is also preparing legislation. In fact, earlier in the day, Politico reported more details on the new bi-partisan crypto legislation effort by Senator Stabenow and Senator John Boozman (R, AR) who “are writing a bill that would give the Commodity Futures Trading Commission more power to oversee crypto markets.”
Unmentioned on stage, but also bubbling within the crypto legislative momentum is a bill coming from the House Agriculture Committee led by Rep. Glenn “GT” Thompson (R, PA) titled “The Digital Commodity Exchange Act of 2022 (DCEA)” with co-sponsors by Ro Khanna (D, CA), Tom Emmer (R, MN), and Darren Soto(D, FL).
The Four Key Committees
The four members of Congress were sensitive if not sympathetic to the Consensus audience’s cynicism about Washington and its notorious partisan rancor.
Along with her fellow Town Hall participants, Senator Gillibrand emphasized the bi-partisan nature of blockchain-related legislation on the Hill and the importance of adopting a legislative strategy with a bias of relative speed. The Senator explained to the audience that rather than going through four committees to create the legislation – Agriculture, Finance, Banking and Intelligence – she and Senator Lummis went outside of this structure.
Looking at the four members of Congress on stage, each covers an important crypto committee -if not two:
- Senator Lummis – Senate Banking Committee
- Senator Toomey – Senate Banking Committee (Ranking Member), Senate Finance Committee
- Senator Gillibrand – Senate Agriculture Committee, Senate Intelligence Committee
- Congressman McHenry – House Financial Services Committee (Ranking Member)
More from the Town Hall…
On The Legislative Process Ahead
“The normal course of legislating is years and years of work. Our goal in putting this piece of legislation out now is to start the conversation. And I agree with [Congressman McHenry]. I think we could do a stablecoin bill between now and the end of the year because it’s urgent: we just had a financial crisis; we just had a meltdown (assume she meant Terra Luna); we just had a disruption because there’s NO regulation. And it’s not fair for the entire industry to have no guidance or rules of the road from existing regulators to the extent it works.”
“That’s why I think it’s urgent for some work to get done sooner than later. Because if we wait in the Senate for every one of those four committees to take their time on their piece of our legislation, it could be a decade. It might not happen anytime in the next few years. [Patrick McHenry’s House Banking] Committee might be ready to go with the other three in the House. In the Senate, we know the Ag Committee is ready to go and they have legislation for one piece of the bill that Cynthia and I wrote – the CFTC piece. We know that the Intelligence Committee also – which I also sit on – can do the cybersecurity piece very quickly.”
“In our bill, we require collaboration between the CFTC, the SEC, Treasury and NIST to come up with cybersecurity standards – they are best positioned to do that collaboratively. And surely the Intel Committee can oversee that. Senator Lummis is Banking in the Senate and Senator Toomey (the Ranking Member) is on Banking and Finance and can speak to those two committees (…) So that’s one of the reasons why we have these four individuals (identifying the three senators and congressman on stage) working together now – to move these ideas forward to get this started.”
On Bi-Partisanship in Divided Government
“Another reason why it is really urgent and extremely constructive to get a stablecoin bill done this year is that next year it is almost certain we are going to have divided government. But you know, it doesn’t really matter for this conversation because nothing’s gonna get out of the Senate that doesn’t have bipartisan support. You can’t get to 60 [votes]. Neither party is going to have 60 after this election, just as we don’t today. So that’s number one – it’s going to have to have a reasonably broad bipartisan support.”
“Number two: what makes me excited about this – even though stablecoins are admittedly only one silo of a big discussion, it’s a really important one – think of how much confidence it’s going to give to developers in this space if they see that Congress can come together and pass a bipartisan bill that gets signed into law and provides a sensible, pro-growth framework for regulating and allowing innovation to continue. I think that step alone will be extremely encouraging to the whole space.”
Timeline for Legislation
“The process matters and it depends on how you write the legislation and whether or not you give broad authority to the regulator to write regulation. You have to get the law right. For stablecoins, this conversation started about a year ago in the House of Representatives among a few of us talking through how you deal with asset-backed stablecoins – so those are the quiet conversations you have to have any understanding.”
“We’re close -and by close I mean this summer you will see a bipartisan bill out of the House Financial Services Committee on asset-backed stablecoins – that will start the process. Now, if we move and we have a broad agreement on this – and the Chair prioritizes it – you can see that reported out of committee and voted on the House floor before the election. At which point it gives us a November-December conversation with the Senate along with the government funding bill. And if we can come to an understanding on that legislation – (motioning to the Senators) please step in on the Senate side – that’s a pretty fast clip from a bill introduced to it potentially being signed into law before the end of the year.”
“For next year, as chair of the House Financial Services Committee, we will report out our first piece of legislation in the first six months of next year. And across next year, we’ll put out multiple pieces of legislation. The question then is when can the Senate have the disposition to engage with the House on a House-passed bill.”
“Now, this is not ‘I’m a bill on Capitol Hill‘ – it’s a little more complicated these days to do that. But I’ve got on the stage three former House members, they understand how the House works. I don’t have a clue about how the Senate works even though I’ve been studying it. But that is how we, the House, typically under the Jobs Act – which is the best synonym to what we’re dealing with here – the House originated about a dozen bills. And then the Republican House had alignment with the Democrat President on about six or seven of those bills, which we packaged up as a single bill and we sent it over to the Senate. The Senate had amendments and changes to it, so it came back to the House. We agreed to it. And it went to the President’s desk. That took from introduction to signing a law eight months -and the year of 2011 to 2012. That’s a pretty fast clip. You could see something like that on digital assets, but that means that the the drive for wide bipartisan support has to be primary on the front end in the House and likewise teamed up with our Senate colleagues.”
“If we pass a bill out of the house, that is Republicans only or Democrats only – I’m interested in what my Senate colleagues say – but they’re not as interested in fighting that fight from what we’ve all seen, because of what [Senator Toomey] said: 60 votes. And so this undertaking between [Senator Gillibrand and Senator Lummis] is this really welcome thing – there is space for legislative outcomes in the digital asset ecosystem that can get through a very complicated legislative body. I think it’s such a welcome and good thing.”
“I would just add that it’s a very ambitious timeline, believe it or not, by congressional standards to get this done by the end of the year – actually, is extremely ambitious. But the reason that I still think it’s possible, is partly because we’re going to have a champion and this lady right here (gesturing to Senator Gillibrand), when she puts her mind to something let me tell you, she is a force of nature. Really.”
“And Senator Schumer, her colleague from her state, who controls the Senate floor, he’s going to give time [on the Senate floor to the legislation for an opportunity to pass it with] Senator Gillibrand’s support for the legislation or a variation on the legislation. And then the Administration – that I think increasingly sees an urgency here – along with very broad support among Republicans because so many of us are very enthusiastic about the innovation happening in the space. That’s the dynamic that I think could get us across the goal line.”
“(…) So for the people in this room you can help determine how quickly this takes. If you are urgent and you are eager to participate, you have to get involved in your local states and let your representatives know how important it is that you want safety and soundness, transparency and accountability because you want this industry to thrive in America, you can be heard on it. So urging effort now can be achieved through your actions and through your voices and through speaking out. That’s how we get anything done quickly, when it’s an issue of important significance for the economy – or for really any reason – you can make it happen. You just have to push and you have to ask.”
“When there’s a legislative framework that’s laid out there that says, ‘This is the basic direction that we’re going to go’ even the regulators can start looking at it and begin to regulate in a manner that would be complementary to a legislative framework, even though that framework has not yet passed.”
“I would also say, ‘Look, that that’s part of our job to have the legislation sufficiently precise and well-defined, so that they have relatively few holes to fill.’ We really should do that. We do our job right, then there’s not all that much that the regulator’s have to figure out and so it doesn’t take them as long.”
Will There Be A Digital Dollar
“In my opinion… Wholesale -yes. Retail -no.”
“I don’t have a reflexive absolute opposition to this. But, it can’t be retail accounts. The Fed can’t have any ability to surveil individual transactions or activity.”
“You would have open source code so developers can build on it. But I think the best case scenario is it would take five years for this to come about. In the meantime, a thoroughly flourishing, innovative stablecoin marketplace, probably obviates the need for a CBDC.”
“Why not try to get the other regulated regulation up and running so you give stability to the rest of the market before you decide that (Digital Dollar or CBDC). That decision doesn’t need to be made today. All these other ones really do. People want to get regulation there. They’re asking regulators to regulate them and not reset receiving any replies. They’re waiting up to a year to get a response. It’s too much.”
“And then different state regulatory agencies, unfortunately, are having to take all of the responsibility and they don’t have the resources and staff. In New York state, (..) the regulator doesn’t have enough staff to get timely responses for people who want to register. The federal government has to do its job. And so we are obligated to get this done as quickly and as best we possibly can. Because otherwise you’re putting too much pressure on state regulatory agencies. And there’s whole parts of the market that are asking for regulation and they’re still waiting for it. It’s frustrating. People can’t do business. And so that’s why it’s important that we do our job.”
“Regulating by enforcement action is no way to go. People have to understand the rules of the road.”
On The Division of Regulation: States vs Federal
“New York State has some of the highest regulation on every issue you want to talk about whether it’s healthcare, environment, financial services. Our state and federal work hand in glove. But, a lot of our state regulators need federal oversight so that they can take some of the burden of all the work they’re doing for safety and soundness. It’s just you have to work hand in glove. (…) Certain industries are regulated by the state only – things like insurance. But for securities and commodities, those are [overseen by] federal regulators and we have to do the work to get that created.”
On Chair Gensler, The SEC and The Bill
“We’ve stayed in touch with the CFTC, the OCC, the White House. We’ve stayed in touch with senators, members of both parties and the industry because all of these players need to interact. So we don’t want to ignore anyone.
“The SEC is looking at it. Gary Gensler hasn’t read the bill, but he will now because finally it’s filed. He’s not looking at an iteration of the bill. He’s looking at the filed copy that now we can really respond to with some certainty about what we’ll be going forward with.
“I’m optimistic that we use the best definition we could possibly find to separate what is a security versus what is a commodity. And because of that, the regulators that are going to be the primary primary players in this, will have an opportunity to go through and look at the portfolio of cryptocurrencies from the biggest ones – Bitcoin and Ethereum – to the very smallest new ones.”
“And the new ones are almost always assuredly securities because they’re being offered initially as as an offering. So they’ll be able to look at these and see if the definition that we have proposed is going to make their jobs doable and appropriate. And if they find they won’t, hopefully, they’ll come up with a better definition. I think that it is our job as Congress to set the stage, set the tone, set the direction and for the regulators to take their cues from us, not the other way around.”
“I just want to pause and say it’s not obvious to me that an ICO is necessarily a security. It’s very reasonable in my mind to consider that a separate and distinct category. It might be necessary to have some kind of regulatory framework on it, but what I disagree strongly with Gary Gensler on is his position that – with the possible exception of Bitcoin – everything’s a security. Well, just think of the chilling effect that has. A developer goes to bed at night not knowing whether there’s going to be a knock at the door in the morning because the implication is he’s engaged in an illegal securities offering. So I think clarity on that is absolutely essential – after we get stablecoins done.”
On The SEC Requiring Coinbase Disclaimer on Digital Assets
“(A staffer) bulletin should not be regulatory enforcement. It’s the most insane thing I’ve seen the SEC do in a long, long time. All the financial regulators should agree on a framework for holding digital assets and they’re not doing their job. So Congress wants to step in and legislate to protect these assets like we protect every other commodity, security and every other property right we have in the American economy. But what they’re doing is going willfully counter to property rights and ownership rights in our American system of government. We have to fix it. We have to be very clear that these assets can be held by these platforms or exchanges, just like Vanguard holds a one share of Apple for one of their clients.”